The Inverse Relationship: Fund Performance And Its Turnover & Expense Ratio

1286 words - 6 pages

The Inverse Relationship: Fund Performance and its Turnover & Expense Ratio

When investors are seeking diversified investment options with low initial investment requirements, many investors may find themselves delving into mutual funds. Often times, mutual funds can provide low cost, low maintenance options for everyday investors. The funds that an investor may choose are often professionally managed. The Prudential Jennison Health Sciences fund looks to offer investors a moderate return, with both a high turnover and expense ratio. Overall, this mutual fund does not seem like an ideal investment.

During this day and age, it might be safe to say that a majority of ...view middle of the document...

97). Those investors who are seeking a high return may very well be attracted to this fund as a solid investment option for their portfolio. Zacks Investment Research reports that this particular fund has returned almost fifty six percent over the last one year period (2014, p.1). Also, over a three year period, this mutual fund has had a return of over thirty six percent (Ghosh, p.1). According to Yahoo! Finance and Morning Star, this Prudential Jennison fund has a year-to-date return of 7.13 % compared to the health care industry year-to-date return of -1.05%. Currently, the mutual fund has an expense ratio of 1.18%, a 12b-1 fee of .30%, a front load charge of 5.50%, and a turnover of 54% (2014, Yahoo! Finance, p. 1).
Regardless of the investment choice, one of the first things that should be considered is the fees that may be associated with any given purchase. The fee structure of a mutual fund is very important, as it can affect the return that an investor may receive. In Mutual Fund Performance, the author clearly states his position on the importance of fee consideration when investing. He suggests that the expense ratio and an investor’s return are inversely related—the lower the expense ratio for a particular fund, the better results that will be gained by stockholders (Bogle, 2014, p. 14). Of course, the fees that are associated with an investment are not the determining factor, but are heavily weighted from a personal standpoint. The Prudential Jennison Health Sciences fund is a front load fund that also utilizes a 12b-1 fee structure, as well as a .75 % management fee. In essence, this fund will reduce an investor's return three times due to fees that other funds may not have.
Another metric to consider when determining whether to purchase a mutual fund is the manner in which the fund is managed. Bodie, Kane, & Marcus state that "the fraction of the portfolio that is 'replaced' each year" describes an investment's turnover measure (2014, p. 103). Essentially, if a mutual fund manager is actively managing the portfolio, he or she is purchasing and redeeming shares on a more frequent basis than one who is passively managing a fund. This active management will ultimately lead to a higher turnover ratio. A higher turnover ratio, coupled with a high expense ratio can adversely affect any gains that an investor might realize. In The Arithmetic of "All-In" Investment Expenses, author John Bogle suggests this higher turnover also presents an inverse relationship with performance. On page fifteen he states that a "high turnover is negatively correlated with fund performance" (2014). If one really thinks about this statement he or she should quickly begin to understand that a fund's performance and return may steadily diminish as its turnover increases. Given this, an investor...

Other Papers Like The Inverse Relationship: Fund Performance and Its Turnover & Expense Ratio

Analyze The Relationship Of The Literature To Its Societal Influences: Langston Hughes And Many Others

3985 words - 16 pages Section A: Analyze the relationship of the literature to its societal influences.In the Caribbean, Jamaica Kincaid's "Girl" is a short story about how it was to be a girl growing up in Antigua. This short piece is one of Kincaid's best representatives of the theme of a young woman's relationship with an older female relative, and of gender roles. Kincaid chooses to write her story in a very detailed, chronological, and unique way so the impact

A Critique Evaluation of the Relationship Between Human Resource Practice and Firm Performance: an Empirical Assessment of Firms in Malaysia

1078 words - 5 pages A Critique Evaluation of The Relationship Between Human Resource Practice and Firm Performance: An Empirical Assessment of Firms in Malaysia With the development of Economy around Malaysia develop fast, Malaysia found that many countries categorized as new power. In order to improve the economy in Malaysia like these countries, a research came out to analyze HRM in Malaysia( Osman et al.,2011). Osman et al.’s research aim to examine HR

Case Study Unit 5: the Treadway Tire Company: Job Dissatisfaction and High Turnover at the Lima Tire Plant

1280 words - 6 pages Case Study Unit 5: The Treadway tire company: Job dissatisfaction and high turnover at the Lima tire plant Strategic Human Resources Management April 20, 2014 Case Study Unit 5: The Treadway tire company: Job dissatisfaction and high turnover at the Lima tire plant Case Study Unit 5: Prepare a case analysis on the topic of Traditional versus Strategic HRM and Its Effectiveness for Organizational Success. Case Analysis Criteria: Your Case

Relationship Betweeen The Individual And The Community

2417 words - 10 pages How does George Eliot represent the relationship between the individual and community in Silas Marner? George Eliot represents the relationship between the individual and the community in the novel Silas Marner (1861). Written in the Victorian era, Eliot sets this novel within the Regency era, early 19th century. This period was characterized by the influence of the French revolution, crowning of the Prince Regent after the confirmed insanity

Analyze the Performance of Metcash and Woolworths

2488 words - 10 pages | |Metcash Ltd |36.72367248 |1.918905187 | It can be concluded from the tables above that: • For Woolworths Limited, although its P/E Ratio fluctuated from 2006 to 2012 and 3 of the 7 ratios were over the average industrial P/E Ratio, the average and the variance of Woolworth Ltd P/E Ratio are still below the level of average

The Relationship Between Public and Private Schools

4090 words - 17 pages , race and ethnicity, and socioeconomic status, also played a significant role in a student’s performance. Their data seemed to suggest, however, that the differences in achievement among public schools and private schools seem to stem from variables that are not school related. According to the Wisconsin Education Association Council (WEAC), "Money Magazine" in October of 1994 reached some important conclusions in its empirical study of public and

The Relationship Between Emotions And Change

423 words - 2 pages What is the relationship between emotions and change in society and organizations? The movie “How to Change the World” presents us with two overarching themes that are displayed as being in a constant state of war with each other: structure and emotion. Greenpeace is at its very beginning and mostly just a group of people that are connected by their emotionally-driven intent to change the environment for the better. They’re not organized

The Relationship Between Supply and Demand Carve

1235 words - 5 pages . Chapter two Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand

The Relationship Between Humans and Animals

1328 words - 6 pages Imagine there is a locked room where a person, a tiger and a rabbit are. What will happen? Without doubt, the tiger is forced to eat the rabbit to live; the person is forced to fight with the tiger for survival. This is the most basic relationship between animal and animal and between human and animal, based on the rule of the jungle. As we all know, even with much stronger ability of thinking, with high IQ, people are still almost the same with

Economic Relationship Between the U.S. and China

904 words - 4 pages In 1972, under the leadership of President Richard Nixon, the United States resumed its economic relationship with the nation of China; in 1979, a bilateral trade agreement was signed by the two countries. Today, China has become one of the largest trading partners with the United States, trailing only behind Canada and Mexico. The United States benefits with this trade agreement due to the large and growing consumer market for U.S. firms and

The Relationship Between God and Human

1252 words - 6 pages The relationship between God and Human In many myths, God create the world and human beings. In Bible, God is described as the creator of the universe, rulers of the world, judge of evil and saver of human. In Genesis Chapter 1, God created the heavens and the earth. God created water, light, plants, different species and human beings in six days. God created human. People shall fear God, worship the power of God. In the relationship

Related Essays

Christianity And Its Relationship With The Environment

1242 words - 5 pages Christianity and Its Relationship with the Environment McFague (2000) defines the term environment as the surroundings or conditions in which a human being, an animal or plants lives and operates within. In the context of theology advanced by Christians, the environment refers to the world that God created and humans are part and parcel of that creation. Modern and old works on Christianity, which includes the Bible, have advanced several

Relationship Between Breakfast And Academic Performance

2838 words - 12 pages The aim of this study was to determine the relationship between breakfast and undergraduate academic performance. This study conducted based on the previous research that only concerning on school students, but little research has been done on college students. Fifty two undergraduate students from International Islamic University Malaysia were responded to and completed a web- based survey. Questionnaires in the survey were adapted from Staub

The Relationship Between The Academic Performance And The Living Accommodation Of Student Nurses

1680 words - 7 pages Name (Optional): ____________________ Age: _____ Gender: _____ Year and Section_____ LIVING ACCOMODATION The questions in this scale ask you about your feelings and thoughts about your living situation college life. Elements to be considered when evaluating your living situation include your roommate(s), your room/apartment/house itself, your neighbors/suitemates, your neighborhood or area on campus, and the general

An Analysis Of The Relationship Between Corporate Social Performance And Corporate Reputation

1140 words - 5 pages 8 7.0 Data Analysis and Presentation 8 8.0 Chapter Headings 9 9.0 Time Schedules 10 INTERIM REPORT: 1. Working Title An analysis of the relationship between corporate social performance and corporate reputation. The case of Tesco and its child education policies. 2. Background information: I chose to research in this area as I am interested in the PR area of business and the importance of