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I own the American Funds 2030 Target Date Retirement Fund (AAETX).

AAETX owns a collection of other funds such as New Perspective Fund (ANWPX).

Am I paying a fee for both AAETX and the underlying ANWPX?

Under fees and expenses the expense ratio seems to address this question.

Expense ratios for funds of funds are as of the most recent prospectus, and include the weighted average expenses of the underlying funds

How ever the difference between to listed fees (.1+.14+.22 = .46) and listed expense ratio is (0.85-0.46=0.39). seem way to low for the underlying fees.

Is this possible? Is my math wrong?

Fees & Expenses

Fees
Annual Management Fees  0.10%
Other Expenses  0.14%
Service 12b-1   0.22%
As of each fund's most recent prospectus.

Expense Ratio
                                             Gross  Net
Fund *                                       0.85%  0.75% 
Lipper Mixed-Asset Target 2030 Funds Average        1.07%

* Expense ratios for funds of funds are as of the most recent prospectus, and 
include the weighted average expenses of the underlying funds.
  • This is an excellent question. Welcome to Personal Finance & Money! – ChrisInEdmonton Dec 15 '14 at 19:26
  • Related question here. – Craig W Dec 16 '14 at 0:18
3

Excellent question. I researched this like mad a few months ago and found the following:

  1. Some target funds "double-dip" on fees.
  2. Most target funds do NOT double-dip and only charge the management fees of the underlying funds, not the target fund itself.
  3. The prospectus for each fund should tell you exactly how the fees are calculated.
  4. Total fees should be under 1% no matter what, and it's possible to find .5 - .75% in many target funds.

For AAETX, they do charge a .1% management fee on top of underlying fees, but there is also a .1% fee waiver to make total fees .75%. The prospectus shows that .4% is from the underlying funds fees and expenses, and the rest of the fees come from other operating expenses.

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