Fund fees not always what they seem

Investors increasingly compare fund expenses when they make an investment decision, and that's a good idea, according to Joseph C. Feldmann, senior portfolio manager at WNA Wealth Advisors Inc. But sometimes just comparing expenses isn't enough, according to Mr. Feldman. For example, master-limited-partnership funds are now including their deferred tax expense in their disclosed expense ratios, which can make their fund expenses look unreasonably high, he said. However, The MLP “funds” are taxed as C corporations and are required to accrue for taxes owed, and the expense ratio reflects that accrual for taxes. Some long/short or absolute-return funds have expense ratios that look high but reflect reasonable margin costs for hedging their portfolios. Mutual fund expenses also can look lower than they really are, Mr. Feldman wrote in an e-mail. Many funds have management fees that are higher in the prospectus than actual current expenses because the fund is waiving a portion of the fees. But some waivers are temporary, so an investor assuming that the waiver will continue may be disappointed when it doesn't. The bottom line? Compare expenses, but make sure you know what you are comparing and what the fees represent.