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"If you've invested or are considering investing in a stock or bond fund that has a waiver in place, that current reduction may be only temporary. In most cases there won't be any dramatic jump in expenses, but it can happen."
A few funds come to mind, where the fees doubled once the waiver was removed:
Marsico Global Fund (MGLBX) - fund started June 2007 @0.75%, and raised its cap to 1.60% January 2009 (actually began recouping some expenses under the cap, otherwise its expenses would have been 1.52%)
Marsico Flexible Capital Fund (MFCFX) - implemented a waiver June 2007 @0.75%, and raised its cap to 1.60%, above its then operating expenses of 1.49% January 2011 (but elected not to use that 0.11% window to recoup some previously waived expenses)
Fidelity Spartan Int'l Index (FSIIX) - implemented a waiver Oct 2005 @ 0.10% that it removed Feb 1, 2012 allowing expenses to rise to 0.20%.
My takeaway is: - if a waiver seems too good to be true (i.e. it is reducing ER well below what a fully functional fund with adequate assets would be charging), it likely is; and - consider such funds only for tax-sheltered accounts where you won't be hit by a tax bill if you want to bail once the waiver is reduced or vanishes
That's not to say that there aren't many small funds with waivers that will keep roughly the same ERs once they grow and their waivers are removed. Just that some of these low ERs aren't going to last.
Remember a time when one would think about whether one wanted to be in a tax-free MM fund or taxable! Seems like another world altogether when MM funds generated interest worth worrying about.
Now, it is just a parking place for currently uninvested cash that is assumed to earn nothing. I don't even bother with CDs or trying to ladder them to extract that additional .1%. The annual gains from that is far less than the daily portfolio movements to think it makes a difference.
Comments
A few funds come to mind, where the fees doubled once the waiver was removed:
Marsico Global Fund (MGLBX) - fund started June 2007 @0.75%, and raised its cap to 1.60% January 2009 (actually began recouping some expenses under the cap, otherwise its expenses would have been 1.52%)
Marsico Flexible Capital Fund (MFCFX) - implemented a waiver June 2007 @0.75%, and raised its cap to 1.60%, above its then operating expenses of 1.49% January 2011 (but elected not to use that 0.11% window to recoup some previously waived expenses)
Fidelity Spartan Int'l Index (FSIIX) - implemented a waiver Oct 2005 @ 0.10% that it removed Feb 1, 2012 allowing expenses to rise to 0.20%.
My takeaway is:
- if a waiver seems too good to be true (i.e. it is reducing ER well below what a fully functional fund with adequate assets would be charging), it likely is; and
- consider such funds only for tax-sheltered accounts where you won't be hit by a tax bill if you want to bail once the waiver is reduced or vanishes
That's not to say that there aren't many small funds with waivers that will keep roughly the same ERs once they grow and their waivers are removed. Just that some of these low ERs aren't going to last.
Now, it is just a parking place for currently uninvested cash that is assumed to earn nothing. I don't even bother with CDs or trying to ladder them to extract that additional .1%. The annual gains from that is far less than the daily portfolio movements to think it makes a difference.