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Would not surprise me, turnover rate of 454% as reported by M*. But M* has not yet caught up with the actual expense ratio. It's blank on the profile page.
No it is not correct. I've seen a number of funds having wrong ER listed at Fidelity.
For this particular fund, if you check filings at M* and read Summary Prospectus you find it is 1.25% for retail shares after 1.40% expense waiver. Fidelity is not incorporating the expense waiver in effect and reporting the ER as 2.65%
Fidelity reports: - Expense ratio: 2.65% (10/25/2010) - Expense ratio after reductions: 1.25%
What it doesn't say is that the expense waiver can be withdrawn on 90 days notice by a majority of the independent board members, and that the management can get reimbursed up to three years after a waiver (so long as the fund's expenses don't exceed any annual limit in place at the time of reimbursement).
Turnover, according to the latest (and only) semiannual report (March 31) is 295% (prospectus says that 250% is to be expected due to the nature of the fund). Trading expenses are never included in annual expense ratio, so the true expenses are likely much higher than the 1.25% (after waiver) or 2.65% (pre-waiver).
Reply to @msf: On the summary tab Fidelity reports 2.65%. On the Fees tab they actually reveal the effective ER after waivers. I think they really should report the current net ER (after waivers) Currently, Summary tab is misleading.
The turnover stat is misleading. The fund buys bonds which are set to be redeemed and generally holds them to redemption. The fact that they've got securities with 30-90 day lifespans boosts apparent turnover. You'll see the same thing with money market funds. Trading expenses should be relatively low.
I'll ask the manager to see if there's an updated e.r., given strong inflows.
Reply to @David_Snowball: David, it's not quite that simple. On a technical matter, bonds that mature are not counted in calculating turnover. This is, however, a distinction without a difference, because most bond funds are effectively required to sell off bonds as they approach maturity. This is most obvious in long term bond funds that are required to hold long term bonds. As those bonds age and become intermediate term bonds, they must be sold off. So technically, it isn't a matter of the bonds reaching maturity (which wouldn't count for turnover), but bonds getting too close to maturity.
This particular fund is supposed to maintain a dollar-weighted average maturity under three years (but may buy up to 25% of its portfolio in longer maturity bonds). So let's say for the sake of argument that it buys bonds with around three years of maturity and dumps them when they dip to one year left. That would account for a 50% turnover ratio. Five times that rate (250%+ turnover) means that they're "voluntarily" trading bonds twice a year (200% extra turnover).
To see that a high turnover ratio is not compelled by the nature of a short term bond fund, all you have to do is find short term bond funds with low turnovers (i.e. existence proof). M* reports 45 distinct short term bond funds with turnovers under 50% (e.g. Weitz Short-Intermediate) , out of a category total of 106 distinct funds. The median turnover of funds in the category is 56% (once we ignore the two funds w/o turnover ratios).
High turnover is not a necessary attribute of bond funds, even short term bond funds.
Thank you again for your recent posts and the technical aspects you detail and define. Kinda like many of us here know about using a 4 speed manual transmission; but we always don't get the time or have the attitude or appitude to be concerned with or wonder what is actually going on inside that transmission as we push in the clutch and move the shifter.
Back in me younger days, driving a most powerful vehicle around the streets; I appreciated and took full advantage of a fully synchronized, close ratio, 4 speed manual transmission to link the power of the motor to the rear wheels, in order to move along at a most rapid pace. With enough familarity in such a vehicle, one could; with some success, learn how to power shift (bypassing the clutch function) to move to the next gear. I, unlike a few friends; never needed to or had the time to pull all of those pieces out of that transmission for a fix or just a look. I was strictly a user of the device.
Thanks for helping us know more about the insides, and functions of funds.
Comments
For this particular fund, if you check filings at M* and read Summary Prospectus you find it is 1.25% for retail shares after 1.40% expense waiver. Fidelity is not incorporating the expense waiver in effect and reporting the ER as 2.65%
- Expense ratio: 2.65% (10/25/2010)
- Expense ratio after reductions: 1.25%
What it doesn't say is that the expense waiver can be withdrawn on 90 days notice by a majority of the independent board members, and that the management can get reimbursed up to three years after a waiver (so long as the fund's expenses don't exceed any annual limit in place at the time of reimbursement).
Turnover, according to the latest (and only) semiannual report (March 31) is 295% (prospectus says that 250% is to be expected due to the nature of the fund). Trading expenses are never included in annual expense ratio, so the true expenses are likely much higher than the 1.25% (after waiver) or 2.65% (pre-waiver).
The turnover stat is misleading. The fund buys bonds which are set to be redeemed and generally holds them to redemption. The fact that they've got securities with 30-90 day lifespans boosts apparent turnover. You'll see the same thing with money market funds. Trading expenses should be relatively low.
I'll ask the manager to see if there's an updated e.r., given strong inflows.
David
David, it's not quite that simple. On a technical matter, bonds that mature are not counted in calculating turnover. This is, however, a distinction without a difference, because most bond funds are effectively required to sell off bonds as they approach maturity. This is most obvious in long term bond funds that are required to hold long term bonds. As those bonds age and become intermediate term bonds, they must be sold off. So technically, it isn't a matter of the bonds reaching maturity (which wouldn't count for turnover), but bonds getting too close to maturity.
This particular fund is supposed to maintain a dollar-weighted average maturity under three years (but may buy up to 25% of its portfolio in longer maturity bonds). So let's say for the sake of argument that it buys bonds with around three years of maturity and dumps them when they dip to one year left. That would account for a 50% turnover ratio. Five times that rate (250%+ turnover) means that they're "voluntarily" trading bonds twice a year (200% extra turnover).
To see that a high turnover ratio is not compelled by the nature of a short term bond fund, all you have to do is find short term bond funds with low turnovers (i.e. existence proof). M* reports 45 distinct short term bond funds with turnovers under 50% (e.g. Weitz Short-Intermediate) , out of a category total of 106 distinct funds. The median turnover of funds in the category is 56% (once we ignore the two funds w/o turnover ratios).
High turnover is not a necessary attribute of bond funds, even short term bond funds.
Thank you again for your recent posts and the technical aspects you detail and define. Kinda like many of us here know about using a 4 speed manual transmission; but we always don't get the time or have the attitude or appitude to be concerned with or wonder what is actually going on inside that transmission as we push in the clutch and move the shifter.
Back in me younger days, driving a most powerful vehicle around the streets; I appreciated and took full advantage of a fully synchronized, close ratio, 4 speed manual transmission to link the power of the motor to the rear wheels, in order to move along at a most rapid pace. With enough familarity in such a vehicle, one could; with some success, learn how to power shift (bypassing the clutch function) to move to the next gear. I, unlike a few friends; never needed to or had the time to pull all of those pieces out of that transmission for a fix or just a look. I was strictly a user of the device.
Thanks for helping us know more about the insides, and functions of funds.
Regards,
Catch
Prinx