Target-risk funds: Pricier than the sum of their parts

Adding a second layer of fees is the norm.

Jeffrey Bunce, CFA 22 June, 2016 | 5:00PM
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Editor's note: In today's second installment of this week's three-part series on target-risk funds, manager research analyst Jeffrey Bunce discusses the impact of fees on investor returns. The series, which is based on a research paper released this month by Morningstar Canada's manager-research team, began on Monday and will conclude on Friday.

Simply put: Fees matter. Both Morningstar's findings and academic research indicate that fund expenses are one of the better predictors of future performance. The higher the fee, the harder it will be for a fund to outperform or achieve a return as high as a similar fund with a lower fee.

Most target-risk programs layer additional fees on top of those charged by the underlying funds they hold, resulting in a higher cost hurdle to clear.

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About Author

Jeffrey Bunce, CFA

Jeffrey Bunce, CFA  Jeffrey Bunce, CFA, is a senior investment analyst for Morningstar’s Investment Management group.

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