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Tuesday, May 01, 2012

Bloomberg Attacks Front-End Loads

News summary by MFWire's editors

Even as front-end load-based mutual funds lose market share, they're losing popularity with Bloomberg. Ben Steverman writes that putting your money in front-loaded mutual fund is "like paying a lifetime's rent for a place you might live for only a few years."

The pub notes that, according to Investment Company Institute (ICI) data, $110 billion net flowed out of front-loaded mutual funds last year, while $24 billion net flowed into no-load mutual funds.

Bloomberg cites American Funds' $130-billion Growth Fund of America as an example. The load shares cost 575 basis points up front and 68 bps per year, while the no-load shares cost 146 bps, meaning that the load shares are cheaper after eight years.

The pub cites A Random Walk Down Wall Street author Burton Malkiel's staunch opposition to front-loaded mutual funds. Others who weighed in include: Dan Candura, chief executive officer of PennyTree Advisers; Kevin Carroll, managing director and associate general counsel at the Securities Industry and Financial Markets Association (SIFMA); Tamar Frankel, a law professor at Boston University; Bob Grohowski, senior counsel at the ICI; Alan Palmiter, a law professor at Wake University; a 2009 study led by Harvard Business School professor Daniel Bergstresser; and data from Strategic Insight

Edited by: HFD

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