Are retail S&P 500 index funds a financial commodity?

Insights for investors

Authors

  • John A. Haslem Department of Finance, University of Maryland
  • H. Kent Baker Department of Finance and Real Estate, University Professor of Finance, American University, Kogod School of Business
  • David M. Smith Department of Finance, University at Albany, SUNY, School of Business and Center for Institutional Investment Management

DOI:

https://doi.org/10.61190/fsr.v15i2.4848

Keywords:

Portfolio performance measurement, Expense ratios, Retail index funds, Mutual funds

Abstract

We examine whether retail S&P 500 Index funds are a financial commodity by comparing the expense-performance relation for index versus actively managed funds. The presumed commodity- like nature of index funds suggests that price competition should be more evident than with actively managed funds. Thus, expenses should not vary widely among funds tracking the same benchmark. We find a high level of dispersion in expense ratios across retail S&P 500 Index funds. Funds with higher expenses generally underperform because of 12b-1 fees. We conclude that expenses are just as important to determining performance for index funds as they are for actively managed funds.

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Published

2006-06-30

Issue

Vol. 15 No. 2 (2006): FSR Summer 2006

Section

New Original Submission

License

Copyright (c) 2006 Academy of Financial Services

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How to Cite

Are retail S&P 500 index funds a financial commodity? Insights for investors. (2006). Financial Services Review, 15(2), 99-116. https://doi.org/10.61190/fsr.v15i2.4848