Are retail S&P 500 index funds a financial commodity?
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DOI:
https://doi.org/10.61190/fsr.v15i2.4848Keywords:
Portfolio performance measurement, Expense ratios, Retail index funds, Mutual fundsAbstract
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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