Risk And Significance Of Fund Management Fees

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Two funds were chosen in order to determine the performance of each investment by observing the risk and significance of fund management fees. In order to achieve the highest level of accuracy possible, the two funds were chosen in the same sector of the market and of equal size and investment strategy. One fund chosen was an open-ended actively managed mutual fund, and the other a close-ended passively managed exchange traded fund. The mutual fund selected was Rydex Consumer Products C (RYCPX). According to the Morningstar Style Box, RYCPX is a large fund containing assets of $296.03 million in securities of consumer products companies and has a blended investment valuation. RYCPX Morningstar Style Box The fund seeks to increase its…show more content…
This assumption is held true in regards to RYCPX and XLP. XLP had three year HPR of 0.73 and a five year HPR of 1.01 compared to RYCPX’s returns of 0.64 and 0.82. The difference is largely due to the tax efficiency factor etf’s have compared to mutual funds. Both funds are subject to the same capital gains and dividend income tax treatment, however etf’s are structured in a way that it realizes a much smaller amount of capital gains. Exchange traded funds do not participate in the daily selling of securities that mutual funds do. As a result, etf’s incur a small or no capital gains yield which leads to a little or no capital gains tax. The standard deviation and Sharpe ratio are used to assess the risk each investment holds relative to the returns it expects to yield. RYCPX generated a standard deviation of 0.13 for a three year period and a standard deviation of .11 for a five year period. It also expected annual returns to be .19 for a three year period and .16 for a five year period. Therefore, future funds can be expected to annually gain between .06 and .32 for a three year period and .05 and .27 for a five year period. XLP generated a standard deviation of .08 for a three year period and .1 for a five year period. It also expected annual returns to be .21 for a three year period and .16 for a five year period.
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