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Portfolio Construction, Transaction Costs Worth a Look as Index Fund Fees Scrape Bottom

In a recent article, Morningstar writer Ben Johnson notes the field of low- and no-fee index funds and ETFs is growing ever more crowded and that while some existing shareholders benefit in these fee wars, actual savings per year among competing funds can be negligible for newer investors. He observes that these “fee gimmicks” may be doing more to boost fund firms and their affiliated brokers than for investors.  Johnson notes that as fund fees continue to inch lower, investors might want to consider factors with “far more meaningful long-term implications for their investments than saving a buck or two on fund fees,” such as: portfolio construction, taxes and transaction fees. Johnson urges investors to consider how index construction can affect performance and cautions that in some cases, the best performing fund may have a higher fee. Taxes, transaction and other costs that are similarly less transparent but have meaningful impact on an investment -- and provide a more holistic perspective when evaluating or overseeing these funds. 

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