Largest mutual funds and their expenses

The table below lists the 25 largest mutual funds, their expense ratios and the total expense the shareholders in these mutual funds incur each year. The total expense the shareholders incur in a given year is dependant on the expense ratio of the fund and the total dollars invested in the fund by the shareholders. This number also reflects the amount of money the parent company earns in revenues for running that particular mutual fund.

As you can see from the table below, the largest mutual fund in United States is the American Funds Growth Fund of America with total net assets of about $85 billion dollars. This is just the A shares of this mutual fund. The table below does not account for the B, C or any other share classes this fund may have. The class ‘A’ shares alone has about $85 billion in assets. The expense ratio of this fund is 0.62%. Multiply the total assets $85 billion with 0.62% and you get about $530 million dollars. This is how much the shareholders of the Growth Fund of America pay the American Funds to run the fund operations. This also means that the American Funds also gets $530 million dollars a year to manager other people’s money.

The Vanguard group normally has the lowest expense ratios for their funds because of the Vanguard’s unique ownership structure. You could say that the shareholders of the Vanguard funds collectively own the Vanguard group. The largest mutual fund from the Vanguard group that made the list is the 500 index fund, which has a paltry 0.18% expense ratio. The shareholders pay only about $102 million in expenses for their collective $57 billion invested in the 500 index fund. I have recently noticed that the Vanguard mutual fund expense ratios have gone down even some more.

posted by Moneywise, on Tuesday, March 25, 2008 at 10:07 PM | 0 comments

10-year index fund returns

The table below lists the 10-year performance as of 2/29/2008 of all the Vanguard index funds where 10-year performance data is available. I have included all bond index funds, a balanced funds and a bunch of international funds along with domestic index funds.

The table is sorted by the 10-year performance in the descending order. The best performing index fund for the last 10-years is listed at the top of the table and worst performing index fund is listed at the bottom of the table. As you can see from the table that the Vanguard emerging market stock index fund had the best performance record in the last 10-years, and the Vanguard growth index fund had the worst performance record in the last 10-years.

posted by Moneywise, on Saturday, March 15, 2008 at 1:25 PM | 0 comments

TIPS and zero real return

I have a habit of checking Pimco’s website regularly to find out what is going on in the bond market. The homepage of Pimco for US lists the yields of US treasuries of various maturities, and TIPS yield of various maturities. There is an image of the current yield curve also on that page. All these information gives me a quick glance into the bond market.

I saw that the Vanguard inflation protection bond fund’s price rose above $13 and YTD performance is up 5% and it is only March 1, 2008. This made me about curious what was going on in the TIPS market. So, I went to Pimco’s website to check what is going on.

And when I saw the yield on the 5-year TIPS, I almost fell out of my chair. I could not believe what I was seeing. The 5-year TIPS are trading at 0% yield. So, this means that the investors in the 5-year TIPS are accepting government reported inflation numbers as their future return. This makes the real return of 5-year TIPS at 0% in a retirement account.

The real return in the taxable account would be negative because investors will have to pay taxes on the income they get from these TIPS. There you have it: TIPS are providing negative real return. I never thought I will ever see this kind of market action in TIPS.

I am attaching a cropped screenshot of the Pimco’s page as reference below.

posted by Moneywise, on Sunday, March 02, 2008 at 12:08 AM | 1 comments

Performance of SPDRs since 2003

Above chart lists the performance of the sector SPDRs from 1/1/2003 to up until today. The table only shows the price performance, it does not include dividends or capital gains.

As you can see from the table below, the financial sector has been the worst performing sector since 2003. The 3 best sectors since 2003 were Energy, Utilities and Materials. When I was running the numbers for this post and was calculating the performance, I got a good chuckle out after seeing the final numbers. I can distinctly remember the investment environment of the late 2002 and early 2003. It was the time of deflation scare. When you have deflation, you precisely don’t invest in Energy, Utilities and Materials! Don’t you? You probably invest in Financials! Isn’t that the common wisdom? Isn’t that the general consensus? In the hindsight, it looks like that 2003 was indeed a great time to buy Energy, Utilities and Materials and avoid financials. It is amazing to see how consensus was absolutely wrong in 2003.

Now, lets talk about investment environment today. Is consumer dead since housing has collapsed? Are financials dead since credit bubble has popped? Are healthcare stocks dead because Democrats are looking to control both houses and white house? Are Energy and Materials a great place to be because of the global growth story?

We shall see in 2012.

posted by Moneywise, on Monday, February 18, 2008 at 12:13 AM | 0 comments

Sector allocation of index funds

The following table lists the sector allocation of 3 Vanguard index funds as of 12/31/2007; Vanguard total stock market index fund, Vanguard growth index fund and Vanguard value index fund.

The Vanguard total stock market index follows MSCI US broad market index, the Vanguard growth index fund follows MSCI US prime market growth index, and the Vanguard value index fund mimics MSCI prime market value index.

posted by Moneywise, on Thursday, February 07, 2008 at 10:03 PM | 0 comments

Recessions and mass layoffs

Whenever a recession approaches, mass layoffs increase by a lot in the economy. I found following data on the bureau of labor department’s website regarding mass layoff events. The table below lists the number of mass layoff events since the year 1996 as reported by BLS. As you can see from the table that even in the economic growth years mass layoff events range around 15k to 16k a year. In a recession, one we had in 2001, the mass layoff events spiked to around 21k. The years after a recession also saw a higher number of layoff events. The year 2002 had about 20k mass layoffs and year 2003 had almost 19k mass layoffs in the economy.

With today’s job numbers showing, 17,000 job losses for the month of January 2008, we should keep any eye on the mass layoff numbers from the BLS. A spike in mass layoffs, if it occurs, may be a sign of a recession.

posted by Moneywise, on Saturday, February 02, 2008 at 12:13 AM | 0 comments

Cumulative returns of index funds

The 3-year cumulative returns for some Vanguard index funds are listed below in the table. The cumulative returns are as of 12/31/2007, so the returns include calendar year 2005, 2006 and 2007.

These returns show that the large cap segment of the market is starting to outperform now and it is showing up in the numbers. The small value segment that has been outperforming the overall market last few years is showing the signs of slowing down and actually underperforming the overall market for last 3 years.

This reminds me of a forum which I frequently read. In this forum in the last couple of years I saw a lot of posts saying how posters were overweighing small value segment of the market in their portfolios. In the hindsight, now I think that these posters were just performance chasing. I just hope that these posters don’t abandon the small value tilt a couple of years from now and move money into some large cap index at that time. In the hindsight it looks like that the in the last 3 years or so there was ample opportunities for the investors to dollar cost average into a larger cap index fund. Instead investors were looking at enormous backward looking returns for the small value segment and pouring money into it.

posted by Moneywise, on Sunday, January 13, 2008 at 5:29 PM | 1 comments

Cost of owning a car

I am thinking about buying a new car for myself. This time around, fuel efficiency is the highest priority for me. I want my new car to give me at least 30 miles per gallon of gas in this $100 per barrel oil price environment. No, I am not going for a hybrid or ultra-compact car; but I am thinking about buying a Honda Accord, Toyota Camry or Nissan Altima. The 4-cylinder models for these cars give more than 30 miles per gallon.

In this post, I want to calculate the total cost of car ownership for me if I go ahead and purchase a vehicle right now. Now, I am a kind of person who buys a car and drives that car until it dies. I am thinking that all the models listed above will be with me until the odometer will say at least 200,000.

1. Cost. The car will cost me about $20,000. I will finance about $15,000, and pay $5,000 down payment. On the $15,000 loan, lets say that I will pay about $2,000 in interest. So, the total cost of car will be $20,000 + $2,000 = $22,000.

2. Gas. I usually drive around 20,000 miles per year. Since I am thinking that my car will be with me until it has 200,000 miles on it, I can say that I will be driving this car for 10 years. Lets suppose that this car will give me 30 miles per gallon. Now, divide 200,000 miles with 30 miles per gallon and this gives me 6,666 gallons of gas this car will use during the 10 years I will drive it. Lets also assume that I will pay on average about $3 per gallon of gas over these 10 years. My total spending on gas will be 6,666 * $3 = $20,000. (I am rounding the numbers here). As you can see, I will almost spend as much as a car costs on gasoline in the next 10 years.

3. Oil changes. Lets say I will get oil changes done every 4,000 miles. Divide 200,000 by 4,000 and this gives me 50 oil changes that I will have to get done over the 200,000 miles. Today, an oil change at Jiffy Lube costs me about $30. I will assume that on average over the next 10 years each oil change will cost me about $35. Multiply $35 by number of oil changes (50) and I get $1,750.

4. Insurance. My insurance is about $400 every 6 months as of now. Lets say that I will pay on average about $500 every 6 months and $1,000 every year on car insurance. So, the insurance will cost me $10,000 over the 10 year time period.

5. 30k services. I will get the 30k maintenance services done at 30k, 90k, and 150k miles on the odometer. Let's suppose each of these services will cost me about $500 (If I am lucky, otherwise it will cost a lot more). So, the 30k services will cost me about $1,500.

6. 60k services. I will get 60k services done at 60k and 120k. I will skip the 180k service and not spend money on it because 180k is too close to 200k and I will not spend too much money on a car with that many miles on it. Lets say each 60k service will cost me about $1,000 (again, if I am lucky). So, the two 60k services will cost me about $2,000.

7. Tires. Tires are expensive. 4 tires at places like Sears or NTB costs about $500 for a car like Accord, Camry or Altima. Lets say that I will get new tires at 70k and 140k miles. The total cost for the tires will be $1,000.

8. Repairs. I am thinking that additional miscellaneous repair costs will run about $2,000 over the life of this car. This could be more or less. But, I am thinking it will be more.

Lets sum it all up and see how much damage this car will do to my pocketbook.
1. Cost. $22,000.
2. Gas. $20,000.
3. Oil changes. $1,750.
4. Insurance. $10,000.
5. 30k services. $1,500.
6. 60k services. $2,000.
7. Tires. $1,000.
8. Repairs. $2,000.

I add it all up and the total comes to: $60,250.

This new car will cost me $60,250 over the next 10 years. Ouch! I will drive 200,000 miles. So, per mile cost will be $60,250/200,000 = $0.30. 30 cents per mile.

My overall tax rate is around 30%. I am in the 25% federal tax bracket and my state and local taxes are about 7%. But I don't pay 25% federal tax on all of my income. Some of my income is taxed at 10% and then 15% before I get hit at 25%.

Here is the last but I think the most important part of the calculation. What will I have to earn over the next 10 years to pay $60,250 after tax expenses for my car? The answer is: I will have to earn about $86,100 in gross income before taxes to get $60,250 in after tax income. I will get $60,250 after I pay 30% in taxes on my $86,100 gross income.

After spending $86,100 of my gross income on this car over the next 10 year what I will get in the end? Nothing. The value of this car at the end of 10 years will probably be zero or very close to zero.

The supposedly affordable midsize 4-cyle sedan all of a sudden is not looking too affordable to me. This will be very expensive.

posted by Moneywise, on Saturday, January 05, 2008 at 12:20 AM | 10 comments

Pictures of Mania: Nasdaq and Homebuilders

Chart of homebuilder KB Home (KBH):

Chart of homebuilder D R Horton (DHI):

Chart of homebuilder Ryland Group (RYL):

Chart of homebuilder Lennar Corporation (LEN):

Chart of homebuilder Pulte Homes (PHM):

Chart of homebuilder Centex Corporation (CTX):

Compare all these homebuilder stocks to Nasdaq:

posted by Moneywise, on Wednesday, October 10, 2007 at 2:52 PM | 1 comments

Stocks as Income Investments

SPY is an ETF type investment that tracks S&P 500 index. The current yield of SPY as of 7/17/2007 is 1.69%. I believe, SPY was one of the earliest ETFs ever created and it has been trading since the 1993-94 timeframe. In this post, I want to calculate the current yield of the SPY based on the time it was purchased by an investor since 1994.

Since current yield of SPY is 1.69% and current price of 1-share of SPY is $154.75, the yearly dividend this 1-share will pay is $2.62. $154.75 * 1.69% = $2.62. You can calculate this with me (to double check).

Now, lets go back to 1994 and from Yahoo historical quotes section I see that on 1/1/1994 the closing price of SPY was at $46.59. Lets say you bought 1-share of SPY at that time at $46.59. The price of that 1-share has increased to 154.75 today and this 1-share gives you $2.62 in dividends.

Here is a good question. What is your yield today?

You say, what do you mean? The yield of SPY is 1.69% today and it is my yield.

Yes, the current yield of SPY is 1.69% but it is based on its current price. But, since you purchased the SPY at $46.59 and you are getting $2.62 in dividend based on your cost-basis of $46.59; you current yield is 5.62%.

($2.62 / $46.59) * 100 = 5.62

Yes, your current yield is 5.62%. (You can double-check my calculations)

Now tell me how nice is this. Your 1994 investment in a plain-vanilla index ETF is paying you about the same as 10-year treasury . Actually, it pays a few basis points better than the 10-year treasury. If you are a long-term investor and want to hold onto your investment during rocky market condition, this type of thinking makes it easy for you to hold onto your investments.

In the table below, I have calculated the yield of the hypothetical investment made on the first day of every year since 1994. (You can double-check my calculations).

posted by Moneywise, on Tuesday, July 17, 2007 at 10:53 PM | 1 comments

Median and Average House Prices in USA Since 2000

In one of my earlier posts I outlined the median house price in United States for last 40+ years and calculated that the median house price has been rising at 6% annually for the last 40+ years.

In this post I present you a table starting with January of 2000 to up until now, which lists the median house prices and average house prices in United States month after month.

As you can see from the table below, the median house price was at $163,500 in the month of January 2000. The median house price in April 2007, the last month for which the data is available, was at $229,100. The median house prices grew 40% from January 2000 to April of 2007.

The average house price in January of 2000 was at $200,300 and in April of 2007 the average house price stood at $299,100. The average house prices grew about 50% from January 2000 to April of 2007.

One important thing to notice from the table below is the house prices changes from March into April of every year. You can see the big the drop from March 2007 into April 2007; compare this to the other years. In other years, except 2000, the prices generally rose in April.

Median house price changes from March into April:

March 2000 ($165,100) to April 2000 ($162,600)

March 2001 ($166,300) to April 2001 ($175,200)

March 2002 ($183,400) to April 2002 ($187,100)

March 2003 ($185,100) to April 2003 ($189,500)

March 2004 ($209,600) to April 2004 ($222,300)

March 2005 ($229,300) to April 2005 ($236,300)

March 2006 ($238,800) to April 2006 ($257,000)

March 2007 ($257,600) to April 2007 ($229,100)

posted by Moneywise, on Tuesday, June 12, 2007 at 10:46 PM | 1 comments

S&P Index Fair Value Estimates

Reported earnings estimates are available at the Standard & Poor's website for the S&P 500 index for the year 2007 and 2008.

2007 reported earnings estimates
1st Quarter - $21.35
2nd Quarter - $23.40
3rd Quarter - $22.90
4th Quarter - $21.80
2007 total = $89.45

2008 reported earnings estimates
1st Quarter - $24.20
2nd Quarter - $24.00
3rd Quarter - $23.80
4th Quarter - $22.20
2008 total = $94.20

Historically, the average P/E ratio of the S&P 500 index has been around 15 based on the trailing 12 month reported earnings. On average people haven been willing to pay 15 times the trailing 12 month reported earnings for the broader stock market.

Based on this, the fair value of the S&P 500 index at the end of 2007 should be around 1342 (89.45*15 = 1341.75). We are currently running about 160 points ahead of the perceived fair value at the end of 2007 and the end of 2007 is still about 8 months ahead of us.

Also, the fair value of the S&P 500 index at the end of 2008 should be around 1413 (94.20*15 = 1413). We are currently running about 85 points ahead of the perceived fair value at the end of 2008 and the end of 2008 is still about 20 months ahead of us.

All disclaimers apply.

posted by Moneywise, on Saturday, May 05, 2007 at 3:42 PM | 1 comments

Dogs of the DOW

The table below lists the Dogs of the Dow Jones Industrial Average as of 4/17/2007 along with the yield of the each Dow component.

posted by Moneywise, on Tuesday, April 17, 2007 at 10:19 PM | 0 comments

Connecting Bottoms of S&P 500

There were 3 major bottoms in the S&P 500 in the last 35 years. These bottoms occured in 1974 at 63.54, in 1987 at 230.30 and in 2002 at 815.28. I am considering month-end prices instead of intra-day prices because we are looking at the history of 30+ years. Assuming that these were indeed bottoms and believing that we would not break below these (especially, 2002) bottoms again; one can start to do some analysis and project where the future bottoms may be found.

Before we start doing any analysis of the numbers, I would like to point out that all 3 major month-end bottoms occurred in month of September and November. So, September 1974, November 1987 and September 2002 had prices listed above for the S&P 500 index.

Let's start our analysis. I want to know which rate of return connects bottoms of 1974 and 1987. That is, if someone bought S&P 500 index at the 1974 bottom of 63.54 and sold the investment at 230.3 in 1987, what would be the price performance of this investment excluding the dividends? The answer is approximately 10.5%. See the table below.

Let's connect the bottoms of 1987 and 2002 with a rate of return. If someone bought S&P 500 index at the 1987 bottom of 230.30 and sold it at the 2002 bottom of 815.28, what would be the price performance of this investment excluding the dividends? The answer is approximately 8.7%. See the table below.

Since the price of S&P 500 index over the long period of time rises by the average GDP + average inflation over that long period, I am assuming that S&P 500 index will rise by 6% in the future. (3% future GDP + 3% future inflation). With this assumption in place, one could see that the 2002 bottom would also move forward at the rate of 6% in the future. This progress at 6% is also calculated in the table below. So, based on this calculation if we were to hit real hard bottom in 2007, the S&P 500 would decline to about 1100, which is somewhere around 20% below today's level.

Notes:

• Table lists estimated bottoms for the S&P 500 price for all years except years 1974, 1987 and 2002.
• The prices calculated from 2007 to 2025 are estimated bottoms, if they ever occur. You are always welcome to double check my calculations and send comments to me.

Data source: Historical quotes from Yahoo finance.

posted by Moneywise, on Saturday, April 07, 2007 at 4:19 PM | 0 comments