Index Funds are widely known for low expenses. But do the low expenses listed by the Index Fund firms accurately reflect the complete costs investors pay?

Wintergreen says No.

Index Fund investors simply don’t see the full costs they’re paying.

 

The underlying securities of the BlackRock, State Street and Vanguard Index Funds based on the S&P 500 Index have hidden costs that must be earned before holders receive investment returns. These “look through expenses” come from two sources: the average annual dilution of company shares issued in executive compensation plans, and the buyback of company shares that are used to offset this dilution.

 

Most investors are playing a dangerous game and don’t even know it.  

Visit wintergreeniceberg.com to find out more!

 

Stock market performance has been highly concentrated. If you look closely at the performance of the stock market, you’ll see that most of its recent gains have been highly concentrated in ten momentum stocks. FANG & Friends (Amazon, Microsoft, Alphabet, Facebook, Starbucks, Netflix, EBay, Salesforce, Priceline, and Apple) gained an average of 46% in 2015, while the remaining securities in the S&P 500 averaged a loss of nearly 2.4%.

WHAT YOU THINK YOU PAY People who invest in these funds believe their expenses to be small and manageable. 0.13%1
DILUTION FROM COMPENSATION PLANS The annual dilution of company shares issued for executive compensation can increase expenses an extra 2.5%. 2.5%
BUYBACKS TO OFFSET DILUTION Ongoing company share buybacks to offset dilution can increase expenses up to an additional 1.6% 1.6%
INDEX FUNDS LOOK THROUGH EXPENSES AVERAGE A TOTAL OF 4.2%

1 Average fee, based on the following index funds: Blackrock “Core”, State Street Average, and Vanguard Average. 1/1/15-4/30/2016.

Index funds have been sold as both safe and inexpensive investments. We believe they are neither.

These funds are risky due to the concentration in FANG and Friends. They’re not inexpensive due to the costs of look through expenses.