By Scott Ronalds

Rob Carrick’s column in today’s Globe and Mail looks at big, expensive mutual funds. He identifies the funds with the most assets under management and the highest management expense ratios (MERs). The 23 funds on his list all have more than $1 billion in assets with MERs ranging from 2.52% to 2.84%. Evidently, these funds aren’t passing any economies of scale on to unitholders (with respect to management fees and operating expenses).

An interesting observation, however, is the number of balanced funds on the list. Over 30% of the funds have some combination of stocks and bonds (or cash), with MERs as high as 2.68%. Let’s do some quick math. Assuming a fund charges an MER of 2.6% and has a traditional balanced asset mix of 60% stocks and 40% bonds, investors would be paying about 3% for management of the fund’s equities and 2% for fixed income management. Or, if a lower fee were assigned to the fixed income portion of the fund, say 1.5%, investors would be paying nearly 3.5% for the equity component. Either way you look at it, that’s just bad math.