The effect of loads and expenses on open-end mutual fund returns

In this study, 1,012 mutual funds were examined to investigate the relationship between the funds sales loads, annual expenses, and returns. Low expense funds significantly outperformed high and very high expense funds. For funds with similar expenses, the load funds do nor produce returns sufficient to offset the load versus no-load funds. However when broken down by expense level, load funds (even high load funds) with low expenses do sufficiently outperform high expense, no-load funds. This finding may be the result of high expense funds being characterized by higher turnover than low expense funds. Given fund managers' inability to select ''above average'' stocks, this leads to higher expenses but not higher returns, and thus lower net-of-expense returns.