Mutual funds that link management fees to performance are about as common as blackjack players who beat the house -- it happens, but not often.
According to Lipper, 194 funds collect more when they beat a predesignated benchmark and take less when they trail it. Vanguard and Fidelity, in particular, deserve credit for often putting their money where their numbers are.
But no fund manager has yet gone as far as tiny TFS Capital in risking its payday. The Richmond company is prepared to forfeit its entire management fee if its new TFS Small Cap fund (symbol TFSSX; 888-534-2001) fails to measure up against the Russell 2000 index of small-company stocks.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The fund's base management fee is set at 1.25% per year. After the fund reaches its first birthday next March, the fee will vary monthly based on how the fund performed against the Russell 2000 over the previous 12 months.
TFS Capital keeps the full fee if the fund tops the index by 2.5 percentage points. The management fee rises to 2.5% if the fund prevails over the index by five percentage points or more. But if the fund matches the Russell 2000 or trails it, TFS Capital forgoes its entire management fee. (The fee is one component of the expense ratio; if TFS's management fee is 1.25%, the expense ratio will be 1.75%.)
TFS Small Cap, which uses a computer-driven approach to picking stocks, had $2 million in assets as of May 15. From the fund's launch on March 7 to May 15, it gained 4%. Over that period, the Russell 2000 gained 2%. There's no guarantee, of course, that a performance-based fee will lead to better results. But we can't help thinking that managers who could lose all or part of their fee will try harder to keep that from happening.
-
Best Banks for High-Net-Worth Clientswealth management Kiplinger's 2023 list of the best banks for higher-net-worth clients.
-
Stock Market Holidays in 2024: NYSE, NASDAQ and Wall Street HolidaysMarkets When are the stock market holidays? Take a look at which days the NYSE, Nasdaq and bond markets are off in 2024.
-
Stock Market Trading Hours: What Time Is the Stock Market Open Today?Markets When does the market open? It's true the stock market does have regular hours, but trading doesn't necessarily stop when the major exchanges close.
-
Bogleheads Stay the CourseBears and market volatility don’t scare these die-hard Vanguard investors.
-
I-Bond Rate Is 5.27% for Next Six MonthsInvesting for Income I-Bonds issued November 1, 2023 through April 30, 2024 will have a rate of 5.27%.
-
What Are I-Bonds?savings bonds Inflation has made Series I savings bonds enormously popular with risk-averse investors. So how do they work?
-
This New Sustainable ETF’s Pitch? Give Back Profits.investing Newday’s ETF partners with UNICEF and other groups.
-
As the Market Falls, New Retirees Need a Planretirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
