That means the first 9 percent of return merely earns back the costs. Plexus found that the average institutional trade is about 125,000 shares of a large-cap stock, or about 1.25 days' trading volume. The trade not only bears a commission of 0.12 percent and moves the stock's price up 0.30 percent, it also incurs hidden costs of 0.53 percent from delay and 0.16 percent in missed trades. But the other costs are huge, in part because the average mutual fund trade in a small stock is 50,000 shares, or about four days' average volume. Delay cost is 1.72 percent and the cost of missed trades another 2.22 percent as traders struggle to buy or sell that much volume without spoiling the price for themselves.
Smaller funds minimize the cost of market impact, delay, and missed trades.
Low-turnover funds , by definition, don't pay a lot of brokerage commissions. Choose low-expense funds with low turnover. Copyright 1999-2001 MyPrimeTime, All Rights Reserved. Inc. The names of actual companies and their products mentioned on this site may be the trademarks of their respective owners.