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Mark Hulbert responds: My point wasn't that it's wrong to adjust for loads but that Morningstar's way of doing so isn't very helpful: By comparing no-loads to load funds, nearly half of all no-load domestic diversified equity funds receive a four- or five-star rating.
Serious as survivorship bias is, it still would not have affected comparisons between loads and no-loads if not for the fact that more load funds go out of business than no-loads.
As a result, they are probably not aware that they could have made even more by investing in no-loads -- if, of course, the absence of loads didn't tempt them into moving their money around.
Load versus no-load funds?
"It used to be load versus no-load," he said.
One gauge is the average time that investors hold on to load and no-load funds.
Both the load and no-load classes charge 1.29percentt in annual expenses.
("For every load fund, there is always an equal or better no-load fund -- always").
They have found that even before the impact of loads, the average load fund underperforms the average no-load.
Investors can get into this no-load fund by committing a mere $1,000.
Four of the funds on our table are no-loads.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com