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Expense ratios as predictors

Morningstar just came out with a nifty analysis of mutual funds: cheaper is better. We believe by proxy the same analysis & concepts extend to ETF's, although liquidity and transaction costs need to be considered.

"Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance. Start by focusing on funds in the cheapest or two quintiles, and you’ll be on the path to success." - How Expense Ratios and Star Ratings Predict Success, Russell Kinnel, Director of Fund Research & Editor, in Aug. 2010 Fund Investor

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