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THE INDEX MANAGERS' DIRTY LITTLE SECRETON THE SURFACE, ALL STOCK index funds should have identical total returns. But they don't because their expenses vary. So, go for the fund with the lowest expenses (table). For portfolio managers, index funds are almost no-brainers. They don't need a corps of experts to vet a stock, deciding whether to invest. They merely buy shares in every company in an index--the most popular being the Standard & Poor's 500--or a portion of the stocks, to mirror the overall index. For these so-called ''passive funds,'' expense ratios (the percent of costs to assets) generally range from 0.2% to 0.6%. The average for actively managed funds is 1.3%. Since many index funds only began in the past few years, the high-cost ones usually justify themselves by saying there was a significant startup expense. Prudential Securities says its S&P fund started at 0.6% in 1992. But now that assets are at $250 million, it lowered that to 0.5. Also, some index managers admit privately that high expenses exist because the funds feel they can get away with it. ''Investors usually don't think to compare our expenses,'' says a manager of a high-expense fund. ''They think we're all the same.''
EDITED BY LARRY LIGHT
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Updated June 15, 1997 by bwwebmaster
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