I’M A MORNINGSTAR subscriber. I find that the site provides investing and personal finance information that’s sensible and useful for the average person, and that it promotes good investing and planning behaviors. Still, I was taken aback by a recent article, which discussed four funds that investors have been buying.
In terms of deciding what I buy, I don’t really care what others have been purchasing. Still, it’s interesting to see, so I checked it out. My surprise: Three of the four funds mentioned are A share funds, which means buyers have to pay a front-end commission, or load.
For instance, one of the funds is Columbia Dividend Income, a Morningstar medalist that “really emphasizes quality” and “has put in some nice defensive qualities,” according to the Morningstar analyst.
That sounds good. But not mentioned in the article is that, for regular retail investors, the Columbia fund’s A shares have a 5.75% front-end load. You can avoid that sales commission—but only if, say, you buy through an advisory account, which will then charge you a fee, or it’s offered in your 401(k). As of May 31, the front-end load A shares held $4.2 billon, second only to one of the institutional share classes.
Besides my surprise that Morningstar has given a silver rating to a front-end load fund, I’m also surprised that investors have apparently been piling into it, such that the fund’s about to close. I realize not everyone has gotten the message from HumbleDollar and elsewhere that costs matter, but Morningstar usually promotes the concept.
It’s one thing to pay an above-average expense ratio. But to me, a front-end load is something else entirely, because it can take years to recoup that cost—and it may never happen. Maybe that’s my own mental accounting at work, and a cost is a cost. Still, I won’t be bothering to do any math. Paying a load is a deal breaker for me.