Fund Without Fee Will Be Offered Online
August 23, 1999
StockJungle.com, a first-time mutual fund adviser, plans to launch four online mutual funds, including a novel S&P 500 Index Fund that will be free to investors.
StockJungle.com, a year-old investment advisory firm in Culver City, Calif. will allow investors to invest as little as $200, and up to a maximum of $10,000, in its new fee-free S&P 500 fund. The fund charges no management fee, no distribution fee or other associated fund operational charges such as custody expenses, brokerage fees or transaction costs. The adviser has agreed to absorb all fund-related costs.
That can mean a bargain even for investors accustomed to the low costs and market returns of index funds. According to Lipper, Inc. the data provider of Summit, N.J., the average S&P 500 Index Fund carries a 0.217 percent management fee, and a total operating expense ratio of 0.551 percent.
The tradeoff for owning the fund is that investors can only communicate with the Index fund online and will receive all fund interim reports, prospectuses and account statements electronically. The fund also charges a two percent redemption fee on assets that are redeemed within 120 days. But, shareholders can also find out the fund's trades as they happen on the website.
StockJungle.com will also offer three other funds online but they will carry a 1.00 percent all-inclusive management fee from which the adviser will pay all fund-related expenses. These funds include the StockJungle.com Market Leaders Growth, the StockJungle.com Pure Play Internet and the StockJungle.com Community Intelligence funds. The latter fund encourages investors to suggest their best stock ideas directly to the fund's website for analysis and consideration.
Michael Witz, the 27-year-old chairman and CEO of StockJungle.com, declined to comment on the funds, citing pending approval from the SEC. Witz, who founded StockJungle.com, the adviser, in 1998, is an award-winning website multimedia producer turned financial consultant. Witz and StockJungle.com's senior financial analyst, Gordon Gustafson, will manage the four funds. Gustafson, who joined the firm this past February, had previously worked in the film industry as a production manager.
The no-cost fund has already garnered some initial interest. But, the discounted index fund may purposely be the loss leader for StockJungle.com. One industry executive said the fund will probably bring investors to the adviser's website and cause them to consider the group's three other funds.
While offering online statements and fund reports is a good idea, the StockJungle.com index fund may face problems, according to Angelo Calvello, president of the 100-percent No-Load Mutual Fund Council, a fund industry group. The virtual fund offering means those investors who are not now technologically at ease are excluded. In particular, this may exclude a large audience of 401(k) plan participants who have historically favored index funds and who tend not to be technologically sophisticated. Also, because of the investing limits, even if each investor invests the $10,000 maximum, the fund will need to attract many investors to attain critical mass, said Calvello. It is also not yet clear how the group will get the word out about its funds.
Still it is an interesting concept to offer a no-fee fund online, said Calvello.
"But I don't think it will cause (fund advisers) to become low cost providers," he said. "Even though the running of an index fund sounds mechanical, there are lots of daily asset flows and operational costs."