A mutual fund’s total costs are measured differently, depending upon the study or expert cited. For example, Kopcke reviewed the 100 largest domestic stock funds owned by defined contribution plans. Kopcke found trading costs averaged 0.11% of assets annually in the quintile with the lowest costs and 1.99% of assets in the quintile with the highest cost, with a median of 0.66%.
A different study, updated in 2009, looked at thousands of U.S. stock funds and concluded the average trading costs to be 1.44% of total assets, with an average of 0.14% in the bottom quintile and 2.9% in the top. According to study coauthor Richard Evans (University of Virginia), “While some trading adds value, high trading costs overall tend to have a negative impact on performance. On average $1 in trading costs decreased net assets by 46 cents.”
Market impact costs, and the resulting opportunity costs, are often the largest component of trading costs—as much as 1 ½ times brokerage (trading) commissions. These costs occur when a large trade changes the price of a security before the trade is completed. Similarly, opportunity costs occur when the impact of a trade inhibits a fund manager from filling an order on her terms, resulting in either a less-favorable price or fewer shares traded.