Can anyone explain the fees for closed-end funds?

Question

New Germany Fund, Inc NYSE / GF
Mgmt Fees 0.850%
Expense Ratio 1.300%
Are these two fees added together for a total of 2.15%?

ETFs and mutual funds have expense ratio but the closed-end funds as I see have also management fees? What is that and why? Is that fee in addition to expense ratio?

Answer 1

Lets say, just for grins, that I had a billion dollars and operated a closed-end fund. Suppose then, that I sorted the available information on publicly-traded companies in Germany by profitability and used this fund to invest in the top 100 most profitable of those companies. Essentially, if I was starting right now, that would be about ($1 billion/100 companies=$10 million per company). So there I have a budget, next I have to figure out an opportune time to populate the fund with those companies' shares.

Next, suppose I apply some basic statistics and examine the data on what the stock behavior has been like. I determine operating periods, say accounting period quarters and then monthly subgroups or more, perhaps a fudge period to allow for the offset between accounting periods and when they are reported. Then I establish the range of trades and determine the standard deviation values. Next, I set up similar data for the major competitors of the companies on the list. Following that with detailed data that has material impacts on the company operations for each in the scope of scrutiny. Within that framework of patterns, if it looks like a company is about to peak in trading price, I might sell a few for a profit, or conversely if it is looking too cheap for the norm, that is a time to buy more.

All said and done, it will cost me some time and money to accomplish this in order to most effectively and efficiently keep that billion at work according to the purposes of the investment. There will be brokerage fees to pay, subscriptions to sources of solid information, office equipment and operating costs like utilities and insurance, etc. I will want a piece of the pie for using my expertise.

Yep, some funds will cost more than others and your GF fund seems a bit heavy in expenses, but the question is does the fund deliver sufficient value for their cost? If not, you sell and buy into someone else. Someone like me may not charge so much, but not gain so well. But then there are others out there, so the choice is yours.

Additional Details:
The operational costs, buying/selling, keeping books, making reports to authorities and stockholders, etc. are one set of accounting issues. The managerial expertise, any proprietary process, the formulas and people who watch their application, these are a different set of accounting issues. It is the same in many businesses. I'm going to a restaurant in a few minutes. The cooks and waitstaff will be on one set of pay arrangements, the bussboy and bookkeeper on another. People come for the food, so the cook gets an extra piece of the action. People come for the service, so the waitstaff sometimes gets a really nice wage from tips. The dishwasher and guy who writes the checks goes on a different scale. Same in fund management. The clerk who files transaction records doesn't work on the same part of the expenses as the guy who says, "Ah, here's a buying opportunity for XYZ".

Answer 2

That is what the managers of the fund charge shareholders. You need to check your net return on investment to determine if they are earning their money.