# Case: pick the fund line-up from six factsheets

> Choose three funds for the app from six factsheets, comparing them all-in rather than by headline fee.

- Course: [Long-Term Investing: Index Funds, Risk and Your Own Behavior](https://productovi.com/courses/long-term-investing.md)
- Module: What does a fund really cost?
- Lesson 20/32, ~34 min
- Source: https://productovi.com/courses/long-term-investing/case-fund-lineup

## Three slots, six funds

**Alex Tutor:** End of June at Zapas. After a month on costs, the fund line-up for November's public launch is finally on the agenda, and Ethan has a shortlist of his own.

**Ethan:** The app has room for three funds. I'd take Halden World Index, the 0.05% one, because it's the cheapest on the market. Then Star Growth for the ambitious, and Robo Theme because tech is hot.

**Grace:** Fee, story, trend. Let's run each through what we learned this month: all-in cost over ten years, and what the fund actually holds.

**Sofia:** Before the funds: what is each slot for? Our model portfolios need something to grow and something steady.

**Grace:** Good instinct. Keep that question; we'll need it once the cost numbers are on the table.

**Dataset (CSV):** [Six fictional fund factsheets](https://productovi.com/datasets/long-term-investing/case-fund-lineup/factsheets.csv)

Synthetic. S1 Zapas World Stock, S2 Halden World Index, S3 Zapas Short Bond, S4 Star Growth, S5 Robo Theme, S6 Ledgerline Bank Balanced. Percent columns are % a year except spread, entry fee and FX fee (per trade or conversion).

$$
\text{all-in} = \text{fund level} + \text{platform} + \text{tax drag} + \frac{\text{spread} + 2 \times \text{FX} + \text{entry fee}}{10}
$$

*Yearly all-in cost over a 10-year holding. Fund level = |tracking difference| for index funds, ongoing charge + trading costs otherwise; tax drag = dividend yield × withholding, for distributing funds only.*

**Sofia:** Start with Halden. Same index as our world fund, tracking difference only −0.06%. What could go wrong?

**Grace:** Read the rest of its row: distributing, US-domiciled, 30% withheld on a 1.8% dividend yield, a 0.40% platform fee at a separate foreign broker, and 1% per conversion.

> **Exercise:** S2 Halden World Index: tracking difference −0.06%, platform fee 0.40% a year, distributing with a 1.8% dividend yield and 30% withheld, typical spread 0.04%, FX fee 1.00% per conversion (two conversions), no entry fee. What is its yearly all-in cost over a 10-year holding, in %? Round to two decimals.

![Halden World Index has a 0.05% fee but costs 1.20% a year all-in; Zapas World Stock has a 0.20% fee and costs 0.61%, so it is 0.59 points, or 59 dollars a year on 10,000, cheaper.](https://productovi.com/courses/long-term-investing/diagrams/m5-l4-fee-vs-all-in.png)

*Same index, opposite ranking once every layer is added.*

**Ethan:** Fine, but over a year that's what, a few dollars?

**Grace:** Work it out on a typical Zapas balance of \$10,000.

> **Exercise:** All-in over a 10-year holding, S2 Halden World Index costs 1.20% a year and S1 Zapas World Stock 0.61% a year. How many dollars a year cheaper is S1 on a balance of \$10,000?

**Ethan:** Fifty-nine dollars on ten thousand. Times tens of thousands of users after launch, that adds up.

**Grace:** That's the scale to think in. And it's money we can save users without predicting anything about markets.

**Headline fee vs all-in cost, 10-year holding**

| Fund | Ongoing charge | All-in cost |
| --- | --- | --- |
| S1 Zapas World Stock | 0.2 | 0.61 |
| S2 Halden World Index | 0.05 | 1.2 |
| S3 Zapas Short Bond | 0.15 | 0.54 |
| S4 Star Growth | 1.6 | 2.4 |
| S5 Robo Theme | 0.65 | 1.13 |
| S6 Ledgerline Bank Balanced | 2.2 | 2.7 |

*Synthetic data.*

**Sofia:** Here are all six, all-in. Star Growth is 2.40% and the bank fund 2.70%. Robo Theme looks almost as cheap as Halden.

> **Exercise:** Order the six funds from the lowest to the highest all-in cost (10-year holding).

**Ethan:** Robo Theme at 1.13% is cheaper than Halden. So at least the theme fund passes the cost test, right?

> **Exercise:** S5 Robo Theme costs 1.13% a year all-in, less than S2 Halden World Index at 1.20%. So it is a reasonable replacement for a world stock fund in the line-up.

**Grace:** So by role and cost we have two clear picks: S1 for world stocks, S3 for short bonds. The question is the third slot.

**Ethan:** Then Star Growth. Users like having a choice for "more", and it was the top fund for years.

**Sofia:** In May it ranked first in years 1–7 and thirteenth in years 8–14, 1.9 points below the index. Now we know it costs 2.40% all-in on top.

> **Exercise:** The launch line-up has a possible third slot. S1 (world stock, 0.61% all-in) and S3 (short bonds, 0.54%) are in. What should Zapas do with the third slot?

**Ethan:** An empty slot looks like we have nothing to sell.

**Grace:** It looks like we chose. Two funds that each do one job well are easier to explain, cheaper to own and harder to misuse.

**Sofia:** And any fund we add later goes through the same two tests, in the same order: role first, then all-in cost.

**Ethan:** And when users ask why we don't offer the 0.05% fund? They'll have seen it in a ranking somewhere.

> **Exercise:** A user writes to Zapas support: "Halden World Index charges 0.05%, four times less than your 0.20% world fund. Why don't you offer it?" Write a 2–3 sentence reply using the all-in numbers (S2 1.20% vs S1 0.61% a year over 10 years). Be honest and don't give personal advice.

**Grace:** Now the decision itself. Write the line-up memo for Ethan and the team: which funds, why, and what we tell users about cost.

> **Exercise:** Pick the Zapas launch fund line-up from the six factsheets and write the memo.

**Grace:** That's June done: every layer counted, the drag over decades, the factsheet read, and a line-up we can defend. July is about how to mix these two funds.

> **Key ideas**
>
> - Compare funds all-in over the same holding: fund level + platform + tax drag + one-off costs spread over the years.
> - The lowest headline fee is not the lowest cost: S2 is 0.05% on the label and 1.20% all-in for our users; S1 is 0.20% and 0.61%, \$59 a year cheaper on \$10,000.
> - Check the role before the cost: S3 is cheapest overall but holds bonds; S5 is a one-sector bet; S4 is an active bet at 2.40%.
> - An empty slot can be the better product decision than a fund that fails the role or cost test.

> **Educational, not advice**
>
> This lesson explains how investing works; it doesn't tell you what to buy. Investments can fall and you can get back less than you put in. Check the current rules where you live or ask a licensed professional.

- Previous lesson: [Reading a factsheet: index fund, ETF, accumulating, tracking difference, domicile](https://productovi.com/courses/long-term-investing/reading-a-factsheet.md)
- Next lesson: [Bonds: yield, rate risk and the year both fell](https://productovi.com/courses/long-term-investing/bonds-rate-risk.md)

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