Richmond, Va.-based TFS Capital Management hopes it has a mutual fund offer that investors can't refuse. Its latest offering, TFS Small Cap Fund, charges performance fees, but it can collect them only if the fund meets its benchmark, the Russell 2000 index by 2.5 percentage points or more. At that point, the fund will get its normal 1.25% fee, and for every 0.02% deviation between the fund and the index above 2.5, the fee increases by 0.01.
"Anyone can get an index fund – buying the benchmark – for pennies, so we don't feel we deserve much compensation for just doing as well as the index," Larry Eiben of TFS told MarketWatch. "If we don't add value, we shouldn't get paid."