A portfolio manager of a Canadian growth mutual fund is seeking to reduce the fund's Management Expense Ratio (MER) to become more competitive. Which of the following actions would MOST effectively contribute to lowering the fund's MER?

Question: A portfolio manager of a Canadian growth mutual fund is seeking to reduce the fund's Management Expense Ratio (MER) to become more competitive. Which of the following actions would MOST effectively contribute to lowering the fund's MER?

Answer options: ✅ Increasing the fund's assets under management (AUM) without a proportional increase in fixed costs.

• Increasing the frequency of portfolio trading to capitalize on short-term market movements.
• Hiring additional dedicated research analysts to enhance stock selection.
• Switching from a 'fee-for-service' custodian to a 'percentage of assets' custodian.

Correct answer: Increasing the fund's assets under management (AUM) without a proportional increase in fixed costs.

Explanation: The MER is a ratio of total expenses to average net assets. By increasing the fund's Assets Under Management (AUM) while keeping fixed operating costs relatively constant, the economies of scale reduce the MER percentage. Increased trading or hiring more staff would likely increase expenses, and changing custodian fee structures alone doesn't guarantee a lower MER.