It might seem ungrateful to find fault with a mutual fund that has racked up gains well into the double digits for each of the past two calendar years as well as the current year to date.

But then, any fund charging considerably more than the "going rate" for "just average" results deserves some serious attention.

An investor with the foresight to be in a mutual fund matching the performance of the broadly diversified international MSCI EAFE index at the end of 2004 would have enjoyed an impressive gain -- 64.3% to be exact -- between then and Sept. 30 of this year.

A number of open-end index funds that efficiently track the EAFE benchmark have rewarded their holders with gains of that magnitude. They have generally done so while incurring expenses that amount to a small fraction of a percentage point.

But there are also a number of funds tracked by Ratings that do


promote themselves as international index funds that have turned in performances close to the EAFE gauge since the end of '04. Ratings database was queried for funds whose cumulative, absolute differences from EAFE index returns for the past two calendar years and the year to date (through Sept. 30) amounted to less than three percentage points. The 10 funds on the accompanying table popped up.

All 10 funds are up between 12% and 14% so far this year, compared with the EAFE's 13.57% advance. For calendar 2006, the funds' performances are all in the vicinity of 25% to a shade over 28%, vs. 26.86% for the EAFE. And for 2005, they were all in the 13% to 14% area, all within a breath of EAFE's 14.02% gain.

It doesn't take an international espionage agent to suspect that some of these funds are content to just "go along for the ride" with the EAFE while saddling their holders with expense ratios that are more appropriate for actively managed investments.

Passively managed index funds can charge lower fees than actively managed funds because they don't have to research the companies they invest in. Passively managed funds also tend to turn over their holdings less frequently, thus saving on transaction expenses. Consequently, the average actively managed equity fund tracked by Ratings burdens its holders with a total expense ratio of 1.95% while the average equity index fund only requires 0.76% for total expenses.

The savings can be even bigger: A number of index funds require less than 0.10% for expenses, with one as low as 0.05%. Expenses for international funds are generally in line with those that focus on domestic investments.

While six of the 10 funds have edged out the EAFE so far in 2007, only four managed to beat the international gauge in calendar 2006, and an equal number outpaced the EAFE in 2005.

So much for the rewards of "active" management.

A single fund, the

(GCIAX) - Get Report

Goldman Sachs Structured International Equity Fund (GCIAX), managed to stay fractionally ahead of the EAFE index for all three periods. The fund's largest holdings are


(BAS) - Get Report


TheStreet Recommends

Deutsche Bank

(DB) - Get Report

. Both stocks are among the 50 largest components of the EAFE index.

For comparative purposes, a true international index fund, the


Fidelity Spartan International Index Fund (FSIIX), appears at the bottom of the table. Because it is not trying to outperform the EAFE benchmark, investors are spared the expense of investment research. They also avoid the elevated transaction costs usually rung up by managers who shuffle portfolios in their stalking of stocks that they hope will outperform the market.

Consequently, the total expenses of the Fidelity Spartan International Index Fund is capped at a slim 0.20%. Even better for investors, Fidelity has capped the expense ratio at 0.10%. Using either ratio for comparative purposes, funds in the table with returns close to MSCI are charging many times more for their "active management" than the total expenses of the Fidelity index fund.

The largest holdings of the Fidelity Spartan International Fund are


(BP) - Get Report


HSBC Holdings


. Not surprisingly, the two stocks are also the largest components of the MSCI EAFE index.

Not every fund on the list of international closet indexer suspects is necessarily trying to emulate the EAFE index. Even though the three recent time periods are nonoverlapping, the similarity of returns of some or even all the funds might just be coincidental -- what a statistician would term "spurious correlations."

And it's possible to replicate the performance of an index through sampling procedures -- statistically selecting a number of constituent stocks from the index in a manner that will closely replicate the benchmark's performance. Creative selection of derivatives can also achieve the similar results. So it's difficult to determine with certainty if returns that coincide with an index are just a coincidence or the conscious effort of a lazy or timid manager who desires an active manager's compensation but is willing to settle for mediocre performance.

But the additional percentage point or more in fees that actively managed funds charge can compound to significant differences in values over the years. So investors must maintain constant vigil against closet indexers. Portfolio analysis helps, but the miscreants' use of clever portfolio sampling techniques and derivatives can help disguise their nefarious activities.

Your best bet for smoking out these


: Compare an "actively managed" fund's returns over time with an appropriate benchmark. If the returns of the fund and the gauge seem to resemble an extended embrace, it is a possible closet indexer.

Richard Widows is a financial analyst for Ratings. Prior to joining, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.