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Sarah Pellegrinosarah.pellegrino@morningstar.com
Morningstar’s Annual Fund Fee Study Finds Investors Are Paying Less Than Ever for Their Fund Investments

CHICAGO, May 23, 2017—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published its annual fund fee study, evaluating the cost of U.S. mutual funds and exchange-traded funds (ETFs) in Morningstar’s database. On average, investors paid less in fund expenses in 2016 than ever before, as assets continue to flow into lower-cost index mutual funds, ETFs, and institutional share classes.

“Investors have been voting with their feet for low-cost funds. In particular, there has been strong demand for passive funds, the average cost of which is 0.17 percent, much lower than the average 0.75 percent for active funds. We see the trend toward low-cost funds as positive, since mutual fund costs have a dollar-for-dollar impact on the returns investors ultimately realize,” said Patricia Oey, senior manager research analyst for Morningstar. “Flows out of active funds reached a cumulative $586 billion in 2015 and 2016. However, the outflows were all from expensive active funds. Low-cost active funds saw positive, albeit small, inflows over the same time period.”

Key findings in the study include:

  • The asset-weighted average net expense ratio of all U.S. funds was 0.57 percent in 2016, down from 0.61 percent in 2015 and 0.65 percent three years ago. The decline was primarily driven by asset flows into lower-priced vehicles, namely, passive funds and less-expensive share classes.
  • In 2016, the asset-weighted average expense ratio was 0.17 percent for passive funds, compared with 0.75 percent for active funds. With such a large fee gap, rising flows into passive funds contributed to industry-wide falling asset-weighted average expense ratios.
  • Active funds saw a cumulative $586 billion in outflows in 2015 and 2016. However, the outflows were all from expensive active funds. Over the same time period, low-cost active funds saw positive, but small, inflows of $41 billion.
  • U.S. equity funds have seen the biggest migration to passive from active funds, with the former drawing in $458 billion of inflows and the latter experiencing $525 billion of outflows over the past three years. During the same time period, U.S. equity funds’ asset-weighted average fees fell a cumulative 17 percent to 0.50 percent, the largest change of any asset class.
  • ETFs saw a sizeable decline in asset-weighted average fees from 0.29 percent in 2013 to 0.24 percent in 2016.
  • Vanguard has the lowest asset-weighted average expense ratio at 0.11 percent, followed by SPDR State Street Global Advisors at 0.19 percent and Dimensional Fund Advisors at 0.36 percent. During the past three years, Vanguard’s asset-weighted average fee declined 21 percent, the most significant decline among the 10 largest fund providers.
  • Large inflows to Vanguard’s low-cost passive funds had a notable impact on the industry’s declining asset-weighted average expenses. From 2013 to 2016, the industry-wide asset-weighted average expense ratio fell from 0.65 percent to 0.57 percent. Excluding Vanguard, the expense ratio decline would have been less, from 0.69 percent to 0.62 percent.

The full study about fund fee trends is available here and an article summarizing the findings is available here. The study excludes money market funds and funds of funds.

Morningstar has approximately 130 manager research analysts worldwide who cover approximately 4,270 funds. The company provides data on approximately 217,000 open-end mutual funds, 11,600 closed-end funds, and 14,100 exchange-traded product listings as of March 31, 2017.

About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $200 billion in assets under advisement and management as of March 31, 2017. The company has operations in 27 countries.

Morningstar’s Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst Ratings are based on Morningstar’s Manager Research Group’s current expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. Analyst Ratings are not guarantees nor should they be viewed as an assessment of a fund’s or the fund’s underlying securities’ creditworthiness. This press release is for informational purposes only; references to securities in this press release should not be considered an offer or solicitation to buy or sell the securities.

References to and commentary on the above-mentioned fund families should not be considered a solicitation to buy or sell a fund(s) within that fund family.

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©2017 Morningstar, Inc. All Rights Reserved.

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