August 25, 2021

Morningstar Finds Falling Fees Saved Investors $6.2 Billion in 2020

The annual U.S. Fund Fee Study reports sustainable funds' fees have fallen 27% over the past decade as low-cost, sustainable passive investments have become available

CHICAGO, Aug. 25, 2021 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today published its annual fund fee study, which evaluates trends in the cost of U.S. open-end mutual funds and exchange-traded funds (ETFs)1. The study found that the average expense ratio paid by fund investors is half of what it was two decades ago. Between 2000 and 2020, the asset-weighted average fee fell to 0.41% from 0.93%. Investors have saved billions as a result. 

Much of the decline documented in the asset-weighted fees paid by investors can be attributed to the fact that they've been allocating more of their investment dollars to low-cost index mutual funds and ETFs and that those same funds have been slashing their expense ratios.

"The fact that fees have been reduced to either nothing or next to nothing among broad-based index funds is only natural," said Ben Johnson, Morningstar's director of ETF and passive strategies research. "Given these funds' commodity-like nature, it seems inevitable that their prices would be pushed down to the marginal cost of managing them and that assets would consolidate in the hands of a few large-scale manufacturers."

Key Takeaways 

  • The asset-weighted average expense ratio fell to 0.41% in 2020 from 0.44% in 2019. As a result, we estimate investors saved nearly $6.2 billion in fund expenses last year.
  • The asset-weighted average expense ratio for active funds fell to 0.62% in 2020 from 0.65% in 2019, driven mainly by large net outflows from expensive funds and share classes and, to a lesser extent, inflows to cheaper ones.
  • The asset-weighted average expense ratio for passive funds fell to 0.12% in 2020 from 0.13% in 2019, thanks to steady flows into the lowest-cost funds.
  • Investors in sustainable funds are paying a "greenium" relative to investors in conventional funds. This is evidenced by these funds' higher asset-weighted expense ratio, which stood at 0.61% at the end of 2020 versus 0.41% for their traditional peers. However, this "greenium" has been shrinking. Sustainable funds' equal-weighted average fee has fallen 27%, while the asset-weighted average fee paid by investors in these funds has dropped 38% over the past decade. This has been driven in large part by the introduction of a large number of low-fee sustainable index mutual funds and ETFs to the menu, many of which have gained favor with investors.
  • Low-cost funds generally have greater odds of surviving and outperforming their more-expensive peers. In 2020, the cheapest 20% of funds saw net inflows of $445 billion, with the remainder suffering outflows of $293 billion. The cheapest 5% of funds alone received $412 billion of inflows.
  • The evolution of the economics of the advice business is shaping flows and fees. Bundled share classes have been in outflows for the past 11 years while semi-bundled and unbundled share classes have seen steady inflows.
  • Although its competition continues to gain ground, Vanguard still claims the lowest asset-weighted average expense ratio among asset managers, which was 0.09% in 2020.

Access the 2020 U.S. Fund Fee Study here. A Fund Spy article on Morningstar.com summarizing key findings and trends is available here

The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

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 and owners, retirement plan providers and sponsors, and institutional investors in the debt and 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, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $251 billion in assets under advisement and management as of June 30, 2021. The Company has operations in 29 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc.

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 separately managed account's underlying securities' creditworthiness. This press release is for informational purposes only; references to securities or a separately managed account investment strategy in this press release should not be considered an offer or solicitation to buy or sell the securities or to invest in accordance with that strategy.

©2021 Morningstar, Inc. All Rights Reserved.

1 The study excludes money market funds and funds of funds.

MORN-R

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Landon Hudson, +1 312 696-6037 or newsroom@morningstar.com

 

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