Investors Paid Lower Fund Expenses in 2015; Vanguard, SPDR State Street, Dimensional Lead with Lowest Asset-Weighted Average Expense Ratios, According to Morningstar Research

News provided by

Apr 26, 2016, 10:41 ET

CHICAGO, April 26, 2016 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published its annual study about fund fees, evaluating U.S. mutual funds and exchange-traded products (ETPs) in Morningstar's database. On average, U.S. investors paid lower fund expenses in 2015 than ever before, as assets continue to flow into lower-cost index mutual funds, exchange-traded funds (ETFs), and institutional share classes.

"Fees in the asset management industry are coming under increasing scrutiny, and this trend has driven investment dollars into lower-cost funds, particularly index funds. The good news for U.S. investors is that they paid lower fund expenses in 2015 than ever before. The asset-weighted expense ratio across all funds fell 3 basis points in 2015 compared with the year before," Patricia Oey, senior manager research analyst for Morningstar, said. "While certainly a positive trend, it's worth remembering that fund expenses are not the whole story, as investors often pay additional fees on retirement platforms and for advice."

Key findings in the study include:

The asset-weighted average net expense ratio of all U.S. funds was 0.61 percent in 2015, down from 0.64 percent in 2014 and 0.73 percent five years ago. The decline was primarily driven by asset flows into lower-priced vehicles—namely, passive funds and less-expensive share classes—and not by fee cuts in the asset management industry. From 2013 to 2015, the simple-average expense ratio of the largest 1,000 share classes, which accounts for 75 percent of assets in mutual funds and ETFs, remained 0.64 percent.
The least-expensive funds—those with fees that fall in the lowest quintile—collected $1.7 trillion in flows during the past five years, while the remaining funds have seen outflows of $372 billion. On average, passive funds, including index funds and ETFs, accounted for approximately 75 percent of flows into the least-expensive funds in that time period.
In 2015, the asset-weighted expense ratio was 0.18 percent for passive funds, compared with 0.78 percent for active funds, a difference of 60 basis points. With such a large fee gap, rising flows into passive funds contributed to falling asset-weighted average expense ratios.
Although active funds outnumber passive funds eight to one, passive funds gathered $576 billion more in assets than active funds in 2015. That represents a sharp increase from 2011, when passive funds took in $140 billion more than active funds.
The largest flows to passive funds—and out of active funds—occurred in the Morningstar U.S. equity category group, where passive funds experienced $471 billion of inflows and active funds saw $572 billion of outflows during the past five years. The 67-basis-point fee gap between U.S. equity active funds and passive funds is the largest among the seven major asset class groups.
In the past five years, the asset-weighted average expense ratio of Vanguard's funds fell from 0.18 percent to 0.12 percent, the largest decline among the 10 largest fund providers. Vanguard currently has the lowest asset-weighted average expense ratio at 0.12 percent, followed by SPDR State Street Global Advisors at 0.19 percent and Dimensional Fund Advisors at 0.36 percent.
Large inflows to Vanguard's low-cost passive funds principally explain the industry's declining asset-weighted average expenses. During the past five years, the industry-wide asset-weighted average expense ratio experienced a 12-basis-point decline to 0.61 percent from 0.73 percent. Excluding Vanguard, the expense ratio declined 5 basis points to 0.77 percent from 0.82 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 115 manager research analysts worldwide who cover nearly 4,000 funds. The company provides data on approximately 199,000 open-end mutual funds, 9,800 closed-end funds, and 13,000 exchange-traded product listings as of Dec. 31, 2015.

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 retirement plan providers and sponsors. Morningstar provides data on approximately 525,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on nearly 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement and management as of March 31, 2016. The company has operations in 27 countries.

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.

MORN-R

Media Contact:
Nadine Youssef, +1 312-696-6601 or [email protected]

Logo - http://photos.prnewswire.com/prnh/20160301/339380LOGO

SOURCE Morningstar, Inc.