Morningstar's Annual Fund Fee Study Finds Investors Saved Nearly $6 Billion in Fund Fees in 2019

CHICAGO, June 9, 2020 /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 across U.S. funds, the asset-weighted average expense ratio dropped to 0.45% in 2019, compared to 0.48% in 2018. This six percent year-over-year decline is third largest recorded dating back to 1991.

"Investors are increasingly aware of the importance of minimizing investment costs, which has led them towards lower-cost funds and share classes. There has also been intensifying competition among asset managers, who have cut fees to appeal to cost-conscious investors," said Ben Johnson, Morningstar's director of ETF and passive strategies research. "Another factor has been changes in the way financial advice is delivered and paid for. As advisors move away from transaction-driven compensation models and toward fee-based ones, fund share classes that have fewer embedded advice or distribution costs are seeing more flows."

Key findings of the study include:

• The asset-weighted average expense ratio of all U.S. open-end funds and ETFs has been nearly cut in half over the past two decades, from 0.87% in 1999 to 0.45% in 2019.
• The asset-weighted average expense ratio fell to 0.45% in 2019 from 0.48% in 2018. As a result, Morningstar estimates investors saved $5.8 billion in fund expenses last year.
• The asset-weighted average expense ratio for active funds fell to 0.66% in 2019 from 0.68% in 2018. For passive funds, it fell to 0.13% in 2019 from 0.14% in 2018, thanks to steady flows into the lowest-cost funds and fee cuts for widely held broad market index funds.
• Investors favor low-cost funds, but recently have begun to reject more costly funds. In 2019, the cheapest 20% of funds saw net inflows of $581 billion, with the remainder suffering outflows of $224 billion. The cheapest 10% of funds alone received $526 billion of inflows.
• Cheap funds have become significantly cheaper, while expensive funds' fees remain high. The dividing line between the cheapest 10% of funds and the rest has fallen 43% over the past 15 years, while the line between the most expensive 10% and the rest has come down just 19%.
• As compensation models have evolved in the advice business, fund share classes with fewer embedded advice or distribution costs are seeing more flows. Using Morningstar's service fee arrangement attribute, bundled share classes have been in outflows for the past decade while semibundled and unbundled share classes have seen steady inflows.
• Strategic-beta funds remain an attractive alternative to higher-cost actively managed funds. In 2019, the asset-weighted average fee for strategic-beta funds was 0.20%, which was slightly higher than traditional index funds' 0.12%, but significantly lower than active funds' 0.66%.
• Investors have benefitted from a competitive landscape and an ever-wider menu of cheaper options. Although BlackRock/iShares, State Street Global Advisors, and others continue to gain ground, Vanguard still claims the lowest asset-weighted average expense ratio of 0.09% in 2019.

Access the 2019 U.S. Fund Fee Study here. A Fund Spy article on Morningstar.com summarizing key findings and trends is available here.

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 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 $179 billion in assets under advisement and management as of March 31, 2020. The Company has operations in 27 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.

©2020 Morningstar, Inc. All rights reserved.

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

Media Contact:
Rebecca Rogalski, +1 312 244-7771 or [email protected]  

SOURCE Morningstar, Inc.

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