Mutual Fund and ETF Fees Fall to Record Lows

“Owning shares in a mutual fund or ETF has never been cheaper. According to Morningstar’s annual fund fee study, the asset-weighted fee for roughly 25,000 funds and ETFs averaged 0.518% in 2017, down from 0.562% in 2016. The 8% drop was the  biggest year-over-year decline since 2000, when Morningstar began tracking the data, and represents more than $4 billion in savings for investors, according to Morningstar. Driving the decline were investor preference for low-cost funds — flows into the cheapest 20% of funds within different categories surged 60% — and fee reductions by active funds.

“The cheapest 20% of funds raked in nearly $1 trillion last year while the rest of the industry saw net outflows of approximately $250 billion,” said Patricia Oey, senior manager research analyst at Morningstar, in a statement. “The message investors are sending is crystal clear — cost counts.” Passive funds were the biggest beneficiaries of these flows, accounting for 70% of new inflows; lower cost actively managed funds accounted for the rest.

The average asset-weighted expense ratio for passive funds fell from 0.16% in 2016 to 0.15% in 2017, while the asset-weighted expense ratio for actively managed funds dropped from 0.75% to 0.72%, as investors moved funds out of costlier funds into cheaper ones. Read more »

Vanguard: The Disruptive Innovation Company

Vanguard is one of the world’s largest investment companies, offering a large selection of low-cost mutual funds, ETFs, advice, and related services. From its start in 1975, Vanguard has stood out as a very different kind of investment firm. Vanguard was founded on a simple but revolutionary idea—that a mutual fund company should be managed in the sole interest of its fund shareholders. Founder John C. Bogle structured Vanguard as a client-owned mutual fund company with no outside owners seeking profits.

• More than $3 trillion in global assets under management, as of December 31, 2015
• About 175 U.S. funds (including variable annuity portfolios) and about 145 additional funds in markets outside the United States, as of December 31, 2015
• More than 20 million investors, in about 170 countries, as of December 31, 2015
• Average expense ratio: 0.18% (U.S. fund expenses as a percentage of 2015 average net assets)