CHICAGO, April 26, 2018 – 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). The study found that across all U.S. funds, investors paid 0.52 percent to own mutual funds and ETFs in 2017, compared to 0.56 percent in 2016. This eight percent year-over-year decline is the largest recorded since Morningstar began tracking asset-weighted fees in 2000. Morningstar estimates that investors saved more than $4 billion in fund fees in 2017 by continuing to gravitate toward lower-cost funds.
“This trend toward lower-cost funds should have an exponentially positive impact on investors' returns in the future because costs compound over time and eat into investors' nest eggs,” said Patricia Oey, senior manager research analyst for Morningstar. “Our data shows that the cheapest 20 percent of funds raked in nearly $1 trillion last year while the rest of the industry saw net outflows of approximately $250 billion. The message investors are sending is crystal clear—cost counts.”
Key findings of the study include:
- The asset-weighted average net expense ratio of approximately 25,000 U.S. open-end mutual funds and ETFs was 0.52 percent in 2017, down from 0.56 percent in 2016 and 0.63 percent three years ago.
- The asset-weighted average expense ratio for passive funds fell to 0.15 percent in 2017 from 0.16 percent in 2016, a seven percent decline. This reflected strong flows into the lowest-cost passive funds, as well as fee cuts by some asset managers for widely held, broad index funds.
- The asset-weighted average expense ratio for active funds was 0.72 percent in 2017 from 0.75 percent in 2016. This four percent decline was the largest annual percentage decrease in more than a decade and was driven primarily by large net flows from expensive funds to cheaper funds and secondarily by fee reductions.
- The equal-weighted average expense ratio of passive funds was 0.30 percent in 2017, down from 0.31 percent in 2016, and 0.72 percent for active funds in 2017, versus 0.75 percent in 2016. These declines are largely explained by fee cuts that fund companies have made.
- In 2017, the cheapest 20 percent of funds, ranked by fees by category group, saw net inflows of $949 billion, most of that going to passive funds. The rest of the industry saw net outflows of $251 billion.
- Most investors own lower-priced funds. Eighty-three percent of assets reside in mutual funds and ETFs whose fees are in the two cheapest quintiles when compared to other funds in their broad category group.
- Vanguard continues to boast the lowest asset-weighted average expense ratio, 0.10 percent; followed by State Street Global Advisors, 0.16 percent; and iShares, 0.25 percent.
Morningstar has approximately 120 manager research analysts worldwide who cover approximately 4,500 funds. The company provides data on approximately 233,200 open-end mutual funds, 11,100 closed-end funds, and 15,000 exchange-traded product listings as of March 31, 2018.
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 $201 billion in assets under advisement and management as of March 31, 2018. 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.
©2018 Morningstar, Inc. All rights reserved.
Sarah Wirth, +1 312 244-7358 or [email protected]
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SOURCE Morningstar, Inc.
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