According to Morningstar, investors last year paid the lowest-ever average fees for mutual fund and ETF assets. “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 research group said recently in a report.
The asset-weighted average net expense ratio of all U.S. funds in 2015 fell to 0.61% from 0.64% in 2014. While that drop may not seem very dramatic, consider the context: the asset-weighted average expense ratio for passive funds was 0.18% versus 0.78% for active funds.
Passive funds, in fact, took in $576 billion more in assets than active funds in 2015 despite the fact that there were eight times more active funds than passive ones. Meanwhile, investors and advisors have been favoring the least expensive funds, which over the past five years had inflows of $1.7 trillion while more expensive funds experienced outflows of $372 billion.
Funds that have lower expense ratios not only tend to outperform other funds within the same asset category, but they also tend to stay in business longer, according to Morningstar.