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Record-Low Fund Fees Saved Investors $6.9B Last Year: Morningstar

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What You Need to Know

  • U.S. fund expense ratios have declined for more than two decades.
  • Vanguard maintained the lowest expense ratio among asset managers.
  • Sustainable funds collect a 'greenium' from investors, but the average there is declining, too.

Investors saved $6.9 billion last year as U.S. mutual fund expense ratios declined from 2020 levels, Morningstar Inc. reported in releasing its annual U.S. Fund Fee Study Tuesday.

U.S. funds’ asset-weighted average expense ratio fell to 0.40% in 2021 from 0.42% a year earlier, according to the study, which evaluates cost trends for U.S. open-end mutual funds and exchange-traded funds.

“Intensifying competition among asset managers and changes in the economics of advice are two factors driving fees lower,” Bryan Armour, Morningstar director of passive strategies research for North America, said in a statement. “Investors are also increasingly aware of the importance of minimizing investment costs, which we expect to continue in this down market.”

The average expense ratio paid by fund investors has been declining for more than two decades, Morningstar said, noting that the most recent average compares with 0.87% in 2001.

For active funds, the asset-weighted average expense ratio fell to 0.60% in 2021 from 0.63% in 2020, according to the research firm. Large net outflows from expensive funds and share classes accounted for most of the change, with inflows to cheaper ones also contributing.

Sustainable funds exact a ”greenium” from investors, although it reached its lowest level ever in 2021, Morningstar said. The asset-weighted average expense ratio for these funds stood at 0.55% at the end of 2021 compared with 0.39% for their conventional peers, according to the firm.

Low-cost funds remain an investor favorite, Morningstar reported. In 2021, the least expensive 20% of funds saw net inflows of $1.05 trillion, with the remaining 80% collecting $57 billion in inflows — the first year that saw collective inflows for pricier funds since 2013. The least expensive 5% of funds alone received $648 billion of inflows.

Vanguard maintained the lowest asset-weighted average expense ratio among asset managers — 0.08% in 2021 — while its competitors continued to gain ground, Morningstar reported.

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