In a recent blog post, Russel Kinnel, Morningstar’s director of ratings and manager research, identified eight good funds that have made themselves more attractive by reducing their expense ratios. Three funds are from Fidelity, four from T. Rowe Price and one from TWC Group.
Kinnel noted that although performance fees have pretty much lost favor in the fund world, Fidelity has kept them.
“Essentially,” said Kinnel, “they are symmetrical increases or decreases to a fund’s expense ratio based on three-year performance versus an index.”
The bad news, he writes, is that a fee cut suggests that a fund has gone into a slump. Even so, strong fundamentals and a lower expense ratio leave room for optimism.
T. Rowe Price has made big cuts to its municipal-bond funds’ expense ratios to become more competitive in a lower-return asset class, according to Kinnel. And TWC’s fund is starting to look more attractive, he says, ascribing its recent slump mainly to being on the long side of duration when interest rates spiked in 2022.
See the accompanying gallery for the eight funds that have cut expense ratios, ranked by the size of the reductions, with one-year performance as of Jan. 3 and Morningstar’s fund medalist rating.
The medalist rating is a five-tier system that analysts use to assess a fund’s ability to outperform its Morningstar category index after fees over a long-term period. The system operates on a scale ranging from Gold to Negative, with Gold, Silver and Bronze being the top ratings.
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