Morningstar Report Highlights Record-Breaking Decline in Average Expense Ratio, Propelling Savings for Investors
Morningstar, Inc. (Nasdaq: MORN), a pioneer in delivering unbiased investment insights, has unveiled its annual fund fees study, an illuminating assessment of the trajectory of United States (U.S.) open-end mutual funds and exchange-traded funds (ETFs)^1. The study’s resounding revelation showcases a noteworthy reduction in the asset-weighted average expense ratio of U.S. funds, plummeting to 0.37% in 2022 from 0.40% in 2021. This transformative shift translates to an estimated $9.8 billion in savings for investors.
Navigating the Landscape: Morningstar’s Fund Fees Study
Witnessing Historic Savings: A Momentous Milestone
In a groundbreaking assessment of the investment sphere, Morningstar’s annual fund fee study has unveiled a remarkable triumph – the asset-weighted average expense ratio of U.S. funds has plunged to an unprecedented low of 0.37% in 2022. This pivotal transformation echoes the diligent efforts of investors as they gravitate towards lower-cost funds, resulting in an astronomical $9.8 billion reduction in fund fees.
A Beacon of Financial Prudence: Key Findings
1. A Long-Term Trajectory of Decline
The trajectory of fund expenses has embarked on a transformative course, characterized by consistent decline. In a testament to this enduring trend, the asset-weighted average expense ratio of U.S. open-end mutual funds and ETFs reached 0.37% in 2022, a marked contrast to the 0.91% recorded in 2002.
2. A Chasm in Fund Flows
The dichotomy between economical and expensive funds in 2022 expanded into a cavernous gap. A groundbreaking shift saw the most economical quintile of funds amassing over $1.1 trillion more than their counterparts, with the cheapest 20% experiencing net inflows of $394 billion, while the remaining 80% witnessed net outflows of $734 billion.
3. Active and Passive Realities
The report underscores intriguing developments in active and passive funds. The asset-weighted average expense ratio for active funds dwindled from 0.61% in 2021 to 0.59% in 2022, predominantly attributed to substantial net outflows from expensive funds. In parallel, passive funds experienced a comparable decline, with the asset-weighted average expense ratio diminishing to 0.12% in 2022 from 0.13% the previous year.
4. Sustainable Funds and the “Greenium”
Investors seeking sustainable options encountered a noteworthy observation – sustainable funds, while aligned with responsible investing, carry a slightly elevated asset-weighted average expense ratio. These funds, often referred to as paying a “greenium,” registered an expense ratio of 0.50% at the close of 2022, in contrast to 0.37% of their conventional counterparts.
5. Navigating Alternatives: Strategic-Beta Funds
Navigating the complex realm of fund fees involves considering strategic-beta funds. Amidst this landscape, strategic-beta funds emerge as a compelling alternative to higher-cost actively managed funds. In 2022, these funds carried an asset-weighted average fee of 0.18%, a figure surpassing traditional index funds (0.12%) and substantially undercutting active funds (0.59%).
6. Vanguard’s Steadfast Lead
While competition continues to evolve, Vanguard remains at the vanguard of low expense ratios. Vanguard’s asset-weighted average expense ratio for 2022 stood at a mere 0.08%, reaffirming its commitment to cost-effective investing.
The Path Forward: Embracing Insights into Fund Fees
In an era defined by data-driven insights, Morningstar empowers investors with tools for deeper analysis. Morningstar Direct users can harness the U.S. Fund Fee dataset within Analytics Lab, a dynamic platform facilitating a comprehensive evaluation of fee trends within the U.S. mutual fund and ETF landscape. The platform unlocks insights into short- and long-term fund fees, dissecting factors such as active or passive categorization, Morningstar Category membership, bundling status, and more.
Navigating Tomorrow’s Investment Horizon: Morningstar’s Commitment
As a leading provider of independent investment insights, Morningstar plays an instrumental role in reshaping the investment landscape. With a global footprint spanning North America, Europe, Australia, and Asia, Morningstar’s commitment to unbiased, data-driven analysis empowers investors and institutions alike. With a diverse array of products and services, Morningstar serves as a beacon of transparency and informed decision-making.
