Morningstar has released its annual fund fee study, revealing that investors saved $5.8 billion in fund fees in 2019. The asset-weighted average expense ratio dropped to 0.45% in 2019, down from 0.48% in 2018. This 6% year-over-year decline is the third largest recorded, dating back to 1991.
“Investors are increasingly aware of the importance of minimizing investment costs, which has led them towards lower-cost funds and share classes,” says Ben Johnson, director of exchange-traded fund (ETF) and passive strategies research at Morningstar. “There has also been intensifying competition among asset managers, who have cut fees to appeal to cost-conscious investors. Another factor has been changes in the way financial advice is delivered and paid for. As advisers move away from transaction-driven models and toward fee-based ones, fund share classes that have fewer embedded advice or distribution costs are seeing more flows.”
The report also revealed that the asset-weighted average expense ratio of all U.S. open-end funds and ETFs have been cut nearly in half in the past two decades, from 0.87% in 1999 to 0.45% in 2019.
In 2019, the cheapest 20% of funds took in net inflows of $581 billion, and the remainder had outflows of $224 billion. The cheapest 10% of funds alone had $526 billion of inflows.
In 2019, the asset-weighted average fee for strategic beta funds was 0.2%, slightly higher than index funds’ 0.12% but much lower than active funds’ 0.66%. Vanguard offered the lowest asset-weighted average expense ratio of 0.09% in 2019.