Investors are paying less for fund management, as most fund flows have gone into lower-cost funds, while increased assets under management are pushing overall industry fee revenue higher, according to a study of fund fees by Morningstar.
The study examines trends in expense ratios and investor preferences over the past 10 years through 2014.
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Key findings of the study include:
– Investors are actively seeking lower fund management fees. During the past 10 years, 95 percent of fund flows have gone into funds in the lowest-cost quintile.
– The asset-weighted expense ratio across all funds was 0.64 percent in 2014, slightly down from 0.65 percent in 2013 and significantly lower than 0.76 percent five years ago.
– Investors continue to move away from load-based share classes to those that don’t charge loads, which also tend to have lower expense ratios.
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By GlobalData– Firms that offer lineups with lower asset-weighted expense ratios — most notably Vanguard — have gained market share during the past five years.
– While 63 percent of fund share classes and exchange-traded products examined by Morningstar reduced their expense ratios during the past five years, just 24 percent saw fees decrease more than 10 percent. Meanwhile, 21 percent of the share classes examined increased their fees.
– Industry assets under management rose 143 percent over the past 10 years, pushing estimated industry fee revenue to an all-time high of $88 billion in 2014, up 78 percent from $50 billion 10 years ago, while the asset-weighted expense ratio declined 27 percent.
