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Morningstar: Investors Paying About Half as Much to Own Funds in 2018 vs. 2000

Investors are the big winners in the fund price wars, the latest fee study from Morningstar suggests. “We estimate that investors saved roughly $5.5 billion in fund expenses” in 2018, largely due to a 6% fee decline, which is the second-largest year-over-year decline Morningstar has recorded since it began tracking the trend in asset-weighted average fees in 2000. The 2018 fee study confirms the persistent demand for low-cost, passively managed investments and the huge savings now expected by investors. According to the report, the asset-weighted average expense ratio of passive funds was 0.15% in 2018 (versus 0.25% a decade ago) compared with 0.67% for active funds (0.86% in 2008). “This means active-fund investors are paying about 4.5 times more than passive-fund investors on each dollar, the widest disparity since 2000,” according to the report. Morningstar also found:

  • In 2018, the cheapest 20% of funds saw net inflows of $605 billion, with passive funds attracting 74% of those inflows and active funds accounting for 26%. The remaining 80% of funds saw net outflows of $478 billion.
  • Of the $605 billion that flowed into the cheapest 20% of funds and share classes, most of it went into the cheapest of the cheap, as 97% of net new money flowed into the least costly 10% of all funds.
  • Eighty-three percent of all assets reside in mutual funds and ETFs whose fees rank in the bottom 40% when compared with other funds in their category group.
 
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