The annual U.S. Fund Fee Study reports record-low average expense ratio for mutual funds and ETFs, driven by heavy outflows from expensive funds

Morningstar, a leading provider of independent investment insights, published its annual fund fee study, which evaluates trends in the cost of United States (U.S.) open-end mutual funds and exchange-traded funds (ETFs)¹. The study found that the asset-weighted average expense ratio of U.S. funds fell to 0.37% in 2022 from 0.40% in 2021, saving investors an estimated $9.8 billion as a result.

“We saw substantial assets wiped from expensive funds in 2022 as investors poured their money into lower-cost funds to minimize investment costs,” said Bryan Armour, Morningstar’s director of passive strategies research. “Asset managers have responded to this trend by cutting fees to vie for market share, and the end result is a win for investors.”

Key findings from the study include:

• The average expense ratio paid by fund investors has been falling for over two decades. In 2022, the asset-weighted average expense ratio of U.S. open-end mutual funds and ETFs was 0.37%, compared with 0.91% in 2002.
• In 2022, the gap in flows for cheap and expensive funds grew into a chasm. For the first time since 2017, the cheapest quintile of funds pulled in over $1.1 trillion more than the remaining 80% of funds, as the cheapest 20% saw net inflows of $394 billion while the remaining 80% of funds shed $734 billion in outflows.
• For active funds, the asset-weighted average expense ratio fell to 0.59% in 2022 from 0.61% in 2021, driven mainly by large net outflows from expensive funds and share classes. For passive funds, the asset-weighted average expense ratio dropped to 0.12% in 2022 from 0.13% a year earlier.
• Investors in sustainable funds are paying a “greenium” relative to investors in conventional funds. This is evidenced by these funds’ higher asset-weighted average expense ratio, which stood at 0.50% at the end of 2022 versus 0.37% for their traditional peers.
• Strategic-beta funds are an alternative to higher-cost actively managed funds. In 2022, the asset-weighted average fee for strategic-beta funds was 0.18%, higher than the figure for traditional index funds (0.12%) but significantly lower than for active funds (0.59%).
• Although some of its competition continues to gain ground, Vanguard still claims the lowest asset-weighted average expense ratio among asset managers, which was 0.08% in 2022.

The 2022 U.S. Fund Fee Study is available here. An article on Morningstar.com, which summarizes key findings and trends, is available here.

U.S. Fund Fee Trends Notebook in Morningstar Direct’s Analytics Lab

The U.S. Fund Fee dataset used for the 2022 U.S. Fund Fee Study is accessible to Morningstar Direct users within Analytics Lab. With the U.S. Fund Fee Trends notebook, users can evaluate fee trends within the universe of U.S. mutual funds and ETFs. The notebook facilitates analysis of short- and long-term fund fees through a variety of lenses, including whether funds are active or passive, based on their Morningstar Category membership, whether they or their share classes are bundled, semi-bundled, or un-bundled, and more.

Morningstar’s prebuilt datasets in Analytics Lab scale analysis, visualize results, and document methodology so users can automate processes that were previously cumbersome or not available. Learn more about Analytics Lab here.

Source: Morningstar