Insurance&Tech_TLB_12.12.19

Morningstar Finds Investors Saved Nearly $6.9 Billion From Falling Fees in 2021

Press Release from Morningstar

The annual U.S. Fund Fee Study reports record-low fund fees in 2021, and the study's pre-built dataset is now available for users in flagship investment research platform Morningstar DirectSM

CHICAGO, July 12, 2022 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today published its annual fund fee study, which evaluates trends in the cost of 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 0.40% in 2021 from 0.42% in 2020, saving investors an estimated $6.9 billion as a result.

"Intensifying competition among asset managers and changes in the economics of advice are two factors driving fees lower," said Bryan Armour, director of passive strategies research for North America. "Investors are also increasingly aware of the importance of minimizing investment costs, which we expect to continue in this down market."

Key findings from the study include:

  • The average expense ratio paid by fund investors has been falling for over two decades. In 2021, the asset-weighted average expense ratio of U.S. open-end mutual funds and ETFs was 0.40%, compared with 0.87% in 2001.
  • The asset-weighted average expense ratio for active funds fell to 0.60% in 2021 from 0.63% in 2020, driven mainly by large net outflows from expensive funds and share classes and, to a lesser extent, inflows to cheaper ones.
  • 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 0.55% at the end of 2021 versus 0.39% for their traditional peers. That said, this "greenium" has been shrinking steadily in recent years and reached its lowest level on record in 2021.
  • Investors continue to favor low-cost funds. In 2021, the cheapest 20% of funds saw net inflows of $1.05 trillion, with the remaining 80% amassing $57 billion in inflows—the first year of collective inflows for pricier funds since 2013. The cheapest 5% of funds alone received $648 billion of inflows.
  • Strategic-beta funds are an alternative to higher-cost actively managed funds. In 2021, the asset-weighted average fee for strategic-beta funds was 0.17%, which was slightly higher than the figure for traditional index funds (0.12%) but significantly lower than for active funds (0.60%).
  • Although its competition continues to gain ground, Vanguard still claims the lowest asset-weighted average expense ratio among asset managers, which was 0.08% in 2021.

The 2021 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 2021 U.S. Fund Fee Study is now 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 fee trends through a variety of lenses such as active versus passive funds, by Morningstar Category or service-fee arrangement, 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.

About Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and services for individual investors, financial advisors, asset managers and owners, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $265 billion in assets under advisement and management as of March 31, 2022. The Company has operations in 29 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc.

Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Morningstar's Manager Research Group produces various ratings and assessments including the Morningstar Analyst Rating and the Morningstar Quantitative Rating. The Morningstar Analyst Rating is derived from a qualitative assessment process performed by a manager research analyst, whereas the Morningstar Quantitative Rating uses a machine-learning model based on the decision-making processes of Morningstar's analysts, their past ratings decisions, and the data used to support those decisions. In both cases, the ratings are forward-looking assessments and include assumptions of future events, which may or may not occur or may differ significantly from what was assumed. The Morningstar Analyst Ratings and Morningstar Quantitative Ratings are statements of opinions, subject to change, are not to be considered as guarantees, and should not be used as the sole basis for investment decisions. This press release is for informational purposes only; references to securities should not be considered an offer or solicitation to buy or sell the securities.

©2022 Morningstar, Inc. All Rights Reserved.

1 The study excludes money market funds and funds of funds.

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Morningstar Media Contact:

Michael Claussen, +1 312 696-6037 or newsroom@morningstar.com

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