Mutual fund investors rejoice! Morningstar and the Investment Company Institute today delivered a bit of good news in the form of their respective annual survey of mutual fund expenses.
According to Russel Kinnel, Morningstar’s director of mutual fund research, last year the typical investor paid 75 basis points in expenses compared with 77 bps in 2010. And expenses dropped in all the major asset classes except for alternatives.
“Costs have come down because of appreciation, inflows, and a shift to lower-cost funds,” he wrote. “Yes, there have been some fee cuts over the years--most notably Vanguard's lowered investment minimums for Admiral share classes. But it's the choices made by investors that have had the greatest impact. Investors have generally invested new money in lower-cost funds within a category. In addition, the growing popularity of bond funds has meant that money is flowing toward the lowest-fee asset class, thus lowering the overall rate.”
Kinnel noted that the Wasatch Ultra Growth fund (WAMCX) had one of the biggest fee drops as expenses fell to 168 bps in 2010 and 142 bps in 2011 from 175 bps in 2009. On the flip side, the Fairholme Focused Income (FOCIX) saw the biggest expense increase with a 17-basis-point spike to 67 bps.
“In fact, an investor in the fund is really paying more than that—100 bps as indicated by the prospectus net expense ratio,” wrote Kinnel.
Morningstar included all share classes in the study and the figures include all open-end funds except funds of funds.
For its part, ICI’s study found that the average expense ratio paid by equity fund investors was 79 bps, down 4 basis points from 2010. The asset-weighted average expense ratio for bond funds fell 2 bps, to 62 bps in 2011.
“The average expense ratio paid by investors in any mutual fund category is influenced by multiple factors, which can include fund growth coupled with economies of scale, as well as industry competition and investors gravitating towards lower cost funds,” stated Sean Collins, ICI’s Senior Director of Industry and Financial Analysis.
The study also found that the average expense ratios investors paid for both actively managed and index mutual funds decreased 11 bps from 1997 to 2011.