Updated June 13, 2013
The greater use of institutional-price shares, the growth of index mutual funds and competition among mutual fund companies contributed to the continuing trend of lower fees for mutual funds in 401(k) plans, according to the Investment Company Institute.
The average expense ratio for each of three mutual fund categories — equity, bond and hybrid — fell to their respective lowest levels in 2012 as measured against the last 15 years of data compiled by ICI, according to an ICI report released Wednesday.
The average expense ratio for equity funds dropped to 63 basis points from 65 in 2011, and the average expense ratio for bond funds fell to 50 basis points from 52 in 2011. The average expense ratio for hybrids — the name ICI uses for target-date funds and balanced funds — declined to 59 basis points from 61 basis points.
All calculations were made on an asset-weighted basis. The data exclude mutual funds available as choices in variable annuities and tax-exempt mutual funds such as municipal bond funds.
“Institutional shares played a role,” Sean Collins, senior director of industry and financial analysis, said in an interview. “There's always competition in the industry, and there's an increasing migration to indexing.”
The ICI report said institutional no-load shares last year represented 54% of mutual fund assets in 401(k) plans, or more than triple the percentage in 1996. Conversely, funds with front-end loads continue to play a reduced role, falling to 9% of 401(k) mutual fund assets last year vs. 36% in 1996.
No-load retail shares represented 30% of mutual fund assets in 401(k) plans vs. 44% in 1996. Funds with back-end loads or other types of loads accounted for 6% of mutual fund assets in 401(k) plans vs. 4% in 1996.
Also in the ICI report:
- Total assets in 401(k) plans reached a record $3.57 trillion last year vs. the previous record of $3.2 trillion in 2011. Mutual funds accounted for 60% of last year's 401(k) assets. The mutual fund component of $2.14 trillion in 2012 was a record, topping the $1.85 trillion in 2010.
- The allocation among mutual funds in 401(k) assets was 55% equity funds, 26% hybrid funds, 15% bond funds and 5% money market funds. (Totals are more than 100% due to rounding.)
- Mutual funds in 401(k) plans continue to have a lower average annual portfolio turnover rate than mutual funds in general. Last year, the average turnover rate of mutual funds in 401(k) plans was 36% vs. an overall industry turnover rate average of 48%. The turnover rate for mutual funds in 401(k) plans was the lowest in the 10 years of turnover data provided in the ICI report.
