Mutual fund and exchange-traded fund investors on average paid lower fees in 2019 than the year before and saved about $5.8 billion in fund expenses, according to Morningstar's latest annual study of U.S. funds.
The study found that the asset-weighted average expense ratio across U.S. funds dropped to 0.45% in 2019 from 0.48% in 2018. It is the second year in a row that the asset-weighted average expense ratio dropped 3 basis points year over year.
Morningstar has been conducting the annual study in 2000, when the firm recorded an asset-weighted expense ratio among U.S. funds of 0.87% for 1999.
The move to lower-cost funds has been a main driver behind the continuing decline in asset-weighted average fees. In 2019, active funds' fees fell to an average 0.67% in 2019 from 0.68% in 2018, while passive funds' fees fell to an average 0.13% in 2019 from 0.14% in 2018.
"Investors are increasingly aware of the importance of minimizing investment costs, which has led them towards lower-cost funds and share classes," said Ben Johnson, Morningstar's director of ETF and passive strategies research, in a news release. "There has also been intensifying competition among asset managers, who have cut fees to appeal to cost-conscious investors."
The study shows that the cheapest 20% of funds saw net inflows of $581 billion in 2019, while the remaining 80% of funds experienced net outflows of $224 billion. The previous year, the cheapest 20% of funds saw net inflows of $605 billion, with the remaining 80% of funds experienced net outflows of $478 billion.
Of the $581 billion that flowed into the cheapest 20% of funds and share classes in 2019, 91% of net new money flowed into the least costly 10% of all funds.
Among the asset managers with the lowest asset-weighted average expense ratios, Vanguard Group continues to have the lowest, with 0.09% in 2019. State Street Global Advisors was a close second, with 0.16%; followed by BlackRock's iShares, with 0.27%.
The study is available on Morningstar's website. Registration is required.
