Open-end mutual fund and exchange-traded fund investors on average paid lower fees in 2021 than the year before, which saved investors an estimated $6.9 billion, according to Morningstar's 2021 fund fee study report.
The annual study, which reviews trends in the cost of U.S. open-end mutual funds and ETFs, found that the asset-weighted average expense ratio of U.S. funds declined to 0.4% in 2021 from 0.42% in 2020. The average has dropped 53 basis points since 2000, when it was 0.93%.
Morningstar credited the lower average with increased competition among asset managers and an outflow of allocations from expensive funds. "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, in a Tuesday news release. "Investors are also increasingly aware of the importance of minimizing investment costs, which we expect to continue in this down market," Mr. Armour added.
Despite lower overall average fees, the report also noted that investors in sustainable funds are paying a "greenium" compared with investors in conventional funds. Sustainable funds had an asset-weighted average expense ratio of 0.55% at the end of 2021 while traditional peers had an average ratio of 0.39%, according to the study. Despite the higher average, Morningstar stated the "greenium" has been steadily decreasing in recent years, with the average fee charged by sustainable funds falling 35% over the past decade and recording its lowest level in 2021.
Morningstar highlighted that 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 according to the report. The cheapest 5% of funds alone received $648 billion of inflows.
Vanguard Group continues to have the lowest asset-weighted average expense ratio among asset managers at 0.08% in 2021.
