Morningstar reports that investors managed to save approximately $9.8 billion in fees for open-end mutual funds and exchange-traded funds (ETFs) during the previous year.
According to the report, this was due to a continued long-term trend of decreasing expense ratios. The research firm highlighted the significance of investors gravitating towards lower-cost funds, particularly ETFs, and transitioning towards fee-only advisors.
As reported by ThinkAdvisor, Moringstar's study revealed that the asset-weighted average expense ratio for U.S. funds decreased from 0.40 percent in 2021 to 0.37 percent in 2022. This trend has spanned over two decades, with the average expense ratio dropping from 0.91 percent in 2002. Morningstar's director of passive strategies research, Bryan Armor, noted that in 2022, significant amounts of money were moved from high-cost funds to lower-cost options, reflecting investors' efforts to reduce investment expenses.
In 2022, there was a substantial disparity in investor cash flow between inexpensive and costly funds, with the gap widening significantly. For the first time in five years, the least expensive quintile of funds attracted more than $1.1 trillion compared to the remaining 80 percent of funds. Specifically, the lowest 20 percent of funds saw a net inflow of $394 billion, while the remaining 80 percent experienced a net outflow of $734 billion.
Notably, Vanguard remains the leader in having the lowest asset-weighted average expense ratio among asset managers. In the past year, Vanguard maintained an expense ratio of 0.08 percent, down from 0.10 percent in 2017. However, some competitors are also making progress in this aspect.
Following Vanguard, State Street Global Advisors recorded an expense ratio of 0.15 percent, iShares at 0.17 percent, and Dimensional Fund Advisors at 0.24 percent. The report highlights that investors have reaped the benefits of these firms competing for prominence, resulting in an increasingly diverse and cost-effective array of options offering broad market exposure.
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