Fees and expenses are (thankfully) falling, but updated research from the Investment Company Institute (ICI) details just how far over the past two-plus decades.
“Investors continue to concentrate their assets in lower-cost funds when they invest.”
It found that equity mutual fund expense ratios averaged 0.47% in 2021, compared with 1.04% in 1996, a major drop that, thanks to John Bogle’s concept of the “tyranny of compounding costs,” add up to a significant sum over time.
Hybrid mutual fund expense ratios averaged 0.95% in 1996 and fell to 0.57% in 2021; similarly, bond mutual fund expense ratios averaged 0.84% in 1996 and fell to 0.39% in 2021.
These figures are asset-weighted averages, which reflect the expenses that shareholders actually pay through funds.
“As the fund industry meets the demands of cost-conscious investors, competition continues to push down on the expense ratios of mutual funds and exchange-traded funds,” Shelly Antoniewicz, ICI’s senior director of industry and financial analysis, said in a statement, “and investors continue to concentrate their assets in lower-cost funds when they invest.”
ICI’s report also shows that asset-weighted average expense ratios for both actively managed and index equity mutual funds have fallen from their levels in 1996.
In 2021, the average expense ratio of actively managed equity mutual funds was 0.68%, down from 1.08% in 1996. Average index equity mutual fund expense ratios also fell over this period. In 2021, average index equity mutual fund expense ratios were 0.06%, compared with 0.27% in 1996.
The report notes that this trend is driven by investor interest in both lower-cost actively managed and index equity mutual funds, as well as asset growth and the resulting economies of scale.
Actively managed and index bond mutual funds have also seen a decline in average expense ratios over the same period. Between 1996 and 2021, the average expense ratio of actively managed bond mutual funds fell from 0.84% to 0.46%. The average expense ratio of index bond mutual funds fell from 0.20% in 1996 to 0.06% in 2021.
Data for all figures in the report is accessible here.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
