Morningstar Magazine - February/March 2015 - 42

Spotlight: Fees

matter. A performance measure can accidentally
capture a lot of the noise in markets as one
area moves in and out of favor and as caution
reigns, then aggression.

fees and trading costs. Those that charge less are
naturally more likely to outperform than those
with high costs. K

process. To quote from the book of John Bogle:
You get what you don't pay for.
Bogle, the Vanguard founder, has pointed out that
markets don't have to be efficient for low costs
to work. We know that mutual funds as a whole
will get roughly the market's return minus

But expenses are just so dependable that it makes
sense to make them an initial screen in your

Russel Kinnel is Morningstar's director of mutual
fund research.

EXHIBIT 2

A Detailed View The table shows the average and asset-weighted expense ratios for various asset classes. While fees did jump
up in the early 2000s bear market, over the past 25 years they have been taking less of a bite out of fund returns.
US Equity

International Equity

Taxable Bonds

All Funds

Ast-Wgt
Expense
Ratio

Average
Expense
Ratio

Number
of
Funds

Ast-Wgt
Expense
Ratio

Average
Expense
Ratio

Number
of
Funds

Ast-Wgt
Expense
Ratio

Average
Expense
Ratio

Number
of
Funds

Ast-Wgt
Expense
Ratio

Average
Expense
Ratio

Number
of
Funds

1990

0.93

1.45

665

1.19

1.86

123

1.01

1.07

481

0.93

1.28

1,955

1991

0.94

1.42

750

1.25

1.84

156

1.00

1.05

579

0.93

1.24

2,269

1992

0.94

1.39

833

1.27

1.75

194

0.97

1.02

688

0.92

1.20

2,608

1993

0.96

1.36

1,222

1.30

1.76

317

0.93

1.03

1,103

0.93

1.18

4,054

1994

0.98

1.38

1,584

1.33

1.78

514

0.94

1.10

1,482

0.97

1.23

5,644

1995

0.97

1.42

1,905

1.31

1.83

668

0.93

1.15

1,644

0.98

1.29

6,714

1996

0.95

1.41

2,307

1.27

1.89

900

0.90

1.14

1,724

0.97

1.33

7,591

1997

0.91

1.41

2,749

1.25

1.84

1,108

0.89

1.12

1,813

0.94

1.35

8,245

1998

0.89

1.44

3,356

1.23

1.90

1,333

0.87

1.14

2,055

0.92

1.37

9,738

1999

0.88

1.45

3,776

1.25

1.93

1,483

0.85

1.12

2,061

0.92

1.40

10,432

2000

0.92

1.45

4,100

1.21

1.85

1,493

0.82

1.14

2,089

0.95

1.41

10,931

2001

0.94

1.48

4,465

1.20

1.90

1,571

0.80

1.17

2,103

0.94

1.44

11,429

2002

0.96

1.51

5,754

1.20

1.89

1,807

0.77

1.12

2,458

0.93

1.46

13,704

2003

0.95

1.52

6,385

1.20

1.90

1,884

0.77

1.13

2,760

0.93

1.47

15,149

2004

0.90

1.49

6,650

1.14

1.80

1,877

0.75

1.13

2,889

0.90

1.43

15,665

2005

0.86

1.46

6,999

1.08

1.71

1,940

0.71

1.10

2,992

0.86

1.40

16,191

2006

0.83

1.41

7,482

1.03

1.64

2,171

0.68

1.08

3,080

0.84

1.37

17,182

2007

0.80

1.37

7,588

0.99

1.59

2,364

0.66

1.06

3,168

0.82

1.34

17,655

2008

0.79

1.38

7,869

0.97

1.56

2,686

0.64

1.05

3,244

0.80

1.33

18,514

2009

0.80

1.39

7,316

1.00

1.60

2,811

0.63

1.04

3,236

0.80

1.35

17,932

2010

0.77

1.35

7,088

0.97

1.56

2,903

0.64

1.03

3,378

0.78

1.32

18,076

2011

0.73

1.32

7,013

0.92

1.52

3,103

0.63

1.02

3,591

0.75

1.29

18,631

2012

0.70

1.29

7,020

0.90

1.51

3,248

0.61

1.02

3,829

0.72

1.28

19,249

2013

0.67

1.25

7,240

0.87

1.47

3,491

0.60

1.00

4,170

0.71

1.25

20,522

Year

Asset-weighted and average expense ratios with annual flows and average assets; broad groups, excludes load-waive shares and fund of funds.
Source: Morningstar

42

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