InvestmentNews INsider

The INsiderblog

InvestmentNews reporters offer their take on intriguing or controversial articles from around the web.

John Bogle has already won

Investors have poured money into the lowest-cost funds and ETFs over the past decade, data show

Jun 7, 2013 @ 2:32 pm

By Jason Kephart

John Bogle's victory parade is overdue.

The 85-year-old founder of The Vanguard Group Inc. has been the most vociferous advocate against overpaying for investment management, and over the past 10 years, investors have shown that they have heard him loud and clear.

U.S. equity mutual funds and exchange-traded funds with expense ratios in the lowest quartile have had net inflows of $442 billion over the past decade, according to Morningstar Inc. data collected by Vanguard.

Equity funds with higher expense ratios saw investors flee to the tune of $368 billion over the same time period.

The same trend has emerged in bond funds, as well. The lowest-cost bond funds and ETFs have had $614 billion of inflows, while more-expensive options have netted just $144 billion since 2002.

“The primary trend is toward indexing, but the secondary trend is among financial advisers,” said Mike Rawson, a mutual fund analyst at Morningstar.

“They aren't putting as much money into A shares anymore,” he said. “They're going into institutional share classes and ETFs.”

The result has been that the average asset-weighted expense ratio that fund investors are paying have dropped 31% to 64 basis points for equity funds and 28% to 47 basis points for bond funds, from a decade ago.

Passively managed index funds and ETFs have seen the lion's share, or about 85%, of net inflows into the lowest-cost funds, but the lowest-cost actively managed funds did manage to bring in about $67 billion.

Low-cost actively managed funds have a better chance of outperforming, Mr. Rawson said.

“It's low-cost funds that outperform, not necessarily index funds,” he said.

With the data so clearly in the favor of low-cost funds, the pressure is on higher-expense mutual funds to bring down costs, something they have yet to tackle seriously. Expense ratios on actively managed equity funds, for example, have been stable at about 1% over the past decade.

“Why these active managers aren't getting on board [with low costs] is a little bit surprising to me,” Mr. Rawson said. “This should be a wake-up call for the rest of the industry.”

0
Comments

What do you think?

View comments

Most watched

Events

Finding your edge from Tony Robbins

Guru Tony Robbins has helped a lot of people, but armed with his psychology Financial Advisor Josh Nelson has helped his practice soar.

Events

Finding innovation in your firm

Adam Holt of AssetMap explains how advisers understand they need to grow, but great innovation may be lurking right under your nose.

Latest news & opinion

10 IBDs with the most annuity revenue

Here are the independent broker-dealers that brought in the most annuity revenue last year.

LPL expanding platform to include employee brokers

The largest IBD in the country has agreed to buy a small broker-dealer in Florida to kick off the new effort.

Hopes high for bill to ease small-firm adviser regulations

High-ranking, bipartisan members of the House Financial Services Committee back the legislation.

Redtail CRM data breach exposes personal client data

The information exposed includes names, addresses, dates of birth and Social Security numbers.

This strategy can double your estate-tax exemption

'Portability' allows a surviving spouse to tack the decedent's exemption on to his or her own. Despite the higher threshold for paying estate taxes in the 2017 tax law, experts recommend filing for the benefit.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print