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By Russel Kinnel | 04-14-2014 04:00 PM

3 Medalist Funds That Just Got Cheaper

Lower expenses--a strong predictor of future performance--are another benefit for investors in these offerings.

Christine Benz: Hi. I'm Christine Benz for

Expense ratios are one of the key inputs in our Analyst Rating system. Joining me to discuss some Medalists funds that recently lowered their expense ratios is Russ Kinnel, director of fund research for Morningstar.

Russ, thank you so much for being here.

Russ Kinnel: Good to be here.

Benz: Russ, let's quickly review why we stay so attuned to costs. What do you see when you look at the data on the role of costs in terms of predicting future performance of funds?

Kinnel: It can sometimes seem like where we are pinching pennies, and it doesn't matter that much--I'm talking about 14 basis points here, 2 basis points there--but in fact it's really the best predictor of fund performance. The reason is that it's a consistent thing. It's there every year. Manager strategies go in and out of fashion, funds can get bloated, lots of things go on--but expenses are there every year.

Today's expenses are pretty good predictors of future expenses, and over a long period of time, those fees can really add up and really have an impact. So one of the simpler and easier ways you can get to your goals is just focus on fees, get low-cost funds. As Jack Bogle likes to say, you get what you don't pay for.

Benz: When you look at the trends in expense ratios, and I know you periodically study this, what do you see in terms of fund expense ratios? Are they going up on average or are they going down?

Kinnel: They are going down. They have really been steadily coming down, not dramatically, but steadily for most of the last 10 or 15 years. After a year like 2013, where the stock market surged, U.S. stocks anyway, over 30%, you get a bigger drop in fees because fees are often geared off of assets. So growth in assets mean a drop in fees.

Now, in the bond fund world, assets are about the same as they were a year ago, so you're not going to see a big change there. But whenever you have a big rally in any asset class, you're going to see some drop in fees.

Benz: Do you think that this ongoing investor preference for index products and ETFs is also a catalyst for expense ratio cuts?

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