U.S. Equity Fund Family Fees Continue to Fall
Investors who stood firm were rewarded as the markets recovered, and then some.
One of the most positive developments for investors in recent years has been the continued decline in the fees charged by mutual fund companies; in 2020, investors in the U.S. stock funds run by largest mutual fund companies by and large benefited from that trend.
Each quarter we measure the levels and changes for the median net expense ratios investors paid to own funds across the range of investment classes. (The full report is available for Morningstar Direct clients here.)
Lower fees can come in different forms. They can be the result of fund companies simply reducing fees on existing funds, for example, or they can be the result of fund companies offering newer, low-cost share classes or exchange-traded versions of higher-cost traditional open-end funds. Fund companies also retire more-expensive share classes. But altogether, the result is a lower-fee landscape for investors.
For this article we’ve pulled from our quarterly report the details on the U.S. stock funds offered by the 10 largest fund families. To compile the data, we calculated the median prospectus net expense ratio on all share classes of each fund company’s U.S. stock funds.
Together, these firms manage roughly three fourths of the money in U.S. stock mutual funds.
Among this group, Invesco and T. Rowe Price cut fees on their U.S. equity funds by the greatest amount.
Invesco led the largest managers with a decline in the median costs on U.S. stock funds of 0.08 percentage points. For example, Invesco Dividend Income (IAUTX), which lands in the mid-cap value Morningstar Category, cut fees by 11 basis points, and Invesco Capital Appreciation (OPTFX), a large-growth fund, cut fees by 5 basis points.
At T. Rowe Price, the median net expense ratio on the firm’s U.S. equity funds fell by 5 points from 2019 levels. Nine of its funds registered fee reductions, mainly by small amounts. Most reported expense ratios went down by 0.01 or 0.02 percentage points.
However, the greatest impact at T. Rowe was the indirect result of its target-date mutual fund lineup. Last year T. Rowe rolled out a new class of mutual fund shares (Z shares) that carry 0.00% net expense ratios. These share classes are used to build the firm’s target-date lineups.
Franklin Templeton was one of two firms among the top 10 to record an increase in U.S. stock fund fees, as its median net expense ratio rose by 0.11 percentage points. However, the increase mostly reflected the firm’s acquisition of Legg Mason in 2020.
Incorporating Legg Mason’s funds, which include the ClearBridge and Brandywine brands, pushed up the active fund expense ratio by 0.15 percentage points. Some existing and new funds also upped fees. ClearBridge Large Cap Value (SAIFX) increased fees by 0.07 percentage points (on all share classes of the funds), and Franklin Equity Income (FISEX) increased fees by 0.02 percentage points.
Fidelity also recorded an increase in fees, but that reflected a technicality with the data. The increase came from Fidelity’s group of funds for institutional investors and advisors, which carry performance-based fees. Essentially, when performance on the funds improves compared with a benchmark, the fees that Fidelity charges increase. When the funds underperform, fees go down. And in most cases, the advisor funds reported higher fees. Among the exceptions: Fidelity Advisor Large Cap (FALAX), which lagged its benchmark by 10 percentage points, registered a 0.17% decline in fees.
Across American Funds’ U.S. equity fund share classes, fees fell by 4 basis points from 2019. American Funds Growth Portfolio (GWPAX) reported a 0.03-percentage-point decline in fees from 2019, and American Funds Growth Fund of America (AGTHX) registered a 0.01-percentage-point decline.
DFA also posted lower fees for its U.S. equity funds, with declining by 0.01 percentage point.
Among other funds managed by the largest providers, JPMorgan U.S. Sustainable Leaders (JICAX) recorded the largest decline, as its net expense ratio fell by 0.2 percentage points to 0.64%. Another ESG consideration fund, BlackRock Advantage ESG U.S. Equity (BIRAX), lowered its expense ratio to 0.73% from 0.80%, a 0.07-percentage-point decline.
Katherine Lynch does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.