The Low-Cost Fund Arms Race
Funds will continue to get cheaper.
The Race to the Bottom
Twenty years ago, new mutual funds generally cost more than older funds. The industry, of course, charged what the market would bear. And the 90s' market would bear much. At the time, most investors viewed landing the right star manager as being more important than haggling over a fraction of a percent of expenses. As a result, fund companies nudged up management fees on their launches. Also, many new funds carried 12b-1 fees to pay for their distribution costs, which further boosted expense ratios.
Those days are long gone. Just how long gone was demonstrated by the recent news of BlackRock slashing fees on several of its existing exchange-traded funds. It cut costs on iShares Russell 3000 Growth (IWZ) and iShares Russell 3000 Value (IWW) by more than 60%, dropping those ETFs' annual expense ratios to 0.09% from 0.25%. The company took iShares High Dividend (HDV) even further, implementing a 70% markdown. At the same time, BlackRock launched several additional funds, each at the new, lower price point.
John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.