The Clear Link Between Fees and Performance
Low-fee funds have given investors the best chance of success over the long term.
In today's chart, we are going to look at how mutual fund expenses are linked to performance. This chart shows the top 20 mutual fund firms by assets. The vertical axis shows the percentage of shares classes with a below-average fee level. The horizontal axis shows the percentage of assets with a Morningstar Rating of 4 stars or better. The Morningstar Rating for funds is based on trailing risk-adjusted returns over three-, five-, and 10-year periods. The size of the bubbles indicates the amount of assets under management at each firm.
You'll notice that there is a clear relationship between fees and performance. Firms with high fees have below-average performance and are located in the bottom-left-hand side of the chart. Firms with low fees have a higher likelihood of above-average performance, but it isn't guaranteed. For example, 87% of American Funds' share classes have below-average fees, but only 46% of its assets have a star rating of 4 or 5 stars.