The average pre-fee excess returns of most U.S. stock funds have pinched lower in recent years and now sit well below the norm of the past few decades.
- Fees haven't fallen as steeply, and, thus, more than two thirds of U.S. equity funds levy annual expenses that would wipe out their estimated future pre-fee excess returns. Those funds recently held nearly $2 trillion in assets.
- Of the funds that charge less than our estimates of future pre-fee excess returns, many have little margin for error (that is, their fees are no more than 0.30% below potential future excess returns before fees).
- Fund overpricing is most rampant among U.S. large-cap funds and least widespread among U.S. small-cap funds.
- Faced with the prospect of reaping smaller pre-fee excess returns in the future, fund companies will likely have to slash expenses or mothball costly funds that are unlikely to succeed.
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