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Rekenthaler Report

What a Difference a Decade Makes

The fund industry has changed a lot since 2008.

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On Twitter, my boss marveled at how thrifty index-fund buyers have become. Indexers have always watched their pennies; such is their nature. However, in recent years their penchant for paying the least has developed into a demand. Over the past decade, revealed Jeff Ptak, the cheapest 10% of S&P 500 funds received more than 100% of that sector's net inflows. Every one of the remaining nine deciles suffered net outflows.

That surprised both of us. We knew that investors had become more cost-conscious, such that the 366 index mutual funds that carry expense ratios exceeding 1% were headed for extinction. What we had not understood was how discerning fund consumers had become. In fact, when poring over the numbers, Ptak learned that being among the low-cost 10% wasn't enough. Only the cheapest 5% of S&P 500 funds enjoyed net sales. The next 5% had outflows, too.

John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.