Morningstar comments on ETF fees, new structures and that retail trading frenzy

Morningstar’s Director of Global ETF Research, Ben Johnson, has commented on the latest annual US fund fee study from Morningstar which shows that in 2019 the asset-weighted average expense ratio across all mutual funds and ETFs was roughly half what investors paid in fund fees as of 20 years ago at 0.45 per cent.

He comments that a small decline in fund fees adds up to billions saved. “Asset-weighted fund fees fell to .45 per cent in 2019 from .48 per cent in 2018. While this seems insignificant, this amounted to USD5.8 billion in savings for fund investors. Compounding investor savings at a rate of 4.93 per cent over the next 10 years would equate to USD9.4 billion more in investors’ pockets come 2030.”

The driver behind lower fees is in the hands of investors, Johnson says. “Investors deserve most of the credit for putting the squeeze on fees. Asset-weighted fees represent the average amount investors are paying for the funds they invest in, while equal-weighted fees measure the toll taken by the average fund. Thus, the fact that asset-weighted fees have dropped more sharply than equal-weighted fees indicates that investors, on average, choose funds with below-average fees.”

Johnson has also commented on BlackRock’s new filing, of a raft of  new thematic ETFs, including its first active non-transparent ETF. “As the fund giants join the likes of Fidelity and Franklin Templeton who have also recently expanded their ranges of thematic funds, investors should approach these funds with caution,” he writes. “These products are often designed with saleability in mind rather than investment suitability.” Johnson dismisses active non-transparent ETFs as a solution in search of a problem that investors don’t face.

In conclusion, Johnson comments on the retail trading frenzy. “As markets swing back and forth, so have the fortunes of a growing number of millennial retail investors who are enthusiastically jumping into investing and trading through a variety of easily accessible brokerage apps. But while JETS and USO are getting all the attention, the roster of the most widely held ETFs among Robinhood users includes many of Morningstar’s most highly-rated ETFs,” he says.