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Mutual fund expense ratios trend down in '15


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Mutual fund expense ratios trend down in '15

Expenseratios for equity mutual funds dropped forthe sixth consecutive year in 2015, setting a two-decade low according to the InvestmentCompany Institute.

Weightedby assets, the average equity fund expense ratio fell two basis points to 0.68%in 2015. That followed a 4-basis-point decrease in 2014.

Thereare a number of factors that contributed to the decline, some of which are tiedto strong inflows into passive products. Six of the top-10 mutual fund asset gatherers in 2015 were passive productsoffered by Vanguard Group Inc.,including four equity funds. As more money flows into lower-cost passive funds,the average fund expense ratio for the industry comes down.

The expense ratio is the percentage of assets that mutual fundscharge their shareholders and includes management and administrative fees.

Accordingto S&P Global Market Intelligence research, 378 of the 897 equity mutual fundswith assets under management of more than $1 billion lowered their fees in 2015.An additional 326 funds kept their expense ratios steady. Only 193 of the fundsraised fees. As a group, the funds with reduced expense ratios attracted about $13billion in net client flows. In contrast, the funds that either kept expenses thesame or raised them suffered collective outflows of $107 billion.

Lower expense ratios

Manyasset managers cut the expense ratios of their active funds, aided in part by stronginflows. Hartford Core Equity Fund (HAIAX), a $1.36 billion large-cap core fund,lowered its expense ratio by 39 basis points in 2015 to 0.92%. With that decrease,the largest of any equity fund with more than $1 billion in AUM, the fund's expenseratio fell below the 1.11% U.S. large-cap core peer average, according to ThomsonReuters Lipper data. The Hartford FinancialServices Group Inc.'s product had $788.0 million of net client additionsin 2015.

TouchstoneSands Capital Select Growth Fund (PTSGX) cut its expense ratio despite experiencingoutflows. PTSGX's fee level was 1.08% at year-end 2015, down 23 basis points ona year-over-year basis. The $3.84 billion large-cap growth fund had $1.40 billionin net client withdrawals, and its net asset value per share declined 8.6% lastyear.

JohnHancock Fundamental Large Cap Value (JFVAX) was another large-cap fund with outflowsthat still managed to pass along savings to its shareholders. JFVAX cut its expenseratio by 17 basis points to 1.13%. The fund, offered by John Hancock Advisers LLC, experienced net client withdrawalsof $166.4 million in 2015.

In themulticap core space, Fidelity Management& Research Co.'s New Millenium Fund (FMILX) had $960.2 million ofnet client withdrawals, yet experienced a 10-basis-point reduction in its expenseratio. According to the Fidelity fund's annual report, the downward adjustment tothe management fee was based on the relative underperformance of its benchmark index,the S&P 500, over a 36-month period.

Higher expense ratios

EightFidelity mutual funds had the highest expense ratio increase among large equityfunds. Fidelity Growth Strategies Fund (FDEGX), a multicap growth fund, raised itsratio by 19 basis points, despite pulling in $580.2 million in net new assets in2015. Peer Fidelity Magellan Fund (FMAGX) increased its expense ratio by 18 basispoints. Even with $1.37 billion in net client withdrawals, that fund remains oneof the company's larger offerings.

had fivefunds on the largest year-over-year increase list, and each had net outflows. JanusContrarian Fund (JACNX) stood out in the group, with $741.0 million in withdrawals.

The newDepartment of Labor fiduciary standardrules may encourage advisers to pay more attention to a fund's expenseratio. As such, expense ratio reductions could be more common in the years ahead. 

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