"There is more to declining expenses than just Vanguard."

John Rekenthaler Morningstar, Inc. VP, Research

So argues veteran mutual fund industry watcher John Rekenthaler in his latest Morningstar column. Rekenthaler digs deep into M*'s just-released annual report on mutual fund fees.

Rekenthaler's column offers an interesting history lesson on a 15-years-and-counting downward trend in expense ratios for mutual funds. He points to the shift away from load to no-load shares and from no-load retail to institutional, thanks to changing financial advisor business models, as being a key factor in the trend; he includes a handy graph that shows the dramatic shifts since 2000 among the different share class types.

Of course the rise of passive investments plays a big part, too. Passive funds brought in more than $300 billion in net flows last year, "while active funds suffered the mirror image in redemptions."

Yet as Capital Group and Vanguard like to point out, part of the downward shift is because of the success, in terms of performance and in terms of flows, of low-cost actively managed funds. "There are three paths for success," Rekenthaler concludes. "Get cheaper, get cheaper, and get cheaper." 

Edited by: Neil Anderson, Managing Editor


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