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Morningstar Director of Mutual Fund Research’s Russel Kinnel on the decline in mutual fund fees and its impact on investors.
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-- for investors a new study provides mutual fund fees fell last year.
That means more money in your pocket because as you know -- cut right into your investment returns here to break it down Russell -- director of mutual fund research at Morningstar.
Also great to see you again -- pleasure to have you on the show.
Will what's going on here you actually conducted a survey the -- out and did you see the trend in these fees what's going on here.
That's right expense ratios are actually coming down they came down.
Last year and they've been sort of slowly coming down little drips and drabs over the last ten years so it's really a healthy trend for investors bottom line.
I isn't the effective ETFs exchange traded funds that carry such low -- is the introduction of the votes.
Well it's yes.
Are lowering fees that we actually left -- -- -- this study so really it's just capturing what's going on an open end funds but even an open end funds people are interested in index funds.
They're interested in bond funds which are lower cost.
But they're also interested and lower cost funds in general so a big part of what's driving this is investors actually looking for lower cost funds.
President fund companies cutting fees.
Well and you know people say that individual investors are stupid and that is -- evidence right there that they are not they know what -- -- -- doing and I love it when we can say that.
Are -- companies out there that are making it clear move to cut fees just -- attract investors to attract money.
Yeah the biggest -- cuts that affect the most investors have come from vanguard they've cut the absolute levels but they've also lowered.
The investment minimums for -- admiral share class funds which are even cheaper so that it's easier for small investors to access.
They're really cheap that we'll share class and that's had a big effect on lowering the average investors -- -- because they're the biggest fund company.
What's so interesting about this I think is that.
These are such a big predictor of performance of your portfolio is that these cut right in -- turns so long term even this could be good news for so many small investors right.
It's it's really big news -- because.
It's human nature to think that recent total returns are what we should focus side.
But in fact we know that expenses are -- better predictor of long term performance and they help you out year after year so.
-- given that we may have a fairly low return environment.
Low fees are really critical.
According to another topic you've been spending some time line -- researching and that's a performance of really big funds over time.
Now the problem with -- a big fund is that you get to a point where it's hard to put all your money to work.
Tell us what you see in terms of returns.
Of these funds over time.
-- so I looked at the biggest funds in terms of single managers ten years ago.
And four out of ten actually had a bottom courts health performance which is pretty dismal four actually had top -- -- when -- it kind of tell you that.
Running a really big asset base is very difficult to do.
A few managers have done it well but many others have have failed so it's it's a really hard thing to do.
-- really hard thing to do is there anybody out there is successful at it.
Or -- we have yeah.
Entirely.
That but.
Well you wanna you wanna have a high standard Freddie any big fund manager but -- down -- has done an amazing job of investing a large amount of money he's actually today's running more than twice as much as the next.
Manager on the list yet he's got great -- returns it's really remarkable.
-- -- continue you never now with -- great stuff -- and just to remind our viewers these expenses in mutual funds.
They were zero point 77%.
They're now zero point 75%.
And it doesn't sound like a lot but over time it really adds up Russell thanks for coming on the show tonight we really appreciated.
