Morningstar - Fall 2019 - 52

All Funds
2006

2009

2012

2015

0.25
0.48
0.15 0.500
Fee
2018
0.25
1.00%
0.15 0

2006

2009

2012

2015

2018

Strategies

Active
2000

Passive
2003

2000

2003

EXHIBIT 3

from transaction-driven advice models and
toward fee-based.

0.67

Investors Discover Fees Matter The shift into the lowest-cost funds has accelerated.
0.48 0.50

Cheapest Quintile
Consequently, bundled share classes have seen
their market share more than halved since
2000, when such funds accounted for 44% of fund
assets. (Bundled funds' historical market
share is likely understated here, owing to the fact
that many funds that would have fit this
description have since been closed or merged
away. We do not account for dead funds
in these figures.) By 2018, bundled share classes
had declined to 21% of assets.

Remaining 80%

Cheapest Quintile
2000
2003

0.25
$1,000B
0.15 0

Remaining 80%
2006

2009

2012

2015

2018

Most strategic-beta funds reside in U.S. equity
categories. Last year, the asset-weighted
average fee for U.S. equity strategic-beta funds
was 0.17%, which is higher than that of
traditional cap-weighted passive funds (0.08%)
but well below that of active funds (0.7%).
Compounding Benefits
Greater awareness by investors about the importance of minimizing costs, intensifying competition
among asset managers vying for market share,
the move toward fee-based financial advice, and
institutions and advisors favoring unbundled
share classes have all driven asset-weighted fund
fees lower. By choosing low-cost funds, investors
have saved billions of dollars in fees. And
because fees compound over time, these investors
will earn better overall returns. K

Cheapest Quintile
2000

2003

Remaining 80%
2006

2009

2012

2015

2018

2000

2003

2009

2012

2015

2018

EXHIBIT 4

Cheapest 5%

Cheapest 5-10%

2000

Cheapest 5-10%
2003

$800B0

Cheapest 10-20%

2006

2009

2012

2015

2018

600
-500
$800B
400
600
200
400

Cheapest 5%

Cheapest 5-10%

2000

2003

2006

2000

2003

2006

Unbundled
Source:
Morningstar Direct.Semi-bundled
Data as of 12/31/2018.
Unbundled

Semi-bundled

Cheapest 10-20%

Bundled

2009

2012

2015

2018

2009

2012

2015

2018

0
200
-200
$800B
0
-200
600
400
$600B
200

Bundled

300
$600B
0
Shift to Fee-Based Bundled share classes, which embed advice and distribution-200
2000 and are2003
2012 classes, 2015
2018
fees
costlier than2006
unbundled,2009
no-load share
have experienced
3000
EXHIBIT 5

outflows the past five years.
2000

2003

2006

2009

2012

2015

2018

-3000
-600
$600B
-300

2000

2003

2006

2009

2012

2015

2018

-600
300

Unbundled

Semi-bundled

Bundled

0
-300
-600
2000

2003

2006

Source: Morningstar Direct. Data as of 12/31/2018.

Morningstar Fall 2019

500

Cheapest 10-20%

Dirt Cheap Asset flows are going to the cheapest of the cheap funds.
Cheapest 5%

-500
0
$1,000B
-500

2006

Ben Johnson, CFA, is director of global ETF research with
Morningstar Research Services. He is a member of the
editorial board of Morningstar magazine.

$1,000B
500
500
0

Source: Morningstar Direct. Data as of 12/31/2018.

A Look at Strategic Beta
Strategic-beta funds attempt to marry the best
attributes of active and passive approaches
to portfolio construction. The indexes that underpin
these funds aim to codify strategies similar
to those plied by active managers and deliver
them in a format that is more transparent and less
costly relative to most traditional actively managed
funds. Out of 867 strategic-beta funds and
share classes in Morningstar's database, 76% carry
fees that rank within the bottom quintile relative
to their Morningstar Category peers.

0.75

2009

2012

2015

2018

Morningstar - Fall 2019

Table of Contents for the Digital Edition of Morningstar - Fall 2019