Fund fees eat into returns: Morningstar says ETFs bring real price competition

(Editor’s note: the original was an English report from September 2011; the Chinese version above is a restyle, and this English text is a new translation of it.) Exchange-traded funds that track market indices charge management fees as low as 0.15% — and are bringing the managed-funds industry its first meaningful price competition in years, Morningstar communications manager Philip Gray observed at the time.

Why do fund fees matter?

Fund fees are one of the few variables investors fully control: you cannot control how investment markets perform, but you can control what you pay for that exposure. Morningstar’s Philip Gray noted that ETF fees as low as 0.15% are forcing real price competition across the managed-funds industry.

How ETFs changed the game

Unlike funds that pay analysts to pick stocks, ETFs simply track a share market index, giving them a far lighter cost structure. Their rapid growth, Gray said, has given investors much more choice.

The takeaway for investors

“For the first time in a long time, we have meaningful price competition within the managed funds industry,” Gray said. “Although you can’t control how investment markets will perform, one of the key things you can control is the cost of how much you are paying for that exposure.” Over decades of compounding, small differences in fees quietly devour final returns.