Investors paid less for funds than ever before in 2024, with the asset-weighted average expense ratio falling to 0.34%, down from 0.36% in 2023, according to Morningstar’s 2024 U.S. Fund Fee Study released Wednesday. This 5.3% decline saved investors nearly $5.9 billion in fund expenses but signals a slowdown in the rate of fee reductions as many index funds approach zero.
The findings from Morningstar highlight a continued shift toward low-cost investment options, with investors overwhelmingly favoring the cheapest funds.
According to the report, the cheapest 20% of funds saw net inflows of $930 billion in 2024, while the remaining 80% experienced $254 billion in outflows, creating a flow gap of $1.2 trillion—the second-largest difference in two decades.
The slowdown in fee reductions comes as prominent index mutual funds and ETFs approach what may be a pricing floor, the study shows. Many already charge less than 0.05%, with some providers offering zero-fee options. This plateau in fee competition suggests the dramatic price wars of recent years may be winding down.
“In recent years, index mutual funds and ETFs have experienced significant fee pressure,” according to the Morningstar report. “As fees for these funds sit either at or near zero, it is inevitable that the pace of fee declines will slow, prompting asset managers to look elsewhere for profits.”
The Morningstar study reveals that passive funds’ asset-weighted average fee fell by just 1.5% in 2024, remaining at 0.11% when rounded. Active funds saw their fees decline by only 1% during the same period, according to the data.
Fee reductions have not been distributed equally across the fund landscape, Morningstar researchers found. The cheapest 10% of funds have cut their fees in half over the past 15 years, while the most expensive funds have reduced fees by only 19% during the same period.
Vanguard maintained its position as the low-cost leader with an asset-weighted expense ratio of 0.07%, the report states, followed by State Street’s SPDR (0.12%), iShares (0.16%) and Dimensional Fund Advisors (0.25%).
Among investment vehicles, ETFs continue to be cheaper than mutual funds, with both equal-weighted and asset-weighted ETF fees measuring less than half of those charged by mutual funds, according to the study. However, this gap has been narrowing, with the average fee of new ETFs rising by six basis points since 2015, while new mutual funds are 24 basis points cheaper than they were at that time.
