In the mutual fund and exchange traded fund industries, investment interest is closely linked with fees and costs, Vanguard Group says.
In the decade ended December 31, 2012, Morningstar data reveals that funds with lower expense ratios experienced greater investor dollars, according to a Vanguard Group research note.
“Investors – most likely recognizing that lower costs help them keep more of a fund’s return – have been ‘voting with their feet’ and gravitating to low-cost investment options,” Vanguard said.
Specifically, the lowest cost quartile – expense ratios below 0.44% – brought in over $292 billion in cumulative net cash flow in all U.S. equity funds for the ten year period, whereas funds with higher expense ratios experienced a net outflow of $368 billion. Breaking down this group with the expense ratios for the “lowest of the low,” the group with expenses below 0.17% attracted $449 billion in assets.
Taxable fixed income portfolios with expenses below 0.30% attracted $614 billion, or about 81% of net cash flows into all bond funds. [Vanguard Cuts Fees on Three Bond ETFs]
Vanguard points to the growing role that financial advisors and corporate retirement plans play as a main contributor to cost awareness. As of 2011, 53% of household mutual fund assets were custodied through advisors and 27% were in contribution plans.