Malkiel argues that as the mutual fund industry expanded from less than $26 billion in assets under management since the 1980s to almost $3.5 trillion, the increase in economies of scale should have been passed on to investors, which would have lowered expense ratios – he even points out that expense ratios for actively managed funds actually rose to 0.91% in 2010 from 0.66% in 1980.
John Rekenthaler, V.P. of research for Morningstar, though, points out that the industry’s fee structure has changed. For instance, front-end sales changes have disappeared and replaced by 12b-1 fees. However, Rekenthaler acknowledges that low-fee investments have been drawing the lion’s share of new assets in recent years. [Index-Hugging Mutual Funds Shamed by Cheap S&P 500 ETFs]
“For some time periods circa 2000, there were more monies moving into funds with expense ratios exceeding 1.5% than into those with expense ratios of less than 0.5%,” Rekenthaler said. “Today, it’s the reverse, with institutional shares and exchange-traded funds accounting for effectively all of incoming assets.”
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Max Chen contributed to this article