ICI: Stock Fund Expenses on the Decline

Average expense ratios for stock funds fell two basis points in 2010, to 0.84 percent.

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Good news for fund investors: Annual fees for stock funds are falling, according to a new study from the Investment Company Institute (ICI). In 2010, the average expense ratio for stock funds fell two basis points from a year earlier to 0.84 percent, while the average expense ratio for bond funds stayed flat at 0.64 percent.

ICI attributes the decline in stock fund expenses to increasing assets. Net assets in stock funds rose 15 percent in 2010 to $5.4 trillion as of the end of December. "Mutual fund expense ratios often vary inversely with fund assets, as fixed fund expenses are spread across a larger asset base," according to the study. Investors in stock funds paid an average of 0.95 percent in fees in 2010, including sales charges, or loads—down three basis points from 2009.

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Net assets in bond funds rose 18 percent last year, to $2.6 trillion, but average fees stayed the same. "While we saw strong growth in the bond market in 2010, those expense ratios stayed flat due to two reasons. Investors moved more assets into in global bond funds, which tend to have higher expense ratios, and into funds that use a unified fee structure, in which fees are a constant percentage of fund assets. Given these trends, it's not surprising to see bond fund expense ratios bucking the typical inverse relationship between asset growth and expenses," says ICI senior economist Sean Collins. Bond fund investors paid an average of 0.72 percent—down one basis point from 2009.

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Money market fund expenses also dropped last year. Average fees fell by seven basis points to 0.26 percent. Given that yields are meager these days, many funds have waived expense ratios to offer clients a break. In the survey, ICI says fees could move higher once short-term interest rates begin to rise.

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