Industry story
Low-Cost Funds Consistently Beat High-Cost Funds, Morningstar Found
financial-behavior investment-advisor
Morningstar's data makes a simple case: the expense ratio is one of the most reliable predictors of whether a fund beats its peers, and low-cost funds win across every time period tested. That's worth keeping in mind as more than 1,000 new ETFs have launched this year, over 80% of them actively managed and more than 30% using leverage, meaning borrowed money amplifying already-risky bets. More products, higher fees, more complexity. The industry gets paid on all three.
Full analysis
Morningstar, the investment research firm, concluded from its data that expense ratios — the annual fee a fund charges — are one of the most reliable predictors of performance: low-cost funds beat high-cost funds across every time period and data point tested. Adam M. Grossman cites this finding as a straightforward reason to avoid high fees and to be skeptical of the more than 1,000 new ETFs (exchange-traded funds, which are funds that trade on a stock exchange) introduced so far this year, more than 80% of which are actively managed and more than 30% of which use leverage — borrowed money to amplify bets.
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