Morningstar sees end to sinking fund fees

The era of declining mutual fund expenses has ended, according to research released today by Morningstar Inc.

The average asset-weighted expense ratio for mutual funds in 2007 was 0.90%, remaining flat from the previous year, reported Russell Kinnel, director of fund research at the Chicago-based fund research firm.

Mr. Kinnel also found that expense ratios rose for balanced and municipal bond funds, while domestic equity and taxable fond funds dropped by 0.01%.
The only asset class with a significant cost decline was international equity, which dropped 0.04%.
The data follows several years when expense ratios declined.
From 2003 to 2006, mutual fund expense ratios fell from 1.00% to 0.90%. In his report, Mr. Kinnel attributes the fee reduction largely to investors seeking out low cost funds.
He also noted that the mutual fund scandals of 2003 resulted in some companies reducing fees as part of a legal settlements and others for competitive reasons.
It’s probably too early for a prediction for 2008, said Mr. Kinnel. “With redemptions in the market, it’s tough to see it go down,” he said.
“I would expect it probably would be flat to one basis point up next year.”
The research resulted from an annual survey of mutual funds including a little more than 11,000 funds with multiple share classes.