Funds With High Expense Ratios Have The Worst Returns

Research from Morningstar shows that funds generally underperform by the same amount that they charge their clients, though there is a lot of variation

Low-cost index funds have put a lot of pressure on active managers to justify their fees, and new research from Morningstar shows just how difficult it can be to make that case. When you collect data from every US equity fund there’s a very clear correlation between expense ratio and alpha, unfortunately for asset managers (not to mention their clients) the correlation is negative.

“We find that the higher the price of a fund, the worse its performance tends to be, and the link between fees and performance is stronger for passive funds,” writes Morningstar analyst...