RPT-U.S. stock fund costs fall; money market fee waivers hit $5.8 bln

Wed May 14, 2014 8:01am EDT

(Repeats story that first ran at 12:01 EDT with no changes to text)

By Tim McLaughlin

May 14 (Reuters) - U.S. stock fund expenses fell 4 percent last year while the sponsors of money market funds waived $5.8 billion in fees to shield investors from negative returns, an investment industry trade group said on Wednesday.

Money market funds have waived nearly $24 billion in expenses over the past five years, according to a study by the Washington D.C.-based Investment Company Institute (ICI).

Yields on money funds are next to nothing. They track short-term interest rates, which are skipping along rock bottom as the U.S. Federal Reserve tries to stimulate the economy with cheap money.

Money market fund advisers and their distributors pay for waivers, forgoing profits and bearing nearly all of the expense of running the funds. Waivers increased by $1 billion to $5.8 billion in 2013, ICI said.

But for stock funds, competition and an expansion of assets have helped lower equity expenses as economies of scale worked in favor of investors. Assets in stock mutual funds surged 31 percent to $7.76 trillion in 2013 from year-earlier levels. That reflected net deposits in the funds by investors and a strong stock market performance.

The average expense ratio that investors paid for stock mutual funds dropped to 0.74 percent of net assets, from 0.77 percent in 2012, ICI said. The expense ratios of hybrid funds, bond funds and target-date funds were largely unchanged.

"This study also shows that the average expenses of both actively-managed funds and index equity funds have been trending downward for more than a decade," said Sean Collins, ICI's senior director of industry and financial analysis.

Indeed, the average expense ratio for an actively managed fund has dropped to 0.89 percent from 1.10 percent over the past 10 years. In an even sharper decline, the average index fund's expense ratio has been cut by more than half to 0.12 percent from 0.25 percent in 2003, Collins said.

The overall decline in average equity fund expenses marked the fourth straight year of reduction, after an increase of 4 basis points in 2009 in the wake of the financial crisis, ICI said. Fund expenses cover investment management fees, record keeping, compliance and other administrative tasks, and are paid from a fund's assets.

Among equity funds, large capitalization blend funds had an average expense ratio of 0.35 percent. In contrast, emerging market funds cost, on average, 1.08 percent, ICI said.

After falling 1 basis point in each of the previous three years, the average bond fund expense ratio did not change in 2013, at 0.61 percent of net assets, ICI said.

(Reporting By Tim McLaughlin; Editing by Nick Zieminski)