An article in Forbes indicates that an average expense ratio (ER) of exchange-traded products (ETPs) increased from 0.61% to 0.62% over the 12 months to June 2013. The emphasis should be on average, as opposed to asset-weighted. That is because
Driving the fee increase is the cost of newly issued funds. Since 2010, the average net ER of a newly issued fund is 0.70%, according to Morningstar data.
Not surprisingly, as the ETP space becomes more crowded and basic indexing is increasingly well covered, more niche products with a small amount of assets under management (AUM) and, consequently, higher ERs are introduced. However, a straight ER average is less indicative of what a typical investor would pay compared to an asset-weighted average.
So, was there also an increase in asset-weighted fees? The 2012 and 2013 Lipper’s Quick Guides to OE [open-ended] Fund Expenses provide at least a partial answer. Here are the average asset-weighted fees for ETFs with “institutional” load types:
|ETF Type||2011 ER||2012 ER||% Change|
For all ETF types, the ER decreased or stayed the same between 2011 and 2012, with an overall decline by about 7.3%. Therefore, on an asset-weighted basis, ETF fees exhibited an opposite trend to that on a straight average basis. That is great news for both ETF investors and Alpholio™, as the fund expense component of the (negative) excess return became smaller.