Price competition is intense among the largest fund managers. That is one of the conclusions of the latest version of Morningstar’s US fund fee study, published recently. In a context where management fees continue to trend downward, two investment houses in particular are leading the list of the lowest charges.
According to the Morningstar Manager Research team, the figure that best represents the experience investors have with funds is the asset-weighted average fee. In this case, Vanguard and Charles Schwab boasted the lowest fee last year, at 0.07%.
Vanguard is the classic leader in low fees, but Charles Schwab has also been cutting fees over the years, catching up with the world’s second-largest asset manager. While the former reduced its adjusted average fee from 0.09% to 0.07% between 2020 and 2025, the latter cut it from 0.1% to 0.07% over that same period.
It is worth noting that both companies hold a clear advantage, as the third-ranked manager with the lowest average fee in its vehicles sits 3 basis points higher. State Street closed 2025 with a representative fee of 0.1%, managing to reduce it from 0.16% in 2020.
In fourth place, Morningstar highlighted, iShares recorded a figure of 0.15% last year, noting that “its expansive offering includes more expensive active and niche strategies alongside its flagship low-cost index funds.” In the case of this investment house, the fee dropped from 0.19% over five years.
“As companies compete on costs, investors win, benefiting from an increasingly broad menu of cheap funds that offer extensive market exposure,” the information provider emphasized in its report.
A Long-Standing Trend
The fee numbers in the US mutual fund and index fund industry are just another milestone in a long-term trend that has seen commissions shrink industry-wide.
The average cost ratio paid by investors in 2025 is better than half of what it cost two decades ago. “Between 2006 and 2025, the asset-weighted average fee fell to 0.32% from 0.8%. Investors have saved billions in management fees as a result,” the report emphasized.
The Manager Research team identifies three major drivers behind cost reduction in the industry. On one hand, investors are increasingly aware of the relevance of minimizing investment expenses, which has led them to favor low-cost vehicles. On the other hand, competition in the fund management industry has driven several players to cut fees.
The third pillar, they added, is related to the evolution of advisor dynamics. “The shift to fee-based models for financial advice has been a key factor in the shift toward low-cost funds, share classes, and fund types,” they explained, especially ETFs.
However, Morningstar stressed that these average figures derive from a heterogeneous landscape, where different areas of the mutual fund and index vehicle market are experiencing different phenomena.
At the less expensive end of the spectrum, index mutual funds and ETFs “are approaching a floor, with many already charging less than 0.05%,” they noted. Conversely, in the segment of more expensive strategies, the emergence of active ETFs and alternative strategies “contributes to the launch of higher-priced funds than what was seen before.”
Investor Approval
Beyond differing investor preferences, the study by Morningstar Manager Research shows that fees dictate the pace of fund flows.
Since 2000, they indicated, net flows have trended upward for funds and share classes with fees in the cheapest 20% of their respective categories. Last year, these funds received flows of 694 billion dollars.
In contrast, flows into the remaining 80% of funds were negative in 10 of the past 11 years. In the case of 2025, these vehicles collectively lost a net 244 billion dollars.
“This 939 billion dollar difference in flows is quite large, but it is slightly below the historic 1.2 trillion gap of 2024,” they pointed out.
Along those lines, the information provider emphasizes that its studies reflect that fees are a good predictor of future returns. “Low-cost funds generally have higher probabilities of surviving and outperforming their more expensive peers. It is encouraging to see investors prefer those funds,” they stated in their report.
