ETFs, index funds lowering costs of mutual funds

New York

INDEX and exchange-traded funds (ETFs) are getting better at the thing that makes them so popular: driving down the cost of investing. Not just among themselves. New research from Washington- based Investment Company Institute (ICI) shows that the cost mutual funds charge investors is the lowest since at least 1996. The average expense ratio for equity funds, defined as the fund's total expenses as a per cent of its net assets, dropped to 68 basis points (0.68 percentage point) last year, the sixth straight year it's fallen, data from ICI shows. Expense ratios for bond and hybrid funds also declined in 2015.

The rise in popularity of investing in vehicles that track equity benchmarks has also drawn a vocal group of critics, who have blamed ETFs for increasing correlation. With dispersed returns from stocks reaching the lowest since 1979 by some measures, investors from billionaire Bill Ackman to Martin Taylor, who closed his 15-year-old hedge fund in January, have blamed index investing for contributing to the demise of stock picking.