TERs for active funds push higher – Fund Forum
The community of actively-managed equity funds distributed across European borders last year recorded its highest average total expense ratios since at least 1994, according to Lipper, despite fund buyers supposedly becoming more cost-conscious since the crisis, and despite the proportion of Europe’s equity funds beating their benchmarks in 2011 halving versus the previous year.
The asset-weighted total TER for cross-border active equity funds was about 2% – a level that Ed Moisson (pictured), head of UK and cross border research at the data monitors, attributed to back office costs stabilising recently, while management and distribution costs kept rising.
“We are an industry where non-cost sensitivity prevails,” he told delegates at the Fund Forum conference in Monaco.
He contrasted this to grocery supermarkets, which had built their business by competing on costs. Active fund managers, by contrast, compete on ‘skill’, “and this is more the service end of a spectrum. Even expected market returns of 4% to 6% may not focus investors’ minds more on costs”.
Moisson added investors may be more mindful of fees with absolute return funds, where a typical target was cash plus a set percentage gross of fees.
He painted a bifurcated picture of European mutual funds. This year to March almost all net €100bn inflows went to cross-border funds, whereas last year almost all the net outflows came from funds with domestically focused distribution.
Europe’s mutual fund industry also remains split over large funds taking in a high proportion of new money, and a large rump struggling to raise cash. For bond funds, for example, there were 1434 funds with up to €25m, and only 13 with €1bn or more. But the latter pulled in inflows equivalent to 27.2% of assets last year, compared to 10.6% asset growth through flows for their small rivals.
Europe’s active equity fund industry has also suffered a decline in performance versus benchmarks, to just 15% beating benchmarks in last year’s difficult markets. In 2008 some 23% did so, rising to about 30% in 2009 and 2010.
It would seem Europe’s fund investors have been fairly harsh during recent crises when it comes to withdrawing business, with redemption levels for cross-border funds as a proportion of total assets running at about double the equivalent levels for US funds.
Finally, Moisson pointed to positive trends for ETFs, where funds of funds only using passive products have grown to about €5bn