Morningstar: Fund fees fall across Europe

Research published by Morningstar reviewed the expenses paid by fund investors in Europe and finds that, overall, the asset-weighted ongoing charge for the European fund universe has fallen to 1%, down from 1.09% in 2013.

However, despite the drop, many investors now pay more in nominal values than in 2013, with the increase in managed assets more than offsetting the drop in ongoing charges.

The research paper, “European Fund Expenses are Decreasing in Percentage”, offers expense analysis of some 54,000 share classes available to investors in Europe.

Switzerland and Ireland lowest charges

Among the report’s findings includes the fact that asset-weighted ongoing charges in Ireland and, perhaps surprisingly, within Europe’s most expensive country Switzerland, are well below the European average.

In Italy, Spain, France, and Belgium, fund expenses are on average higher relative to other domiciles. In Denmark, Germany, Italy, and Spain, asset-weighted ongoing charges have increased.

Funds available to investors in Sweden, Germany, the Netherlands, and Switzerland exhibit the highest degrees of economies of scale; conversely, investors in Belgium, Denmark, and Portugal enjoy no economies of scale benefits.

Investors in Denmark pay more in fees the larger their fund company, suggesting that Danish investors are better off choosing funds from fund companies with fewer assets.

The report also highlighted that across the broad asset classes, the asset-weighted ongoing charge for equity, fixed-income, and allocation funds in Europe decreased overall.

‘Good news for investors’

“There is clearly some good news for investors here that fund fees–in many cases–are coming down in Europe”, said Nikolaj Holdt Mikkelsen, chief analyst for Morningstar Denmark. “However, investors really do have to do their homework and take care to shop for a good deal. The new commission-free share classes have brought average fund costs down in some markets, but investors elsewhere are on average paying more now in asset-weighted expenses than just three years ago when Morningstar conducted a similar Europe-wide study.”

Mikkelsen added that the 2016 study also shows that expensive funds have a tendency to remain expensive and cheaper funds will continue to be attractive in the future. “This suggests that past ongoing charge levels are a strong predictor of future levels,” he said.

The report found that on average, the European charge reduction for a commission-free equity share class is 46 basis points. Overall, 10.3% of equity fund assets studied are invested in passive funds, up from 8.0% in 2013; in general, the study finds that increased penetration of passive funds is inversely related to the asset-weighted ongoing charge for such funds.

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