Equity funds cost 70% more than fixed income

percentageEuropean institutional investors are on average charged 77.7 basis points to invest in an equity fund, about 70% more than it costs to invest in the average fixed income product.

Investors in equity funds are also more likely to be charged a performance fee, found the survey of investment fees by analytics firm Camradata.

Within equities, fees vary by region, and the general trend was that investing closer to home costs less. Chinese equity funds were particularly expensive with fees of 89.3 basis points on average, while UK equity funds were the cheapest equity products in the survey, with an average fee of 69.5 basis points.

Global equity funds had an average fee of 81.7 basis points, while European equity funds cost 77.2 basis points.

Fees for fixed income products also varied by region. UK fixed income funds charged just 33.9 basis points on average, while emerging market hard currency debt, as measured by the JP Morgan EMBI, charged 58.7 basis points. However, fees for European fixed income were high at 63.9 basis points on average.

The most expensive investment type in the survey were funds of hedge funds, which carry an average base fee of 104.8 basis points with a performance fee in three-quarters of cases.

In contrast, less than a third of fixed income funds and 36.6% of equity funds charge a performance fee.

Will Wilkinson, an associate at Camradata, said investors should also consider what fee discounts are available for large investments.

“On average, investments over a threshold of £28.4 million (€36 million) will incur a discounted rate,” he said. “The largest discounts offered tend to be within the European equity class, where managers offer around 32.3% reduced fees on your investments after £19.2 million. Again, the global equity managers offer the toughest rates, only discounting by 16.5% of their initial charges.”

George Mitton, senior staff  writer
©2012 Funds Europe