Italy and Spain are the worst places for fund charges in Europe, research from Morningstar shows.
Investors in Italy and Spain are paying the highest fees on average compared to other European domiciles – and contrary to the trend elsewhere, charges are increasing.
The average asset-weighted ongoing charge in Europe has fallen to 1% this year, from 1.09% in 2013. On average, Italian investors pay 1.42% and Spanish investors pay 1.21%.
Italy and Spain are not alone in having higher average expenses and rising charges; fund expenses are also on average higher in Belgium, while on-going charges have also increased in Denmark and Germany.
Investors in Denmark pay higher fees to larger fund companies, suggesting that Danish investors are better off choosing funds from fund companies with fewer assets, says Morningstar.
Asset-weighted ongoing charges in the predominantly institutional and high-net-worth domiciles of Ireland and Switzerland are “well below” the European average, Morningstar’s research shows. The charge is the same in both countries: 0.62%.
The decline in ongoing charges is, among other factors, a result of the “increasing penetration of clean share classes (those without commission fees)”, says the Morningstar report, but also a result of investors' general increased preference for less expensive funds.
However, although the overall ongoing percentage charge has decreased, investors pay more in nominal values now than in 2013. The annual payment of investors in European funds exceeds €61 billion in ongoing charges, up from €53 billion in 2013. The reason is that the increase in managed assets more than offsets the drop in ongoing charges, said Morningstar.
“There is clearly some good news for investors here that fund fees – in many cases – are coming down in Europe”, Nikolaj Holdt Mikkelsen, chief analyst for Morningstar Denmark, said.
“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.”
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”, suggesting that past ongoing charge levels are a “strong predictor of future levels”.
The Morningstar paper is called ‘European Fund Expenses are Decreasing in Percentage’.
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