Ucits costs influenced by size, age, investment strategy and geography, study shows

The average product cost of active and passive equity Ucits available to retail investors fell to 1.04% and 0.27% respectively in 2022, according to the European Fund and Asset Management Association (Efama).

Efama’s latest market insights report explored the factors influencing the costs borne by retail investors in equity and bond funds, focusing on clean share classes, which exclude distribution and advice costs.

A significant finding of the report is that the average cost of clean share classes for equity and bond Ucits aimed at retail investors has been decreasing in recent years. This decline is attributed to the rise of passive investing, increased transparency in costs, and technological advancements reducing operational expenses.

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Fund size emerged as a crucial determinant of costs, with larger share classes exhibiting lower average costs compared to smaller ones. This is due to economies of scale, allowing funds to spread fixed costs over a larger asset base.

Although the simple average cost of Ucits share classes is lower than that of US mutual funds, the average asset-weighted cost of US mutual funds is notably lower. This disparity is attributed to the size and integration of the US mutual fund market, enabling fund managers to leverage a large client base and achieve significant economies of scale.
The report also noted that newer share classes tend to have lower costs, as they lack an established performance track record and may offer lower fees to attract investors.

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Additionally, factors such as investment strategy and geographical focus impact fund costs, with funds investing in specific asset classes or regions potentially incurring higher research costs.

Bernard Delbecque, senior director at Efama, commented: “The report highlights that cost differences among various fund categories are small, particularly when compared to disparities in net returns. This observation carries two important implications: firstly, it confirms that cost alone should not dictate fund selection; and secondly, it emphasises the potential benefits for retail investors in seeking financial advice to facilitate well-informed investment decision-making.”



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