Ucits retail funds not always pricier than US mutual funds, says industry paper

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Conventional wisdom holds that US mutual funds are cheaper to own than retail Ucits funds, meaning US mutual fund investors make slightly better returns than European punters. But the European Fund and Asset Management Association reckons that in previous comparisons costs have been calculated differently, which skews topline figures.

In a recent report, Efama noted that there are fundamental differences in how retail funds are distributed in the US and in Europe, which has not always been accurately accounted for.

When distribution and advice costs are stripped out of the equation, retail funds are “currently slightly lower in Europe than in the United States,” Efama reported last month. When the total cost of ownership is considered, “US mutual funds can be on average at least as high or even higher than the cost of Ucits” when fees for financial advice is included.

Referring to a proposed restriction on sales commissions, the lobby group argued that “this result is relevant in the debate around a possible EU-wide ban on ‘inducements’ as it indicates that there is no guarantee that unbundling of the product and distribution costs will necessarily lead to a lower all-in price for retail investors.”

“The asset-weighted average product cost of US mutual funds is significantly lower than that of Ucits,” due to several market factors, Efama stated. These include greater economies of scale in the US and the role that mutual funds play in US employer and individual retirement plans.

Efama said that this highlighted “the need to further deepen the single market for Ucits” and push forward with the EU’s capital markets union.

The trade group bills itself as the “voice of the €31trn European investment management industry.” The report, “The costs of Ucits and US mutual funds: We can only compare like with like”, was authored by Bernard Delbecque, Efama’s senior director for economics and research. The study used data from Fitz Partners, a fund research firm which tracks fund fees and expenses, and the Investment Company Institute, a global trade group headquartered in Washington.

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