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Passive funds consistently outperform actively managed funds, according to new research from a  European Union securities regulator, which also finds that investment costs reduce retail investor returns by 25% on average.

The European Securities and Markets Authority (ESMA) today published its first annual report on the cost and performance of retail investment products. The report examines both traditional and alternative investment funds as well as retail structured and products.

The ESMA found that fees and other costs ate up about one quarter of retail investors’ returns between 2015 and 2017; that ongoing costs, such as management fees, account for more than 80% of those total costs; and that retail investors typically pay twice as much in fees as institutional investors.

The report concludes that, in terms of overall returns, passive products consistently outperform active equity funds. The outperformance of passive products, it notes, “is further demonstrated by the fact that costs for actively managed equity funds are found to be significantly higher than for passively managed funds and ETFs.”

“Our report shows that fund costs are substantive, can severely impact returns and vary strongly,” said Steven Maijoor, chairman of the ESMA, in a release. “It demonstrates the importance of cost disclosure to investors, and the need for asset managers and investment firms to take costs into account when acting in the best interest of investors. This evidence should prompt investors to carefully compare the costs of investment products when making investment decisions.

“Costs, their level and structure are relevant for investor protection,” Maijoor added, “and we will monitor and assess what the evidence implies for our supervisory convergence work.”

The regulator also found that cost transparency is particularly limited for alternative funds and retail structured products.

“Retail investors in the EU benefit from the choice among thousands of [funds] and alternative funds and structured investment products,” Maijoor said. “It is key that they are aware of the costs and performance of these products.”