Retail investment fund costs are declining, according to research from the European Securities and Markets Authority (ESMA), which points to the launch of new, cheaper funds as the primary factor in driving down average costs.
In a report published Tuesday, the regulator detailed the results of its latest annual review of the costs and performance of retail investment funds, which found that fund costs continue to decline — with equity fund costs declining by 8% and bond fund costs dropping by almost 15% for its sample of funds with a total €7.9 trillion in assets under management.
“This is however mostly due to new investment funds entering the market, as they usually charge lower fees. Cost reductions for long-standing funds remained more limited,” ESMA said.
Specifically, it found that costs for existing equity funds were only down by 3%, and for existing bond funds, costs were down by 9%.
Additionally, the report noted that the costs for ESG funds were lower than costs for non-ESG funds; and, that the costs for retail structured products were largely stable — while costs for ETFs decreased by 13% for equity funds, and 17% for bond funds.
Alongside the overall decline in costs, fund performance picked up, ESMA noted, as gross returns improved, and real net returns were positive across all product categories.
“The data we publish today shows gradual cost pressure in EU markets and — with that — improving investor outcomes,” said Verena Ross, ESMA chair, in a release on Tuesday.
However, she noted that the regulator’s research found that the benefits of declining fund costs “are uneven and product choice matters.”
“Transparency and competition remain key to translating market improvements into real gains for investors,” Ross said.