Fund Fees Are Falling, and the UK Looks Good

Australia, the US, and the Netherlands top the table for the cheapest places to invest, while Italy and Taiwan lag far behind

Ollie Smith 5 April, 2022 | 11:29AM
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Fund fees are still falling in most marketplaces, a major Morningstar analysis of the cost of investing across the world reveals.

Published last week, Morningstar's Global Investor Experience report compares fees across jurisdictions. 2022's conclusions are the first published since 2019, when the report was last updated.

"The majority of the 26 markets we studied saw the asset-weighted median expense ratios for domestic and available-for-sale funds fall since the 2019 study," the report's authors say.

"For domestically-domiciled funds, the trend was most notable in allocation and equity funds, with 17 markets in each category reporting reduced fees."

Two factors are driving down prices. Flows to cheaper strategies, which then results in repricing as other funds aim to keep up with the race to the bottom.

Or as the report concludes: "Lower asset-weighted median fees are driven by a combination of asset flows to cheaper funds as well as the repricing of existing investments."

"In markets where retail investors have access to multiple sales channels, investors are increasingly aware of the importance of minimising investment costs, which has led them to favour lower-cost fund share classes."

Geographically, the report rates jurisdictions as "Top", "Above Average", "Below Average", and "Bottom" according to their relative cost merits (see table below).

Australia, the Netherlands and the US come top of the report's scorecard, while the United Kingdom ranks among Korea, Norway, South Africa and Sweden in the "Above Average" category. Italy and Taiwan lag as the most expensive places to invest in funds. 

On the UK specifically, the report notes the proliferation of "investor-friendly" regulation, and the ongoing regulatory alignment between the UK and its European Union peers.

"The United Kingdom earns an Above Average fees and expenses grade," the report says.

"Its asset-weighted median fees are among the lowest in this study and are backed by investor-friendly regulation, such as the banning of front loads as a means of paying commissions to distributors and the separation of advice fees from embedded ongoing charges.

"UK-domiciled funds carry median expenses of 0.83% for allocation, 0.84% for equity, and 0.55% for fixed income. Despite leaving the European Union, the UK’s laws still conform to EU directives, including UCITS V and MiFID II.

"Individual investors have the choice to invest in locally-domiciled funds as well as UCITS funds operating under the FCA temporary permissions Regime. The expense ratios of funds domiciled in the UK are lower on average than those domiciled outside the UK."

To read the report visit: https://www.morningstar.com/lp/global-fund-investor-experience 

 

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Ollie Smith  is editor of Morningstar UK