The impact of what retail fund investors are paying varies but overall, most have paid as much as 40% in comparison to institutional investors. The regulator for the EU securities commission released today the second part of a report relating to the performance and cost for retail investment products. The result, which support those of the ESMA’s supervisory and risk assessment work, covers Structured Retail Products (SRPs), Undertakings for Collective Investment in Transferable Securities (UCITS),and Alternative Investment Funds sold to retail investors (retail AIFs).
Along with the above, the second part of the report highlights the total current costs of UCITS funds and that is remains a drain on the performance of the fund and that it is having an impact against retail investors much more so than it is for institutional investors.
The report showed that retail clients on average paid 28% of the initial amount invested in costs between 2009 to 2018. The number of represent 30% of their gross returns with a large portion of costs being associated to management fees.
The ESMA further noted that while the main cost was related to management fees, the entry and exit to and from the fund still had a more marginal effect. Relating to overall returns, it was found that UCITS funds saw outperformance over passive ETFs UCITS funds. However, that difference was not substantial enough to justify the 1.5 per cent higher costs and that resulted in lower a performance net of costs for active when compared with 0.5 per cent passive.
Speaking on the report, the Chair of the European Securities and Markets Authority, Steven Maijoor, stated; “Gross returns were negative for the types of AIFs with large retail investor shares: -2.1% for funds of funds and – 3.3% for the category Other. This reflects the poor performance observed across asset classes, especially at the end of 2018. In this second annual report we continue to see the high impact of costs on the final returns that retail investors receive on their UCITS investments. The costs paid by retail investors are significantly higher than those paid by institutional investors, leading to lower net returns for this category of investors.”