Slight Increase of the Total Expense Ratio for Investments Funds in Europe Since 2001

The Total Expense Ratio (TER) for investments funds, measured as the total costs of a fund as a percentage of the average fund volume during a business year, has increased in a number of European countries in the years 2001 to 2005, but also decreased in a few others.

In Europe, on average, this results in an increase of fund fees from 1.22 to 1.30 percent in the observed time period. Such is the finding of an analysis conducted by the Centre for European Economic Research (ZEW) in Mannheim, Germany, on behalf of the European Commission comprising 14 EU countries (see tables at the end of this press release).

The ZEW draws in its analysis on the following portfolio structure which represents the average fund allocation in Europe in the year 2001, held constant for all EU countries considered and the time period observed: equity funds 55 percent, bond funds 15 percent, money market funds 20 percent, balanced funds 7 percent and fund of funds 3 percent. Based on these premises the ZEW has calculated, weighted by the funds' volumes, an increase of the average Total Expense Ratio from 1.22 percent in the year 2001 to 1.30 percent in 2005.

Since 2001 the fees for the sample portfolio, not including load fees, have increased in Germany, Great Britain, Austria, the Netherlands, Denmark and Poland. Spain is the only country in which the fund costs have continually decreased throughout the time period observed. Nevertheless Spain, besides Italy, still remains one of the most expensive countries for funds investors. Due to the relatively low costs in Finland, Sweden, Belgium and the Netherlands, average TERs are oftentimes described in terms of a North-South divide. One exception is the French market which is characterized by a constant level of relatively low costs.

Slightly decreasing costs have been identified by the ZEW for 2004 and 2005 for the portfolio of funds domiciled in Luxemburg and Ireland and distributed throughout Europe. The fees for this portfolio, however, are still higher than the European average.

The analysis of the equity funds found a slight increase of the European average TERs from 1.59 percent in 2001 to 1.73 percent in 2005. This increase is especially attributable to the increased total costs in France, Great Britain and Germany. The highest average fees of sometimes more than 2 percent apply to equity funds in Spain, Luxemburg and Italy. The TERs in the two important equity fund markets Ireland and Luxemburg have been decreasing since 2003, with funds in Ireland being significantly less expensive than those in Luxemburg (1.4 percent vs. 1.9 percent in 2005).

The costs for bond funds in Europe have on average since 2001 decreased marginally from 0.89 percent to 0.86 percent. The costs most significantly declined in Spain with 40 base points and in Ireland with 30 base points. In contrast to the equity funds, the bond funds in Great Britain range along with funds in Italy and Ireland in the higher cost group. In the year 2005 the fees for Belgian bond funds were lowest at 0.58 percent followed by Swedish and Austrian products at 0.59 percent, although Austrian funds have seen slightly increasing fees in the past years.

With respect to the TERs for money market funds (weighted by fund volume) not only the overall low level of the average cost ratio of 0.4 percent in 2005 becomes evident, but also the tendency of moderately decreasing fees in most countries. Moreover, a comparison between countries reveals a similar pattern as already for the equity and bond funds: French and Austrian products with 0.25 percent and 0.33 percent range in the lower fee segment. Particularly expensive are Spanish and Italian products at 0.97 percent and 0.72 percent, respectively.

Contact

Dr. Mariela Borell, Phone: +49/621/1235-144, E-mail: borell@zew.de