Asset weighted averages for actively managed equity funds of 0.92% in the US compare with 1.79% for European cross-border funds in levels of annual fees and expenses, according to Lipper and Fitzrovia, conducting a comparison of US and European Total Expense Ratios (TERs).
The research looked specifically at US companies with US, European (the cross-border centres of Luxembourg and Dublin) and UK funds, and the results partly reflect that the European funds industry is a collection of markets, while the US is a single jurisdiction.
One of the key reasons for the cost difference is the fact that the US funds analysed have significantly greater assets under management. While this allows for funds to spread fixed non-management expenses across a larger asset base, therefore lowering TERs, US mutual funds also accentuate this impact by frequently employing “breakpoints” on annual management fees.
The use of fee breakpoints is sufficiently effective that for funds of similar sizes (US$100 million to US$1 billion), US-domiciled funds maintain significantly lower asset-weighted average TERs than their European counterparts (1.25% compared to 1.86%).
“Disclosure of TERs has only just started in Europe and its full impact has yet to be felt,” commented Ed Moisson of Lipper Fitzrovia, while noting the importance of different fund cultures and industry developments in different markets.
“In the US, lawmakers and the media have put fund promoters on the defensive over mutual fund fees and expenses,” commented Lucas Garland, Senior Research Analyst at Lipper.
Finally, fund companies’ average TERs highlight that there are ranges of fee levels among funds available to investors in different markets.