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02.10.2018 17:03 Age: 16 days
Category: News

Charges and fund performance: what relation?


According to research carried out by Morningstar aimed at comparing the performance of active funds with that of index trackers and passive funds over 10 years, managers have consistently failed to beat their benchmarks. In fact, most active fund managers on average outperformed their passive counterparts in just two of the 49 categories taken into consideration for the study. Morningstar’s research looked at 9,400 European-domiciled active and passive funds, accounting for a total of €2.9tln in assets, and acknowledged that investors have been paying high charges imposed by fund managers for poor long-term performance and disappointing returns.

The findings of this research are in line with those of another study from S&P dating back to 2016 that stressed that 99% of actively managed US equity funds underperformed. Since the results of the active funds are poor, it is possible that, to some extent, supposedly active funds are actually merely following pre-set indexes (closet trackers). If such cases investors are victims of mis-selling and charged unjustified fees. Last year the European Security and Market Authority (ESMA), following warnings from BETTER FINANCE, flagged the issue and decided to carry out further research into potential closet-index funds.  

At the beginning of the year the Mifid II trading rules came into force across the EU requiring asset managers to disclose investments costs to their stakeholders. It is startling that management and performance charges alone account for three fourth of the total cost, while transaction fees make up the third main component.


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