Report Shows Transatlantic Differences In Fund Fee Levels

by Carla Johnson, Investors Offshore.com

28 September 2005

A report from Lipper and Fitzrovia giving detailed comparison of US and European Total Expense Ratios for funds reveals that asset-weighted averages for actively managed equity funds of 1.79% for European cross-border funds are far higher than the comparable 0.92% in the US.

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. The report is based on the fund ranges of twenty of the largest US fund companies with funds in both Europe and the US.

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%).

Lipper and Fitzrovia say that this research is the first example of their combined resources and provides unique insights for both US fund companies considering launching funds in Europe and for European fund companies wanting insights into a market where disclosure of TERs has been established for many years.

“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.

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