Fees for passive equity UCITS were ‘relatively stable’ between 2019 and 2023 but their growing share dragged broader fee levels down, according to a market report published by the European Securities and Markets Authority (ESMA).
The ongoing costs of equity funds fell by 5% over the period as the share of passive funds grew to 39% and active fee levels dropped.
The greatest fee pressure was seen in bond funds, however, where fees dropped 13% over the period as passive penetration climbed to 22%.
The costs of ‘mixed’ funds, meanwhile, remained stable as passive strategies failed to grow their foothold. As of the end of 2023, they held just a 1% share.
Fund size also made a difference to costs, according to the findings. EU UCITS tend to be much smaller than their US counterparts which explains much of the fee differential observed between Europe and the United States.
According to the report, small equity, bond and mixed funds carry costs 14%, 27% and 17% higher respectively than their large equivalents.
ESMA also found that funds managed by large parent organisations tended to carry lower costs on average – indicating the importance of scale in Europe’s fund management industry.
