The European Securities and Markets Authority (ESMA) published its seventh market report on the costs and performance of EU retail investment products, showing a decline in the costs of investing in key financial products.
Despite this decline the cost levels of funds in the EU remain high by international standards. With more than 50,000 funds and an average fund size almost 10 times smaller than that of for example US mutual funds, EU funds do not exhaust the economies of scale commensurate with the EU’s single market.
The market inefficiencies revealed by this higher cost level shows the need to focus on the competitiveness of EU markets, within a future Savings and Investments Union.
The key findings in the report are:
- UCITS costs decline gradually, from high levels: Costs have declined, but investors should continue to consider fund fees carefully in their investment decisions – especially since costs have not dropped for all categories of funds: ongoing costs of mixed funds and equity passive funds have been relatively stable over time.
- UCITS performance slightly improved: Returns progressed in 2023 but remained far from their 2021 levels. The annual net performance of bond and mixed funds improved between 2022 and 2023 but remained in negative territories.
- ESG UCITS with lower costs and higher performance that non-ESG: Ongoing costs of retail ESG funds remain lower or similar to the ongoing costs of non-ESG equivalents. Overall, ESG funds outperformed their non-ESG equivalents in 2023. This hides some disparities across asset classes: non-ETF equity ESG funds outperformed, while equity ETF, fixed income and mixed ESG funds underperformed.
- Alternative Investment Funds less demanded by retail investors: The market for Alternative Investment Funds remained dominated by professional investors and is less invested by retail investors compared with the UCITS market. The share of retail investors decreased between 2022 and 2023: from 14% to 11%. In 2023, annualised gross and net performance improved significantly compared with 2022, with all fund strategies having positive returns.
- Structured Retail Product costs improve but remain difficult to assess for clients: In 2023, the share of products referencing interest rates and inflation rose to around one fifth of sales volumes, a sharp increase from 2022. This trend followed higher interest rates and inflation. Costs – largely charged in the form of subscription fees – fell in 2023 for some common product types, although they vary substantially by payoff type and country. Structured Retail Products that matured in 2023 consistently delivered positive returns in gross terms, but these figures do not consider the incidence of costs paid by investors.
This report aims at facilitating increased participation of retail investors in capital markets by providing consistent EU-wide information on cost and performance of retail investment products. Improvements in data availability continue, but significant data issues persist.
Following the review of the AIF managers directive and the UCITS directive, ESMA has been mandated to produce a report on costs linked to investment in UCITS and AIFs. For the purpose of this report, ESMA launched a data collection exercise together with the national competent authorities. This analysis will be part of an enhanced 2025 ESMA market report on costs and performance of EU retail investment products that is expected to bring new insights and more granular information on fund costs.