US Funds Cheaper Than their European Counterparts says Report

Paul Das

27 September 2005

US mutual funds are likely to be cheaper than their European cousins, according to a study by Fitzrovia, a UK research consultancy, and Lipper. The research found that Total Expense Ratios of asset weighted averages for actively managed equity funds were 0.92 per cent in the US compared with 1.79 per cent for European cross-border funds. One of the main reasons for the cost difference is the fact that the US funds analysed have significantly greater assets under management, according to the study. 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” (lowering percentage fees as fund assets increase) on annual management fees. The use of fee breakpoints is sufficiently effective that for funds of similar sizes ($100 million to $1 billion), US-domiciled funds maintain significantly lower asset-weighted average TERs than their European counterparts (1.25 per cent compared to 1.86 per cent). “Disclosure of TERs has only just started in Europe and its full impact has yet to be felt,“ said Ed Moisson, an analyst at 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,” said 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.