The European Securities and Markets Authority has published its seventh market report on the costs and performance of EU retail investment products, finding that costs have generally declined across key products but that EU fund cost levels remain high by international standards. The report links persistently higher costs to market fragmentation, citing more than 50,000 funds and an average fund size almost 10 times smaller than US mutual funds, which limits economies of scale. For UCITS, costs have declined gradually from high levels, although ongoing costs have been relatively stable for mixed funds and equity passive funds. UCITS returns improved in 2023 but remained well below 2021 levels, with bond and mixed funds improving between 2022 and 2023 but still posting negative net performance. Retail ESG UCITS showed ongoing costs that were lower or similar to non-ESG equivalents and outperformed overall in 2023, though results varied by asset class, with non-ETF equity ESG funds outperforming while equity ETF, fixed income and mixed ESG funds underperformed. The Alternative Investment Fund market remained dominated by professional investors, with the retail share falling from 14% to 11% between 2022 and 2023, while 2023 performance improved markedly versus 2022 and was positive across strategies. For Structured Retail Products, the share referencing interest rates and inflation rose to around one fifth of sales volumes in 2023; costs fell for some common product types but remained difficult for clients to assess, and products maturing in 2023 delivered positive gross returns that do not account for investor-borne costs. ESMA notes that data availability is improving but that significant data issues persist. Following the review of the Alternative Investment Fund Managers Directive and the UCITS Directive, ESMA has been mandated to produce a report on costs linked to investment in UCITS and AIFs, supported by a data collection exercise with national competent authorities, with the analysis to feed into an enhanced 2025 market report with more granular insights on fund costs.
European Securities and Markets Authority 2025-01-14
European Securities and Markets Authority publishes market report showing falling retail investment product costs but EU fund costs remain high
The European Securities and Markets Authority (ESMA) released its seventh market report, noting a general decline in costs for EU retail investment products, though EU fund costs remain high compared to international standards due to market fragmentation. The report highlights improved performance for UCITS and Alternative Investment Funds in 2023, with retail ESG UCITS outperforming non-ESG equivalents. ESMA is tasked with producing a detailed report on UCITS and AIF costs, supported by a data collection exercise, to enhance the 2025 market report.