UK fund ongoing charges fall 15%, finds Morningstar

Spotlight on charges 700x450.jpgAverage ongoing fund fees in the UK have dropped more than 15 per cent over the past three years, amid a move to clear share classes and a rise in passive use, research from Morningstar has found.

Data gathered by the research firm, and compared to an equivalent study carried out in 2013, shows the asset-weighted ongoing charge for UK-domiciled funds decreased 15.5 per cent, from 1.22 per cent in 2013 to 1.03 per cent in 2016.

This compares to the asset-weighted ongoing charge for the full European fund universe of 1 per cent in 2016, down from 1.09 per cent in 2013.

The study, which looked at charges across Europe, found the UK saw one of the largest drops in ongoing charges for equity funds in the continent. On average investors now pay 1.02 per cent for an equity fund in the UK, compared to 1.26 per cent in 2013.

For fixed income investors ongoing charges fell from 0.86 per cent in 2013 to 0.74 per cent in 2016, while allocation funds saw charges fall from 1.49 per cent to 1.23 per cent.

Alternatives funds in the UK had lower charges than the European average at 0.78 per cent compared to 1.25 per cent for Europe.

Morningstar found a rise in passives had occurred during the period, rising from 8 per cent in 2013 to 10.3 per cent in 2016, across Europe. In the UK passive allocations reached 11.2 per cent in 2016 compared to 10.5 per cent in 2013.

Passive equity charges in the UK were in line with Europe, at 0.3 per cent and 0.31 per cent respectively.

However, investors are paying more for funds in monetary terms, as the fall in charges has come alongside a rise in assets invested. Based on analysed assets under management, European investors are paying more than €61bn in ongoing charges, up from €53bn in 2013.

The research also found that funds that are expensive are likely to stay expensive, while those that are cheaper are also likely to remain so.

“There is clearly some good news for investors here that fund fees–in many cases–are coming down in Europe,” says Nikolaj Holdt Mikkelsen, chief analyst for Morningstar Denmark.

“However, investors really do have to do their homework and take care to shop for a good deal. The 2016 study also shows that expensive funds have a tendency to remain expensive and cheaper funds will continue to be attractive in the future. This suggests that past ongoing charge levels are a strong predictor of future levels.”

The research looked at 54,000 fund share classes from 21 different countries.