The
European Union’s financial markets regulator has released its annual report on
the costs and performance of key retail investment products, finding a general
decline in expenses but ongoing disparities across member states.
The European Securities and Markets Authority (ESMA) report covers 2021 data on
products like investment funds, ETFs and structured products sold to retail
investors across the 27-member EU bloc.
While the
average cost of investing in these products fell compared to 2020, ESMA
said “cost heterogeneity persisted” in different countries. The
regulator cited clearer fee disclosures mandated under EU rules as one factor
helping improve transparency and potentially lower expenses.
“Costs
and performance are key determinants of whether retail investors benefit from
their investments, and whilst it is to be welcomed that the cost incurred by
investors has slowly declined, retail investors still need to consider costs
carefully in their investment decisions,” said Verena Ross, the Chairwoman
of ESMA.
The report
found that over a 10-year investment horizon, fees can still eat up a
meaningful part of returns. For a €10,000 investment in the popular UCITS fund
category, investors paid around €2,000 in total costs and earned a net return
of €14,850 after a decade.
|
Market Category |
Key Findings |
|
UCITS Costs |
Costs |
|
Investment Value |
For a |
|
ESG UCITS Performance |
ESG funds |
|
Alternative Investment Funds (AIF) |
Dominated |
|
Structured Retail Products (SRPs) |
Entry |
ESMA additionally flagged underperformance challenges, hitting funds focused on environmental, social, and governance (ESG) criteria last year during the energy crisis and rising rates of the environment. However, over a three-year period, ESG funds fared better.
The ongoing costs for ESG funds were competitive with non-ESG funds.
With retail
investor participation at about 14%, the AIF market
remains dominated by professional investors. Among the favored categories, real
estate funds showed positive returns in 2022, although they face upcoming
challenges due to market conditions.
Negative
returns in 2022 for all AIF types:
Source: ESMA
Although
the report did not address the topic of CFDs, this instrument has once
again come onto ESMA’s radar. According to the regulator, brokers incorrectly present information about these instruments, confusing them with
the offer of real stocks.
Why ESMA’s Report Matters
Still,
regulators emphasized the value of the annual reports on retail investment
costs and transparency. “Clear and comprehensive information on retail
investment products can help investors assess the past performance and costs of
products offered across the EU,” ESMA said. The data aim to assist
retail investors in making informed decisions amid various complex choices.
ESMA’s report is critical in promoting transparency in the costs and
performance of retail investment products. This clarity assists investors in
evaluating the past performance and costs of these products, thus aiding in
making informed investment choices. The report also stresses the importance of
regulatory measures like MiFID II , UCITS, and PRIIPs in ensuring that asset
managers and investment firms act in the best interests of investors.
Throughout
the year, ESMA releases various reports and industry calls-to-action. One of
the recent ones focused on the Markets in Crypto-Assets Regulation (MiCA),
urging market participants to prepare adequately for implementing new MiCA
regulations. Meanwhile, the pan-European regulator has issued new guidelines
aimed at enhancing circuit breakers to bolster market stability.
The
European Union’s financial markets regulator has released its annual report on
the costs and performance of key retail investment products, finding a general
decline in expenses but ongoing disparities across member states.
The European Securities and Markets Authority (ESMA) report covers 2021 data on
products like investment funds, ETFs and structured products sold to retail
investors across the 27-member EU bloc.
While the
average cost of investing in these products fell compared to 2020, ESMA
said “cost heterogeneity persisted” in different countries. The
regulator cited clearer fee disclosures mandated under EU rules as one factor
helping improve transparency and potentially lower expenses.
“Costs
and performance are key determinants of whether retail investors benefit from
their investments, and whilst it is to be welcomed that the cost incurred by
investors has slowly declined, retail investors still need to consider costs
carefully in their investment decisions,” said Verena Ross, the Chairwoman
of ESMA.
The report
found that over a 10-year investment horizon, fees can still eat up a
meaningful part of returns. For a €10,000 investment in the popular UCITS fund
category, investors paid around €2,000 in total costs and earned a net return
of €14,850 after a decade.
|
Market Category |
Key Findings |
|
UCITS Costs |
Costs |
|
Investment Value |
For a |
|
ESG UCITS Performance |
ESG funds |
|
Alternative Investment Funds (AIF) |
Dominated |
|
Structured Retail Products (SRPs) |
Entry |
ESMA additionally flagged underperformance challenges, hitting funds focused on environmental, social, and governance (ESG) criteria last year during the energy crisis and rising rates of the environment. However, over a three-year period, ESG funds fared better.
The ongoing costs for ESG funds were competitive with non-ESG funds.
With retail
investor participation at about 14%, the AIF market
remains dominated by professional investors. Among the favored categories, real
estate funds showed positive returns in 2022, although they face upcoming
challenges due to market conditions.
Negative
returns in 2022 for all AIF types:
Source: ESMA
Although
the report did not address the topic of CFDs, this instrument has once
again come onto ESMA’s radar. According to the regulator, brokers incorrectly present information about these instruments, confusing them with
the offer of real stocks.
Why ESMA’s Report Matters
Still,
regulators emphasized the value of the annual reports on retail investment
costs and transparency. “Clear and comprehensive information on retail
investment products can help investors assess the past performance and costs of
products offered across the EU,” ESMA said. The data aim to assist
retail investors in making informed decisions amid various complex choices.
ESMA’s report is critical in promoting transparency in the costs and
performance of retail investment products. This clarity assists investors in
evaluating the past performance and costs of these products, thus aiding in
making informed investment choices. The report also stresses the importance of
regulatory measures like MiFID II , UCITS, and PRIIPs in ensuring that asset
managers and investment firms act in the best interests of investors.
Throughout
the year, ESMA releases various reports and industry calls-to-action. One of
the recent ones focused on the Markets in Crypto-Assets Regulation (MiCA),
urging market participants to prepare adequately for implementing new MiCA
regulations. Meanwhile, the pan-European regulator has issued new guidelines
aimed at enhancing circuit breakers to bolster market stability.
