European investors are losing out because of high costs, low returns and ineffective fund management, according to the financial industry trade body Better Finance.
Brussels-based Better Finance points to the European financial regulator’s recently released annual report on the costs and performance of EU retail investment products and says that it is clear that there are “persistent shortcomings” that leave EU individual investors at a disadvantage.
According to Better Finance, the European Securities and Markets Authority (Esma) report shows that over the past five years, the real inflation-adjusted performance of EU retail investment portfolios has barely managed to maintain their value.
Only 9% of EU household financial savings are invested in UCITS and AIF funds supervised by Esma, while 70% of EU retail investments fall under the supervision of the European Insurance and Occupational Pensions Authority. This demonstrates the need for broader oversight, says Better Finance.
“Most concerning is the stark underperformance of non-ETF equity funds, which delivered only +8% over the last five years to 2023—six times less than the +53% return of global equity markets,” Better Finance said in a press statement.
“Esma also confirmed the superior performance of index-based ETFs, which outpaced actively managed equity funds by a factor of more than two (+21% vs. +8%).
While the Esma report notes a marginal decline in UCITS fund costs, these remain high compared to global standards, says Better Finance.
The average fund size in the EU is ten times smaller than US mutual funds, and this fails to leverage economies of scale and exposes the inefficiencies of the European market, claims Better Finance.
“The added value of fund management is further questioned when comparing returns: mixed funds, which charge fees comparable to equity funds, have once again provided returns barely higher than bond funds,” the press release concluded.
Aleksandra Mączyńska, Managing Director of Better Finance, said: “Better Finance has long advocated for greater transparency and efficiency in EU retail investment markets.
“The persistently high costs, underperformance relative to capital markets, and lack of oversight for the majority of household savings highlight the urgent need for reform, particularly within the framework of a future Savings and Investments Union.
“We urge EU policymakers to prioritise the interests of individual investors and tackle the inefficiencies that continue to erode returns for millions of savers.”
