The European fund-of-funds (FoFs) market has reached €1.1 trillion in assets but is undergoing transformation due to mounting fee pressure, the rise of passive investing and “fierce UK-led competition”, according to Morningstar’s data.
Vanguard is now the largest and fastest-growing FoF provider in Europe with €57 billion in assets—more than doubling its size in five years. Its LifeStrategy range, built on low-cost index funds with fees of just 0.22%, now dominates the top 10 most popular FoFs, according to the data.
The UK market is driving fee compression across the region. Average FoF fees in the UK have dropped to 0.86%, compared to the European average of 1.64%. The shift reflects growing investor demand for transparency and cost efficiency, with traditional FoFs losing ground due to double-layered fee structures, shared the data provider.
Morningstar’s analysis found a link between cost and performance: FoFs charging more than 0.96% consistently underperformed their lower-cost peers over rolling three-year periods, fuelling demand for streamlined, competitively priced offerings.
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JPMorgan’s US Research Enhanced Equity ETF became Europe’s most widely held active ETF—crossing the $10 billion mark—by combining low fees, index-enhanced returns and ESG integration.
Despite widespread outflows across Europe in 2023–2024, the UK market defied the trend. It now represents nearly one-third of total European FoF assets, with steady inflows concentrated in low-cost and multi-asset strategies.
Allocation funds continue to dominate the FoF landscape, accounting for 76% of total assets. However, Morningstar noted interest in alternatives and money market funds, as advisers look for diversification and downside protection amid shifting market conditions.
Lena Tsymbaluk, associate director of equity strategies at Morningstar, commented: “The rise of passive and blended portfolios is fuelling fee compression, as investors increasingly favour low-cost, value-driven strategies. Hybrid models which blend low-cost beta exposure with targeted active management are gaining traction.
Competitive pressure on fees, alongside Vanguard’s rapid rise, highlights the priorities of investors today. The most widely held active and index-enhanced funds, including JPM US Research Enhanced Index Equity, Eleva European Select and M&G Japan, all share a common trait: they boast strong track records and deliver robust value for cost.”
