Fitz Partners’ research reveals index tracking costs are dropping

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Research firm Fitz Partners reports that index trackers’ costs have steadily gone down over the past four years, with index tracking equities ETFs Ongoing Charge Figures (OCFs) showing a 27 per cent drop since 2016 while index tracking equities mutual funds clean classes have reduced by 19 per cent over the same period.

Fitz Partners’ research excludes any enhanced trackers or complex ETF strategies from the universe in an effort to maintain consistency.

Hugues Gillibert, Fitz Partners CEO says: “In our industry, when we describe fee reduction, it is often assumed that active fund products are those under most pressure but our latest fee data show that index trackers have also been following the same trend. More interestingly, this drop in fees has occurred independent to whether the passive strategies are offered through ETFs or mutual funds’ clean classes”.

The firm writes that when comparing ETFs and mutual funds fees across Europe, on average, index tracking equities ETFs have remained more expensive than the comparable index tracking equities mutual fund clean share classes.

“Looking in more detail at the trackers’ sectors, we observed that the average OCF for Europe and US Index Tracking ETFs or mutual funds are remarkably close with their OCFs ranging between 25 and 29bps.

“On the other hand, when considering corresponding Emerging Market index tracking ETFs and mutual funds clean classes, ETFs products are on average 38 per cent more expensive and for global tracking products, ETFs are on average 30 per cent more expensive than the corresponding index-tracking clean share classes.”

Gillibert says: “ETFs are often considered as a cheaper option to active funds but our research shows that when it comes to comparing passive ETFs against passive mutual funds then the picture becomes more varied. In some sectors, when comparing products tracking the same index, ETFs can be a more expensive option but ETFs, as a listed product, can offer advantages to investors such as rapid execution or greater liquidity worth their relative mark-up to some investors.”

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Beverly Chandler
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