While the European fund market has seen gradual improvements in costs and returns, the pace and scale of investment cost reductions remain significantly behind international benchmarks, the European Securities and Markets Authority (Esma). In its seventh annual market report, on 14 January 2025, Esma analysed the costs and performance of retail investment products across the European Union. The findings revealed a decline in investment costs, though these remained uncompetitive on a global scale, particularly compared to international markets.
Persistent high costs
Despite the observed cost reductions, EU funds continued to face comparatively high expenses. Esma attributed this to inefficiencies such as the region’s fragmented market structure, with over 50,000 funds and an average fund size nearly ten times smaller than US mutual funds. These structural limitations hindered the realisation of economies of scale, underscoring the need for greater competitiveness, potentially through the creation of a savings and investments union.
Ucits
The costs of retail mutual funds--undertakings for the collective investment in transferable securities (Ucits)--declined gradually, though reductions were uneven across fund categories. Esma advised investors to remain vigilant regarding fees, as costs for mixed and equity passive funds showed little change over time.
Performance in Ucits funds improved modestly in 2023, although returns remained far below their 2021 levels. Bond and mixed funds delivered better annual net performance compared to 2022 but continued to yield negative results overall.
Environmental, social and governance Ucits funds outperformed their non-ESG counterparts in 2023, with lower or comparable costs. However, the performance gains varied across asset classes. Non-ETF equity ESG funds showed strong outperformance, while equity exchange-traded funds, fixed income and mixed ESG funds underperformed relative to their non-ESG equivalents.
AIFs
Alternative investment funds remained primarily dominated by professional investors, with retail participation declining from 14% in 2022 to 11% in 2023. Nonetheless, performance metrics for AIFs improved significantly, with all strategies delivering positive annualised gross and net returns during the year.
Structured retail products
Structured retail products (SRPs) saw a sharp rise in sales linked to interest rates and inflation, accounting for approximately 20% of volumes in 2023, compared to 2022. This reflected the economic environment of rising rates and inflation. Although costs for some product types fell, they varied widely across payoff structures and regions. SRPs that matured in 2023 consistently delivered positive gross returns, but investor costs were not factored into these figures.
Data gaps
The report acknowledged persistent data availability challenges, which hinder the full analysis of fund costs and performance. Esma plans to release a more detailed report later in 2025, incorporating insights from data collection initiatives with national authorities to provide deeper and more granular insights into retail investment products.
In its press statement, Esma reiterated the importance of cost disclosures mandated under Mifid II, the Ucits directive and Priips rules, emphasising the responsibility of asset managers and investment firms to prioritise investors’ best interests. The regulator aims to promote transparency and consistency in fund cost reporting to encourage greater retail investor participation in EU capital markets.