Luxembourg is clearly the big beast in Europe when it comes to Ucits funds. Whether it is in equity, bond, alternative or mixed asset classes, the grand duchy has the highest market share for both retail and institutional (such as pension funds and insurance companies) clients. Only for money market products sold to institutional investors does it come second to Ireland. This is due to these countries’ expertise in cross-border fund distribution, with just 4.7% of Luxembourg Ucits and 3.1% of Irish Ucits sold domestically.
Moreover, Luxembourg is dominant in the most popular asset classes. The Esma survey said that of funds classified as retail Ucits in Europe, 39% of assets were in equity funds, 27% in bond funds, and 25% in mixed products, with just 7% for money market funds and 2% in alternative products. As for funds destined for institutional investors, equity, bonds and money market funds each accounted for about 29% of assets, with mixed funds 8% and alternatives 4%.
Gross performance of equity Ucits varies significantly between fund domiciles. However, as you might expect, Luxembourg-based funds are close to the EU average of about an 11% increase over the 2015-2017 period. For bond Ucits, Luxembourg funds were also close to the EU average, at just under 5% over these three years.
However fees (including ongoing fees and subscription and redemption costs) were slightly higher in Luxembourg than the bloc’s averages. For equities, fees for Luxembourg products represented about 2 percentage points of returns over the three years (thus approaching 20% of performance gains), and for bonds around 2.25 percentage points (about 40% of earnings). This left net earnings minus fees over three years at around 9% for equity funds and nearly 3% for bond funds. On average, management fees and other on-going costs constitute over 80% of investors’ costs, whilst entry and exit fees have a less significant impact.
The EU regulator’s report pointed to fees in some countries (e.g., Sweden and the Netherlands) being significantly lower than the EU average, while others are higher (e.g., Austria, Italy and Spain). Yet these figures on costs should be viewed with caution. These differences may indeed reflect underlying reality, but it is also the case that fees are often classified differently in different countries. This makes it difficult to compare.
Esma also looked at exchange traded funds, products that are not actively managed and are invested in a fixed basket of securities. Performance was similar for Luxembourg-based ETFs but fees were about half of those of actively managed products.
This study also sought to compare data on alternative Ucits, but on the whole a lack of market transparency and heterogeneous data made it difficult to draw many conclusions.