Are multi-asset funds cheaper in the UK than in Europe? According to Tom Mills, principal of multi-asset strategies, the answer is yes. Recent studies show significant differences between fund costs across these regions, particularly benefiting UK investors who are exploring multi-asset and allocation funds.
Mills discusses the findings, stating, "We find ... median costs are significantly lower in the UK than on the continent." The lower costs are attributed to regulatory environments which encourage lower pricing structures for funds within the UK. "There’s been regulation ... pushing toward lower costs," he elaborates. Such regulations likely create more accessibility for consumers to opt for lower-cost funds.
The differentiation doesn't stop at pricing; there are also notable variances within investor behavior. Mills pointed out, "We see ... investors have really shifted ... to the cheaper, lower-cost funds." This data indicates not just awareness but active participation from UK investors directing their financial resources toward more cost-effective options.
Meanwhile, the distribution models vary. On the continent, there tends to be more prevalent bank-led distributions—which often favor higher-cost options tied to the bank's own products. This possibly limits the recommended lower-cost choices available to many European investors. Mills indicates, "On the distribution side ... advisers may be using higher-cost multi-asset funds," referencing how the influence of commissions on fund recommendations can lean heavily toward premium-priced options.
So where are UK investors placing their money? Despite some concerns over overall allocation fund performance, there’s been notable interest and inflow toward what are termed more adventurous funds, with returns linked to higher risk profiles. Mills notes, "Allocation funds overall ... have had sort of moderate ... outflows over recent years," signaling shifting attitudes toward fund types and risk levels.
With investors pulling back from lower-risk categories, as Mills concludes, “those with capital preservation objectives have shifted increasingly to cash” amid changes prompted by higher interest rates and more attractive yields, particularly over the last two fundraising periods.
Performance is also worth discussing. It becomes evident from the numbers shared by Mills. He explains, "UK allocation funds ... average fund has underperformed ... by about 1.5 percentage points ... over the last decade." The comparative European figures indicate even steeper underperformance, with the comparable average trailing benchmarks by approximately 2.4%. This discrepancy could largely be attributed to higher fees charged for funds on the continent, as well as factors like strategic asset allocation and security selection.
The future of investment strategies appears to tilt toward lower-cost options as consumers become increasingly savvy and cost-conscious. With the discussion shifting toward financial crime and consumer resilience, the narrative surrounding multi-asset funds and regulation will undoubtedly evolve. Mills concludes on this note, remarking on the stability of these trends, which seem unlikely to reverse anytime soon.
For investors and advisers alike, these findings carry significant weight, directing focus toward the types of funds being allocated and prompting evaluations of existing investment strategies. Whether it's the allure of lower costs or the performance benchmarks set forth, these developments will continue to shape the investment landscapes both within the UK and across Europe.