If you don’t find the Cumming research on mutual fund fees, flows and performance convincing, another mutual fund study has been published by the European Securities and Markets Authority (ESMA).

Read: Industry response to embedded commissions ban: IFIC and Advocis

The study analyzes mutual fund returns in relation to ongoing fees, one-off charges and inflation, with the following preliminary results:

  • a substantial reduction in net returns available to investors, especially retail investors; and
  • weak price-sensitive investment decisions by retail investors.

The paper finds that fees, charges and inflation reduced the gross returns available to investors by 29% — 252 basis points in absolute returns (from 2013 to 2015).

Relative return reductions ranged from 11% for passive equity fund shares to 44% for retail fund shares in bond mutual funds (74 to 398 basis points, respectively, in absolute returns).

Further, relative and absolute return reductions for actively managed and retail fund shares tended to exceed those of passively managed and institutional fund shares.

The second finding — weak price-sensitive investor demand — corresponds with market intelligence reported by SEI Advisor Network report. However, the aggregate finding doesn’t necessarily mean individual investors don’t care about cost, says the ESMA report.

Read the full ESMA paper.

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