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Falling ETF fees make little difference on the market

Investors have not felt much benefit


Pete Carvill

A rush to the bottom in European pricing has not led to any growth within the ETF space, according to one senior executive at State Street Global Advisers.

Matteo Andreetto, speaking to Ignites Europe, said that while pricing had been used within the US to drive growth within the sector, that approach had not yielded similar results on the continent. One reason he gave for this was that there were ‘limited implications’ for those targeting the ‘large and fragmented pool’ of fund buyers and investors.

The remarks came as Morningstar reported yesterday that investors had saved $6.2bn over 2020 because of falling fund fees.

Not across the board

However, Morningstar warned that even though fees had come down, this hadn’t been followed point-for-point by the expenses of investors.

Writing for Morningstar, Ben Johnson said: “While some costs have diminished, others have taken new shape. For example, the cost of advice has increasingly been stripped out of funds’ fees and resurfaced in the form of advice fees. Investors should be ever vigilant of what Vanguard founder John Bogle referred to as ‘the tyranny of compounding costs’ and keep accounts of what they’re paying for their investments, and advice.”

Johnson went on to outline how fees have fallen in recent years.

He wrote: “Asset-weighted fund fees fell to 0.41% in 2020 from 0.44% in 2019. While this might not sound like much, it amounted to $6.2bn in savings for fund investors. And a few billion saved means more than a few billion earned in the years to come.”

Johnson said that the driving force behind the fall in fees was due to investors, saying that they deserved most of the credit for ‘putting the squeeze on’. He added: “Asset-weighted fees have dropped more sharply than equal-weighted fees–meaning the average amount investors are paying for the funds they invest in has fallen more than the toll taken by the average fund. The fact that asset-weighted fees are persistently lower than equal-weighted fees indicates that investors, on average, choose funds with below-average fees.”