Financial, Stock Exchange, Financial Markets, the cost of the Mutual Funds in Italy, Time evolution and international comparison
New discipline introduced by MiFID2
The work analyzes the structure and the evolution of the cost of Italian open-end mutual funds in the period 2012-2016.
As a preliminary point, the work shows that a very high share of the costs goes to remunerate the distribution activity.
In particular, around 70% of the commissions paid to asset management companies are absorbed by distribution costs.
It is likely that the new regulation introduced by MiFID2, which contains more restrictive provisions regarding incentives, may lead to a revision of the current distribution and commission models.
The study then analyzes in detail the costs of the funds, distinguishing between management costs (ie costs that weigh on the fund’s assets, such as management fees and performance costs) and entry and exit costs, which instead burden the subscriber.
The incidence of management costs on fund assets remained stable at around 1.4%, but the weight on profits generated by the funds increased considerably, from 16 to 51%.
In 2016, for some categories of funds, operating costs were higher than profit and the return on funds was therefore negative (in particular for alternative funds and for monetary funds, although the latter are now a residual category).
Entry costs increased significantly, from 0.7% to 1.5%, while exit costs gradually decreased to become completely residual (0.05%).
The greater incidence of commissions on fund returns is to be considered in the light of the negative performance of the equity markets that characterized a good part of the period analyzed and the sharp reduction in interest rates, phenomena that have also led to a change in the composition of managed assets. .
In fact, from 2012 to 2016 there was a reduction in the weight of bond and money funds to the benefit of flexible funds (which account for 41% of assets managed at the end of 2016), which have higher performance targets (compared to of the increased risk taken).
Flexible funds, moreover, have operating costs in line with the industry average but much higher entry fees, especially when it comes to “funds of funds” or “funds with a predefined maturity”.
The riskier products, on the other hand, such as equity and alternative funds, have higher management costs but lower entry costs than the average (especially the alternative ones).
Finally, the work compares the costs of Italian funds with those of foreign funds located in Italy using the synthetic cost indicator in the KIID introduced with the UCITS (so-called ongoing charges) framework, which, however, does not include performance fees and entry and exit commissions.
Based on this indicator, in the period 2014-2016 the cost of the retail classes of Italian funds is in line with the European average.
Authors Gaetano Finiguerra, Giovanna Frati, Renato Grasso
19 Feb 2018
Source Consob
