Morningstar Denmark, a subsidiary of leading independent investment research provider Morningstar, today published a detailed research report, ‘Expenses in Nordic Investment Funds in a European Context’, which investigates whether investors can benefit from a lower ongoing charge depending on where in Europe their funds are domiciled.

The report also assesses if and how achieved benefits from economies of scale in the fund industry are passed through to investors.

The report finds that investors in Nordic-domiciled share classes in aggregate pay attractive asset-weighted ongoing charges compared with other European domiciles.

Conversely, investors in Luxembourg-domiciled share classes — which collectively hold the most assets in any European domicile — pay among the highest ongoing charges in Europe on an asset-weighted basis. Investors in Belgian-domiciled share classes pay the most in ongoing charges.

Investors in larger share classes or in funds of larger asset management groups are missing out, too. The report shows that cost savings through economies of scale that could be passed to investors vary among the domiciles, and in some domiciles, are not passed along to end investors at all.

Nikolaj Holdt Mikkelsen, CFA, chief analyst for Morningstar Denmark and author of the report, said: "Given the regulatory support for the ongoing charge as the standard cost disclosure to investors, we undertook this study to understand whether a fund’s domicile made any notable difference to the cost of investing. Our findings demonstrate that domicile does indeed matter, with considerable degrees of variation between the average ongoing charge in each of the domiciles we surveyed. If we take an investment of EUR 100,000 and assume an additional monthly savings rate of EUR 500 for a further 10 years, and only take ongoing charges into account, we have a difference of some EUR 9,500 in growth between an investor in the cheapest domicile, Norway, and the most expensive domicile, Belgium."

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Further key findings of the research report include:

  • Investors in Norwegian-domiciled share classes pay an asset-weighted average ongoing charge of just 0.72%; this compares to the European average of 1.08% and an average of 1.53% for investors in Belgian-domiciled funds.
  • As a group, the Nordic countries present a relatively attractive ongoing charge of 0.98%; on an asset-weighted average, funds domiciled in Sweden and Denmark also offer ongoing charges less than the European average. Finland is the Nordic exception with an asset-weighted average ongoing charge of 1.10%.
  • For Nordic-domiciled funds across the four broad fund categories of equity, fixed income, allocation, and money market, the asset-weighted ongoing charge for each is in line with or below the average of other European domiciles.
  • Eleven out of 15 domiciles exhibit economies of scale for fund investors, with each of Europe, Europe ex. Nordics, and the Nordics as a whole showing some degree of scale economies to the benefit of investors; savings passed to investors varies among the domiciles.
  • Morningstar’s analysis found no economies of scale to the benefit of investors in Belgium, Norway, Italy, and the Netherlands.
  • A typical European equity or allocation fund investor could save about 20% in ongoing charges by choosing a large share class, or a large fund company relative to a smaller one; for fixed-income investors, the savings are even more significant.
  • For equity investors, institutional and passive products offer lower ongoing charges and achieve economies of scale to a greater extent on a relative basis.