LUXEMBOURG - Actively managed equity funds domiciled in Luxembourg have increased in size over the last year and are showing a long-term trend of rising annual management fees, according to Fitzrovia.
New research by the firm on the Luxembourg funds industry identified that percentage fees and expenses decline as funds grow in size.
The report examined the relationship between fund sizes and annual fees and the extent to which economies of scale are being achieved and found that among actively managed equity funds, 14% have under US$5m in assets with an average TER (total expense ratio) of 3.55%, while 11% have over US$250m in assets with an average TER or 1.67%.
“The analysis provides a clear picture of increasing fund assets being related to declining percentage fees and expenses,” the firm said.
“This picture is not perfectly uniform, with funds between US$50m and US$100m having an average TER one basis point lower than for those funds between US$100m and US$250m. Here the difference in the average management fees for these two ranges is crucial.”
Fitzrovia said the number of funds within each asset size range is relatively evenly spread, with between 250 and 350 funds in each range, so the picture is not distorted by a small number of smaller funds.
“The exception is for funds in the two ranges between US$10m and US$50m, which in turn highlights that just under half the funds in this analysis have total net assets below US$25m,” the firm added.
When compared with Fitrovia’s analysis from one and three years ago, the research revealed trends showing both an increase in fund size over the short term and a long-term trend of rising annual management fees. The report also found that following five years in the rise of the number of Luxembourg promoters, there has been two years of falling numbers, reflecting consolidation in the industry.
Fitzrovia has been calculating TERs regularly over 10 years and now covers 40,000 funds and share classes.
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