By Huw Jones
LONDON (Reuters) - Retail investors in mutual funds pay costs that are 40% higher than big institutional investors pay, making it harder for the European Union to attract broader support for its capital market, the bloc's securities regulator said on Wednesday.
The European Securities and Markets Authority (ESMA) said in its third annual report on the cost and performance of retail investment products that costs remain high and diminish returns for final investors.
"Retail clients pay on average around 40% more than institutional investors across asset classes," ESMA said in its report, which made no recommendations for any regulatory action.
Retail investors have about 4.5 trillion euros ($5.38 trillion) saved in UCITS, funds that are regulated by the EU.
Actively managed stock and bond funds, where an asset manager selects the assets rather than passively tracking an index, charged higher costs but ultimately showed a net underperformance compared with trackers, ESMA said. (Graphic: ESMA UCITS Graphic 2, https://fingfx.thomsonreuters.com/gfx/mkt/oakpewmgdpr/ESMA%20UCITS%20Graphic%202.PNG)
Investment in funds that tout their "green" or environmental, social and governance (ESG) credentials has increased in recent years.
Net assets in EU 27-based ESG funds amounted to 564 billion euros at the end of 2019 across nearly 1,600 funds.
"According to the evidence, actively managed ESG funds showed lower costs than non-ESG, not supporting the view that there is systematic greenwashing by ESG funds," ESMA said, referring to giving an overly optimistic view on green credentials. (Graphic: ESMA UCITS Graphic 1, https://fingfx.thomsonreuters.com/gfx/mkt/ygdpzldrlpw/ESMA%20UCITS%20Graphic%201.PNG)
($1 = 0.8358 euros)