Asset managers across Europe are leaving open a large number of funds, which are lying dormant and delivering poor investor outcomes, according to a report from Morningstar.
Over €80bn in assets are lying in funds across Europe that are deemed "orphaned" in a new report from Morningstar.
This sum has been arrived at by studying some 15,339 funds with a five year track record, assets under €100m, and net in/outflows of €10m or less in each of the five calendar year to the end of 2017. This filter arrived at some 3,751 funds, in which assets are not being used sufficiently to benefit investors, and for which they are often paying significantly higher fees than the norm.
Key findings of the report include:
- France has over a quarter of the orphaned funds in Europe: French funds are the biggest laggards with 1,036 orphaned funds, followed by Luxembourg (762), and Germany (394). The UK has 194.
- Fund managers of all sizes are culpable: the problem is not confined to small asset managers, with large names such as Amundi, Allianz Global Investors, and BNP Paribas topping the list.
- Majority of these funds are underperforming: nearly 80% of orphaned funds are neutral or negative rated (according to Morningstar Quantitative Ratings).
- These funds are very expensive: the median ongoing charge for an orphaned fund is 1.71%, with the median charge for a negative rated orphaned funds at a huge 2.18%.
- The funds are being left open for too long: the median existence of an orphaned fund is 12.5 years, despite having just a median fund size of €16.6m.
Jonathan Miller, director, Manager Research, UK at Morningstar, said: "The proliferation of investment funds in recent years has created significant challenges for investors as the sheer choice can be daunting. While investors need to make sure they are using tools and analysis to assess their investments, the onus is also on the asset management industry to provide offerings that are fit for purpose. However, there are currently far too many funds available to UK and European investors that are laced with high fees, are sub-optimal and delivering poor investor outcomes."
"Client suitability is a key part of Mifid II but, since its implementation in January 2018, there is unfortunately little evidence that orphaned funds are being weeded out. It remains to be seen if Mifid II can be the driver that brings the issues of orphaned funds to the fore by regulators. It is evident that investor outcomes are being affected, and this concern should get the wider attention it deserves."
To view the full report, click here: https://www.morningstar.com/en-uk/lp/orphaned-funds?cid=CON_RES0067