Driven by a combination of asset flows to cheaper funds and the repricing of existing investments, fees are falling for most global fund investors, but that is not the case for many Asian investors.
In its biannual global investor experience report, Morningstar’s manager research team assessed investors’ ongoing cost to own mutual funds in 26 markets across North America, Europe, Asia, and Africa.
“The downward trend in global fund fees has generally benefited fund investors, though the use of upfront fees and high prevalence of embedded ongoing commissions across 18 European and Asian markets can lead to a lack of clarity for investors in these markets,” said Wing Chan, Morningstar’s head of manager research, Europe and Asia Pacific.
“We believe this can create misaligned incentives that benefit distributors, notably banks, more than investors.”
Hong Kong
Morningstar ranked Hong Kong’s fees and expenses grade as “below average” and noted that the city is one of the regions with the highest asset-weighted median expense ratios for available-for-sale fixed-income and equity products.
It is due to the common use of front loads and limited availability to retrocession-free share classes, said the fund research firm.
However, compared with available-for-sale funds, asset-weighted median expenses are lower for Hong Kong-domiciled funds.
Singapore
The situation is similar in Singapore, which is also ranked as “below average”.
The lion city also has a high use of front loads, limited availability of retrocession-free share classes and several high asset-weighted median fees which contribute negatively to the fees and expenses grade.
Although domiciled asset-weighted median fees are better than the available-for-sale values, Morningstar said the situation is “disappointing” as these are almost unchanged since its 2019 study.
China
China’s fees and expenses grade was lowered to “below average”, because there has been no discernible improvement in fee levels since the last study, Morningstar noted.
While there are shrinking fees in most markets, China investors still have to pay retrocessions when not receiving advice.
Taiwan
Taiwan’s fees and expenses grade is ranked as “bottom”, making it one of two countries with the highest fees, together with Italy.
Apart from front loads and retrocessions, it is also because expensive offshore fund sales predominate over those of cheaper locally domiciled funds on the island.
Other regions in Asia such as India, Japan, and Thailand are ranked as “average” while Korea is ranked “above average” due to lower asset-weighted median fees for locally domiciled funds.
Nonetheless, Chan believes the emergence of online distribution channels and fee-based robo-advisers can lead to more competitive fund fees in the region over time.
