European ESG funds found not to charge higher fees Financial TimesEuropean ESG funds found not to charge higher fees Financial TimesEuropean ESG funds found not to charge higher fees Financial Times
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Visit our ETF Hub for investor news and education, market updates and analysis and easy-to-use tools to help you select the right ETFs.New research has debunked the idea that funds integrating environmental, social and governance factors charge higher average fees than their non-ESG peers.Several analyses reveal that there is no fee premium built into active or passive ESG funds, indicating previous criticism that such funds charge higher fees than their non-ESG counterparts is now inaccurate.Morningstar data shows that ETFs categorised as sustainable in five out of six large fund categories charge lower average annual fees than non-ESG funds in Europe.For example, global large-cap ETFs charge an average of 0.3 per cent, while global funds integrating ESG charge 0.28 per cent.
ESG ETFs charges compared to non-ESG peers (%)ETF categoryESGnon ESGEurope Large-Cap Blend0.220.24Eurozone Large-Cap0.210.22Global Emerging Markets0.270.39Global Large-Cap Blend0.280.30UK Large-Cap0.190.17US Large-Cap Blend0.190.22
Researchers have found that investors don’t have to pay more for actively managed, sustainable funds.
This article was originally published by Ignites Europe. Khalaf stated that ethical funds, which were launched in the sector earlier, are likely to have come to market at a higher price to attract new investors. Morningstar research comparing fees for passive and active ESG funds across Europe showed a similar trend.
Active and passive ESG funds and non-ESG peers charges (%)Fund categoryAsset weightedEqual weightedNon-ESG Active1.141.39ESG Active0.971.11Non-ESG Passive0.180.32ESG Passive0.240.32
The average annual charge for ESG funds that are actively managed is 1.11 percent, compared to 1.39% for non-ESG funds. However, European passive ESG funds lose their cost advantage if they use asset-weighted averages. Passive ESG funds charge 0.24 percent, compared to 0.18% for non-ESG. ESG-screened ETFs that exclude controversial activities like weapons, tobacco, or thermal coal, “tend to charge fees on par with other non-ESG ETFs,” she said. ETF providers also have higher investment stewardship expenses. Bioy stated that voting and engagement teams have increased in recent years, and the cost associated to their activities is expected rise, especially in light of the climate crisis. However, she expects ESG ETFs to see a decrease in fees. “Historically, ETF providers were able to justify higher fees when they offered new and innovative products. However, this won’t be the case for ESG strategies, as ESG becomes mainstream and more competition heats up. *Ignites Europe is a news publication by FT Specialist that targets professionals in the asset management industry. It covers everything, from product launches to industry trends and regulations. You can get trial and subscriptions at igniteseurope.com
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