Investors have saved more than 90 billion euros in fees through ETFs
- European investors have saved 90.6 billion euros in additional investment costs through index funds since 2011, according to an analysis by Vanguard's ISG.
- The lower fees of index funds put pressure on the costs of active funds and pull them down.
- Sebastian Külps of Vanguard expects that low-cost funds will play an important role in investors’ portfolios in the future.
European investors have saved 90.6 billion euros in additional investment costs through index funds (ETFs) since 2011. This is the result of an analysis by Vanguard's global investment strategy team (Vanguard Investment Strategy Group, ISG).
For the calculation, Vanguard examined the volume of index funds and multiplied this by the difference in expense ratios between active funds and index funds in Europe.
Active funds are increasingly coming under cost pressure
At the same time, another analysis reveals a “tethering effect” in fund fees. This means that the lower fees of ETFs put pressure on the costs of active funds and pull them down. In the past twelve years, the expense ratios of both active and index-based funds have fallen.
“In our opinion, index funds have stimulated competition that has led to positive price pressure across the entire financial industry – and from which all investors benefit,” commented Sebastian Külps, Head of Germany and Northern Europe at Vanguard on the results.
Despite falling costs, the difference between active and index funds remains clear, the analysts write. At the end of 2023, the average expense ratio was 1.05 percent for active funds and 0.21 percent for index funds.
Why are active funds often more expensive? The reason is that active fund managers hope that a targeted selection of stocks will result in outperformance compared to the broad market – i.e. indices such as the MSCI World. In addition, losses in weak market phases should ideally be lower. In reality, however, neither is always the case. Investors should therefore always consider whether costs and performance are balanced.
Külps is convinced that the costs of funds will play an increasing role in investment decisions: “Vanguard assumes that low-cost funds – both active and index funds – will continue to play an important role in investors' portfolios in the future, while high-cost funds will become less important.”