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ClearGlass Research report on Value for Money in Passive Equities

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ClearGlass Research has published its third analyst report focusing on the Global Passive Equity Universe finding that ESG funds are cheaper and perform better than their non ESG counterparts suggesting greater value for money.

The report provides industry leaders with deal-specific fee data collected via the Cost Transparency Initiative (CTI) framework. The research arm of ClearGlass Analytics has developed a proprietary database for Global passive equity funds, which served as the basis for this report. The database comprises:

  • Core funds: 349 mandates, 121 schemes, 15 managers
  • ESG funds: 89 mandates, 30 schemes, 4 managers
  • RAFI funds: 71 mandates, 30 schemes, 3 managers
  • Minimum volatility funds: 32 mandates, 15 schemes, 3 managers

Key findings from the report include:

  • There are economies of scale in global passive equities –There are economies of scale to be gained, but this tapers off at higher AUM levels suggesting investors should negotiate harder as they increase from very small allocations to small-to-medium sized allocations but not beyond this.
  • There is no relationship between performance and charges –Whether analysing the entire sample or dividing the sample into groups based on methodology, there is no correlation, positive or negative, between performance and charges. Given there is no (performance) benefit from paying higher fees, investors should aim for the lowest cost option.
  • ESG passive global equities funds outperform traditional Core funds. ESG funds are cheaper and perform better than its non-ESG counterparts. Some investors are concerned that they need to sacrifice a portion of returns to improve sustainability – ClearGlass findings suggest the opposite is true.
  • Charges are stable for passive global equities funds except for ESG Funds – There was little change in charges – total, transaction or ongoing charges – over time for Core funds. However, charges are falling rapidly for ESG funds, suggesting better overall value for money in comparison to non-ESG funds.

The scale and accuracy of the independently gathered CTI data, delivered through the ClearGlass Analyst Report is designed to give both asset managers and asset owners a true picture of how the market is functioning, and to support managers in pricing their services at the optimal level.

CTI data differ substantially from benchmarks provided by third party consultancies. While useful, this report highlights the fact that consultancy data is often misaligned with the realities of the market. This is problematic as clients (mainly institutional investors) may receive an inaccurate impression of competitive ongoing charges.

 Dr Christopher Sier, Research Director at ClearGlass Research,commented: “The report started with the objective of investigating the entire universe of global passive equity findings, but its strongest finding is focused on a niche segment on the market, namely that ESG focused passive equity funds provide better value for money than its non ESG counterparts – this is true across both costs and performance.

“The report also suggests that the positive trends across costs are likely to continue in the ESG passive equity space, with a clear trend of fees decreasing at a much more pronounced rate than any other segment of the passive equities market.”

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