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Hugues Gillibert, Fitz Partners

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Quant funds are 27 per cent cheaper to manage, says Fitz Partners

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Fitz Partners Fund Charges databases will now include new criteria intended to allow an even more precise fee benchmarking of funds falling in between active and passive management.

The company says the fund industry is changing, and what was once a clear divide between active and passive products has been getting less and less obvious and requires further granularity when it comes to reviewing fund product costs.
 
Hugues Gillibert (pictured), Fitz Partners CEO, says: “While comparison of fund products performance might primarily focus on funds’ objectives, this approach shows significant limitation when used in the area of funds costs. A fund performance objective is often not a primary driver of fund fees but its asset class and the way that asset is managed would weigh heavily on its costs, this will be made very clear in all our databases and services from early January.”
 
In order to allow precise fund comparisons, Fitz Partners already makes a clear distinction in its databases between “active” and “passive” products through its asset classifications and will bring even more granularity in this area through the introduction of “Enhanced” and “Quant” flags, describing funds’ investment styles relying more heavily on technology or factor based investment processes. The addition of the “Enhanced” and “Quant” groupings has allowed the creation of a third pillar in funds investment styles permitting an even more precise benchmarking of fund products costs sitting in between the fully active and passive fund universes.
 
According to Fitz Partners’ new fund classifications, considering clean/unbundled share classes only, European cross-border fully active equity funds show an average management fee of 0.80 per cent when Equity Quant funds management fee average is 27 per cent lower at 0.58 per cent. On the passive side, fully passive index tracking equities clean classes’ average management fee is 0.21 per cent when enhanced index tracking equity funds is 0.29 per cent.
 
“The difference in fee levels between pure active funds and those using machine based portfolio management showcases the extent of savings that can be found by leveraging technology in the investment advisory and portfolio management functions. At the same time, the application of machine or factor driven enhancements to a pure index tracker might allow superior returns at a marginal extra cost.”

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