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Costs and performance of marketed funds incorporating a non-financial approach

Costs and performance of marketed funds incorporating a non-financial approach

In a context of significant development of sustainable finance and fund ranges incorporating environmental, social and governance (ESG) criteria, the AMF has published a study that provides an initial overview of the costs and performance of funds marketed in France between 2012 and 2018 that integrate a non-financial approach.

A database of 28,480 fund share classes marketed in France was analysed to distinguish those that reported a non-financial approach, either by a mention in the fund’s commercial name based on a list of keywords identifying 1,340 fund share classes, or by obtaining a French label (1,108 fund share classes). This data enabled an analysis only of the total expense ratio (TER), i.e. the sum of annual ongoing charges and  performance fees. The findings of this study are therefore based on a partial view of the costs charged to investors.

The analysis demonstrates that fund share classes that take non-financial criteria into account tend to cost less than their equivalents without a non-financial approach over the 2012-2018 period. A fund share class claiming to incorporate non-financial criteria by its name and having a label would appear on average to be less costly by 0.17 percentage points, than an equivalent conventional fund share class over the analysis period. A robustness check on the year 2019 alone, seems to confirm the validity of the results. For the total sample in 2019, the TER of a fund without any non-financial reference was 0.10 percentage points higher than that of a fund claiming to take into account non-financial criteria and having a label.

Several assumptions could explain these lower costs (proactive policy of asset management companies, lower management fees corresponding to a reduced scope of assets ....). These results must be considered with caution: the period studied corresponds to a phase in the structuring of the non-financial market that may not be representative of the current situation.

A number of labels have been introduced to prevent greenwashing and help retail investors identify green funds more easily. The AMF published a policy in 2020 that imposes minimum standards for products that communicate about their consideration of non-financial criteria. It is also crucial to encourage transparency on costs to build investor trust and thus enable greater mobilisation of savings to finance the economy.

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