Rothschild & Co Asset Management is introducing a new fund of funds range that invests in exchange-traded funds (ETFs), aiming to attract investors with its lower-cost products. The firm will launch three France-domiciled funds next week, named R-co Selection ETF Balanced, R-co Selection ETF Moderate, and R-co Selection ETF Dynamic.
The funds will charge maximum annual fees of 1.3%, 1.45%, and 1.6%, respectively. These fees encompass the costs of managing the funds, the indirect costs of the ETFs they invest in, and other operating costs.
Each fund aims to outperform a different MSCI index by investing in a mix of equity, bond, and money market ETFs, while maintaining specific volatility levels. Rothschild & Co, which does not manage its own ETFs, will invest exclusively in ETFs managed by other firms.
A Rothschild & Co spokesperson confirmed that the strategy has received regulatory approval and will be available to all types of clients in France. The firm’s analysts will select ETFs from a broad range of providers, conducting detailed analyses of valuations and flows across numerous global equity and bond asset classes.
Funds of funds are a popular investment vehicle among French investors, often used for retirement solutions and life insurance wrappers. According to Morningstar data, France-domiciled funds of funds had €69 billion in assets as of the end of May.
Adina Gurau Audibert, head of asset management at the Association Française de la Gestion financière, noted that local investors view funds of funds as a useful way to invest in diversified strategies. However, experts point out that these products have not yet faced significant pressure to reduce their costs.
Mara Dobrescu, director of fixed income ratings at Morningstar, stated that the popularity of funds of funds in France is “perhaps not wholly deserved” due to their high costs, with an average annual fee of 1.98%. These high fees make it challenging for the funds to outperform traditional market benchmarks, leading to a sub-par experience for investors.
Dobrescu suggested that a fund investing solely in ETFs could be very appealing to French retail investors if it had a low overall annual charge. She described Rothschild & Co’s new range as “lower cost rather than low cost,” noting that the direct management fees remain high compared to the potential of building a portfolio of ETFs independently for free.
Dobrescu also pointed out that Rothschild & Co already has a significant range of traditional funds of funds domiciled in France, most of which charge over 2% annually. Philippe Hellinger, head of French fund products at Six Group, highlighted that only a small number of funds of funds in France have more than 90% exposure to ETFs. However, he noted a clear trend towards cost reduction and performance assurance, which is driving more investment in ETFs, either directly or indirectly.
Assets in funds of passive funds in Europe surpassed €100 billion by the end of May, according to Morningstar data, with the majority of these assets domiciled in the UK.
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