Funds invest dramatically badly

amsterdam - Investing in single shares is risky, which is why investors entered broader, actively managed funds in recent years. However, their returns are also miserable, according to new European research.

It always pays to look at yield versus costs: not even one in five funds sold to private investors succeeded in overrunning its benchmark in the past three years if the fund managers' expenses were deducted.

This reward is usually the biggest factor for less profit, according to Prometica, the researcher in Europe who compared 2500 funds. According to research leader Claudio Bocci, the problem is 'structural'.

The cost problem occurs with both equity, bond and mixed funds, he says. For a quarter of the funds that have been sold to retail customers, it is almost impossible to catch up on the backlog.

Bocci sees a virtually one hundred percent probability that they will never tap the index because of the high costs.

The funds could cut the fund manager's remuneration and other costs, but they refuse that. The European Commission also warned last month of the high costs that some funds charge. The complexity and costs mean that private individuals forgo such funds, the commission concluded.

New European Mifid rules, which should provide more transparency, can help reduce that opacity.

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