Robert
van
den
Oever: Welcome
to
Morningstar.
Today
I
talk
to
Jeana
Doubell,
Manager
Research
Analyst
for
Morningstar
in
Amsterdam,
and
we’re
going
to
talk
about
the
dirty
word
in
fund
investments,
namely
fees,
which
can
have
a
big
impact
on
the
net
return
for
fund
investors.
So,
Jeana,
to
start
with,
are
you
seeing
different
fee
trends
in
different
regions
over
the
world?
Jeana
Marie
Doubell: Yes,
we
are.
Certainly,
in
recent
years,
we’ve
noted
that
the
U.S.
typically
charges
slightly
lower
fees.
Europe
may
be
a
touch
higher.
And
then,
for
example,
in
Asian
markets,
it’s
actually
quite
a
bit
higher.
So,
if
I
hone
in
on
a
specific
category,
for
example,
in
the
high
yield
category,
in
the
U.S.,
we
see
a
median
fee
class
of
about
77
basis
points.
In
Europe,
it’s
about
86
basis
points.
But
then,
over
in
Asia,
it’s
almost
double
that
at
138
basis
points.
RVDO: Okay.
And
are
there
country
leaders
within
those
regions
you
mentioned?
JMD: Well,
maybe
I
have
a
home
bias.
But
perhaps
the
Netherlands
is
on
the
forefront
of
that.
So,
in
2014,
the
Dutch
Authority
of
Financial
Markets
brought
in
the
new
legislation
that
essentially
put
a
ban
on
retrocessions.
This
means
that
fully
loaded
share
classes,
so
share
classes
with
additional
fee
layers,
such
as
distribution
fees,
were
now
prohibited.
Since
then,
retail
investors
have
either
been
offered
institutional
fee
classes,
which
often
have
a
lower
fee,
or
clean
share
classes
that
don’t
have
these
distribution
fee
classes
set
up
on
top
of
it.
RVDO: So,
how
can
fund
investors
guard
themselves
against
the
high
fee
trap?
JMD: Well,
maybe
the
most
simple
guideline
is
just
to
really
understand
the
fees
that
you
are
busy
paying.
To
ensure,
for
example,
that
the
stipulated
fees
are
at
least
smaller
than
the
fund’s
objective
aim,
so
the
return
that
the
fund
tries
to
achieve.
Having
said
that,
obviously,
returns
are
never
certain,
but
fees
are.
So,
it’s
important
to
understand
the
breakdown
of
your
fees
as
well.
Certain
fees
to
look
out
for
might
include,
for
example,
performance
fees,
which
are
additional
fees
charged
on
when
a
manager
outperforms
their
benchmark.
But
this
basically
means
that
instead
of
those
additional
returns
going
to
the
investor,
they
now
give
some
of
them
back
to
the
manager
as
performance
fees.
On
the
other
hand,
another
type
of
fee
to
look
out
for
are
redemption
fees.
These
are
fees
that
are
charged
when
investors
wish
to
pull
their
money
out
of
the
fund.
Van
den
Oever: And
are
there
certain
firms
that
are
known
for
charging
high
fees?
JMD: Yes,
there
are
actually.
So,
if
we
look
at
the
Morningstar
fund
family
report
that
is
released
every
annual
year,
we
can
see
that
certain
firms
such
as
BlackRock
and
specifically
the
iShares
platform
of
BlackRock
that
gives
passive
investing
options
to
investors,
these
charge
the
lowest
fees
typical
of
a
passive
platform
in
the
cheapest
5%
of
the
firms
that
we
analyse.
On
the
other
hand,
we
get
more
expensive
fee
classes
offered
in
the
active
management
space.
So,
sticking
with
BlackRock,
we
see
more
median-aligned
fee
class
with
the
rest
of
the
peer
group,
whereas
a
firm
like
Amundi
has
a
more
expensive
fee
class
in
the
most
expensive
25%
of
the
group,
whereas
for
example
UBS
would
have
a
cheaper
share
class
in
the
more
cheaper
25%
of
the
group.
But
it’s
also
important
to
realise
that
this
doesn’t
necessarily
mean
that
retail
investors
have
access
to
those
cheaper
share
classes.
It
is
a
median
across
the
range
of
the
fees
that
are
offered
both
on
an
institutional
and
a
retail
basis.
RVDO: And
what
does
this
mean
for
fund
investors?
JMD: Well,
each
fund
should
definitely
be
seen
in
its
own
individual
right.
But
while
outcomes
are
never
certain,
fees
certainly
are,
and
this
allows
us
the
transparency
around
fees,
allows
us
to
better
compare
and
to
identify
those
fees
and
even
avoid
them
if
we
believe
they
are
still
high.
In
other
words,
in
a
vacuum,
all
else
equal,
the
lower
the
fees,
definitely
the
better.
RVDO: And
how
does
Morningstar
communicate
the
effect
that
fees
can
have
on
a
strategy
towards
their
clients?
JMD: Fees
play
an
essential
part
in
the
rating
system
behind
the
modern
Star
Medalist
ratings.
So,
for
these
ratings,
based
on
an
analyst’s
conviction
on
a
fund’s
ability
to
deliver
returns
exceeding
its
benchmark
after
fees
through
a
full
market
cycle
to
investors,
we
award
funds
with
a
Medalist
rating,
essentially
being
a
Negative
or
a
Neutral
for
lower
convictions
all
the
way
through
to
Bronze,
Silver
or
Gold
for
our
higher-conviction
funds.
So,
for
this,
we
start
our
analysis
–
we’ll
review
the
fund,
looking
specifically
at
the
strengths
and
weaknesses
of
the
investment
team,
the
investment
process
and
the
firm
to
which
those
belong.
And
this
will
then
be
used
as
inputs
to
calculate
an
alpha
expected
on
a
pre-fee
basis.
And
then,
from
there,
we
essentially
look
at
each
share
class
and
we
subtract
the
fees
for
each
share
class
from
that
alpha
calculation.
And
in
this
way,
our
medalist
outcomes
are
specifically
fine-tuned
to
the
exact
fees
of
each
share
class
acting
as
a
signal
to
investors
to
show
the
effect
that
each
of
those
share
classes
have
based
on
their
fees.
RVDO: Okay,
Jeana,
thank
you
very
much
for
your
insights
in
fees.
We
learn
now
that
we
never
can
underestimate
the
effect
of
fees
on
the
end
return
for
investors.
So,
Jeana,
thank
you
very
much.
And
thank
you
all
for
watching.
For
Morningstar,
I’m
Robert
van
den
Oever.
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