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April 1, 2024

Monday Morning Memo: Are New Products a Blessing for Fund Investors?

by Detlef Glow.

Since the European fund industry is a growth industry, it is not surprising that the number of investment products available to investors in Europe is increasing every year. The new products are products from all asset types and have various investment objectives. While some products are real innovations, a high number of new products are enriching the already existing products.

While some investors embrace the increasing number of products since this means that they have more choice for their portfolios, others see an increasing number of products as a hindrance because increased product availability increases complexity of the market. Hence, they have increase their research efforts to find the fund which suits the needs of their portfolios best. This is especially true for new products which are using derivatives or modern portfolio management techniques to realize an asymmetric risk/return-profile or to enhance the returns of a traditional investment strategy.

But there is another advantage which favors investors. If the newly launched products are so-called plain-vanilla products, it is fair to say that more of these like-for-like products increase the competition between product promoters which ,as a result, should lead to generally higher product quality and lower management fees.

Especially in the European ETF industry, lower fees are seen as a differentiator between like-for-like products—promoters use lower fees for marketing purposes.

From my point of view, the increasing number of products in the European fund industry is good because it shows that the industry is still in a growth mode and can still create product innovations to foster the demand for new asset classes from investors. This does not mean that all these new products are generally better than the existing products. New investment strategies and/or asset classes, however, may help increase the diversification of investor portfolios, which can lead to better risk/return profiles.

That said, not all products are made for all investors. Highly specialized products, for example, should only be used by investors who understand the instruments used by the portfolio manager and the possible estimated risk/return-profile of the respective product over a given time period or during a given market environment.


The views expressed are the views of the author and not necessarily those of LSEG.

This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. LSEG Lipper cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.


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