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June 19, 2024

Wednesday Investment Wisdom: Why are There So Many Fund Share Classes Available to Investors in Europe?

by Detlef Glow.

When looking at the fund landscape in Europe it is obvious that there are various share classes of literally any mutual fund registered for sales in Europe. This is especially true for the so-called cross-border funds which are domiciled in one of the international fund hubs (Ireland and Luxembourg) in Europe and distributed all over the continent. In the ETF segment this looks a bit different, since a large number of ETFs don’t have multiple share classes. So, why are there so many share classes of most mutual funds and what are they used for?

What is a Primary Share Class?

Every mutual fund or ETF has a so-called primary share class, which is the initial share class of the product. For Lipper the primary share class is always the oldest retail share class. If there is more than one retail share class launched at the same date, we would use the accumulating share class as primary share class.

Institutional and Retail Share Classes

That said, mutual funds are often launched with a retail share class and an institutional share class, which normally have different minimum investment requirements and different fee structures. The different fee structure is caused by the higher minimum investment of institutional share classes, as fund promoters want to return the economies of scale back to institutional investors. In addition, institutional investors don’t want to receive any retainer fees or kickbacks, therefore these payments needed for retail fund distribution to remunerate financial advisors are also eliminated from the general management fees of institutional share classes.

Accumulating and Distributing Share Classes

In addition, mutual funds are also often launched with an income distributing share class and an income accumulating share class. These share classes are needed to fulfil the demand from different investor groups since some investors need the regular income from their portfolio while others want to accumulate the income to increase the overall value of their portfolio.

Currency Share Classes

Since some investors might not be allowed to hold securities in other currencies as their home currency, some mutual funds offer share classes for which the portfolio value (price) is calculated in different currencies than the fund currency. For example, say a fund is denominated in euros but there are also share classes available in British pound (GBP), Swiss franc (CHF), U.S. dollar (USD), etc. These share classes do often have no ISIN since they are just calculated for reference and do not provide any kind of hedge with regard to the calculation currency.

Hedged Share Classes

Opposite to currency share classes, hedged share classes normally have their own ISIN or other local/international identifiers, since the performance of these share classes can (widely) differ from the performance of the primary share class since these share classes are hedge into the respective share class currency. Therefore, these share classes enable investors to separate the performance of the underlying market(s) from the performance of the respective base currencies. In addition, investors are also able to minimize currency risks within their portfolio by using share classes in their portfolio currency.

Share Classes for Specific Markets

In some cases, there are share classes for retail distribution to fulfil regulatory requirements in specific markets. This is especially true for markets such as the Netherlands or the U.K. where retrocessions are banned. Within these markets fund promoters offer so-called clean or super-clean share classes for retail investors which have substantially lower management fees compared to primary share classes since all payments for the fund distribution including retainer fees, retrocessions, or kickbacks, etc. have been eliminated from the management fees. It is noteworthy that financial advisors in these countries are normally remunerated via a fee-based advice model where the investor pays a fee to the advisor.

ETF Share Classes

ETF share classes are a new type of share class since the patent on this kind of share class held by Vanguard expired on May 16, 2023. With regard to this it is no surprise that we have so far seen only a small number of mutual funds, mainly index trackers, which have launched ETF share classes for their mutual funds. From my point of view, this will become a subject of change once the regulation in Europe is fully aligned since there are currently different requirements with regard to the portfolio transparency for mutual funds and ETFs, as well as different specifications with regard to the naming of the share class/umbrella.


With regard to the above, it is no surprise that mutual funds and some ETFs maintain a high number of share classes since all fund promoters want to reach as many investors as possible with their product offerings. That said, one needs to bear in mind that the launch and maintenance of every single share class involves costs, therefore a lot of share classes available to investors are launched by actual investor demand. From my point of view, the high number of share classes can be a hindrance for some (self-advised) investors since they may not know the differences between the single share classes. Nevertheless, it seems to be somewhat necessary for fund and ETF promoters to maintain all these share classes to serve their customers in the validity range of the UCITS regulation, the different local markets in the European Economic Area (EEA) and beyond (Asia, and Latin America), best.


This article is for information purposes only and does not constitute any investment advice.

The views expressed are the views of the author, not necessarily those of Lipper or LSEG.


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