Rothschild & Co AM launches fund of funds range focused on ETFs

Rothschild & Co Asset Management has launched a fund of funds range that invests in exchange traded funds as the firm seeks to lure investors into its lower-cost products.

The firm is set to launch three France-domiciled funds next week named the R-co Selection ETF Balanced, R-co Selection ETF Moderate and R-co Selection ETF Dynamic.

The funds will respectively charge maximum annual fees of 1.3 per cent, 1.45 per cent and 1.6 per cent, which include the costs of managing the funds themselves and the indirect costs of the funds they invest in, as well as operating costs.

Each fund will seek to outperform a different MSCI index by investing in varying levels of equity, bond and money market ETFs, while trying not to exceed certain volatility levels.

This article was previously published by Ignites Europe, a title owned by the FT Group.

Rothschild & Co does not manage ETFs of its own, so the range will invest exclusively in other firms’ ETFs.

A Rothschild & Co spokesperson said the firm had received regulatory approval for the strategy and would offer it to all types of clients based in France.

A team of the firm’s analysts would select ETFs “with a high level of granularity from a large number of providers”, the spokesperson said.

They would also carry out “in-depth analysis of valuations and flows on a large number of global equity and bond asset classes”, the spokesperson added.

Funds of funds in general are a popular investment vehicle for French investors, used for various retirement solutions and life insurance wrappers.

France-domiciled funds of funds overall have €69bn in assets as of the end of May, Morningstar data shows.

Adina Gurau Audibert, head of asset management at the Association Française de la Gestion financière, which represents France’s fund industry, said local investors saw funds of funds as a “useful” way to invest in diversified strategies.

However, the products have yet to come under much pressure to reduce their costs, according to experts.

Mara Dobrescu, director of fixed income ratings at Morningstar, said the popularity of funds of funds in France was “perhaps not wholly deserved” because most of them were “eye-poppingly expensive”.

The average representative cost was 1.98 per cent a year, Dobrescu said.

“Such high fees make it very difficult for these funds to outperform traditional market benchmarks, and many of them provide a sub-par experience for investors,” she said.

As a result, Dobrescu said a fund investing solely in ETFs could “theoretically be very interesting” for French retail investors if it had a low overall annual charge.

Rothschild & Co’s new range was “lower cost rather than low cost”, Dobrescu said, adding that the funds’ direct management fees were “still quite high” given that investors can theoretically build a portfolio of ETFs themselves for free.

She added that Rothschild & Co already had a “fairly large” range of traditional funds of funds domiciled in France, but that they were all “extremely expensive”, with most of them charging more than 2 per cent a year.

Philippe Hellinger, head of French fund products at Six Group, a data and research firm, said only a “marginal” number of funds of funds distributed in France had more than 90 per cent exposure to ETFs.

But he said “the trend is clearly towards cost reduction and performance assurance, and therefore towards more investment in ETFs, whether directly or indirectly”.

Assets in funds of passive funds in Europe exceeded €100bn as at end of May, based on analysis of Morningstar data.

However, the vast majority of these fund assets are domiciled in the UK.

*Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at igniteseurope.com.