EU funds underperform US counterparts

European funds investing in US equities are experiencing lower returns compared to their US-domiciled counterparts, prompting asset managers to call for a reduction in settlement times across the European Union.

According to an analysis by Ignites Europe, the shift in the US to a T+1 settlement cycle—one day after the trade date—has negatively impacted European investors, who continue to operate under a T+2 system.

Data shows that average total returns for EU-domiciled funds tracking the S&P 500 have been 14 basis points lower than similar US funds since the US adopted T+1 in late May.

This discrepancy has led to increased trading costs for European funds, dampening returns and causing concerns among asset management executives.

European regulators are now considering whether to align with the US by moving to T+1, with the European Securities and Markets Authority expected to issue recommendations ahead of a potential 2027 transition.

The misalignment between US and EU settlement cycles is seen as a significant cost factor for European funds, which is ultimately borne by end investors.

Attribution: The Financial Times

Subediting: M. S. Salama