Key Takeaways
- UK holds nearly a third of total assets
- Low-cost strategies see biggest inflows
- Vanguard now the largest provider
- Most-held equity fund in the UK is M&G Japan
The UK has the largest country share of the fund-of-funds market, with assets worth EUR 343 billion in a total European market of EUR 1.1 trillion.
This is reflected in investor flows: the UK fund-of-funds market has experienced a consistently positive trajectory in flows, maintaining strong momentum through 2023 and 2024. In contrast, excluding the UK, the Europe market has faced significant challenges, with sharp outflows surpassing EUR 30 billion since 2023.
Fee reductions have also been more pronounced in the UK fund-of-funds market, with average fees for key allocation categories falling to 0.86%. This trend has been driven by more stringent regulatory oversight, heightened market competition, and greater fee sensitivity among UK investors and financial advisors.
Capital is flowing decisively toward lower-fee funds, while higher-cost strategies are experiencing persistent and accelerating outflows. This reflects growing investor sensitivity to fees and value for money—a trend that, in the UK, is further reinforced by regulatory pressures.
Vanguard Leads the Providers by Assets
In the total European market, Vanguard has the largest share of net assets and has added EUR 32 billion in AUM over the past five years. This impressive growth highlights Vanguard’s expanding market share, fueled by its trusted brand, cost-effective offering, and strong alignment with investor demand for transparency and diversification. But it also signals a broader shift toward passive investing, positioning Vanguard as a key force shaping the fund-of-funds landscape.
The leading funds in European fund-of-funds portfolios are heavily weighted toward US large-cap blend equities, where low-cost passive funds such as the iShares Core S&P 500 ETF IDUS and Invesco S&P 500 ETF SPXS dominate. Rising market concentration has led some investors to equal-weight strategies like the Xtrackers S&P 500 EW ETF XDEW to reduce reliance on mega-cap stocks.
UK equity exposure is captured via passive strategies like the iShares Core FTSE 100 ETF ISF and the iShares UK Equity Index (UK). These funds offer exposure to the UK equities, with a focus on the country’s largest and most established companies.
What Funds Do Fund of Funds Hold?
The most-held equity fund within UK fund-of-funds is M&G Japan, an active fund held by 102 different funds, with an average weight of 2.93%. The strategy offers exposure to a compact portfolio of 50 high-quality companies in Japan while also meeting UK demand for sustainable investing through its ESG-integrated approach. The second-most popular fund, held by 100 funds, is the passive iShares UK Equity Index (UK) at an average weighting of 6.93%.
On the fixed-income side, the most popular UK fund is Vanguard Global Bond Index, held by 70 funds with an average weighting of 9.07%. The second-most popular fund is the active Man GLG Sterling Corporate Bond, held by 62 funds with an average portfolio weight of 3.78%. The fund has gained traction thanks to strong performance, with assets exceeding EUR 1.5 billion in 2025.
European Fund-of-Funds Market
In the EUR 1.1 trillion European fund-of-funds market, Luxembourg stands out as the preferred domicile for European cross-border fund of funds. Allocation funds, which blend asset classes for diversified exposure, comprise 76% of the fund-of-funds markets. Recent trends also show a growing interest in alternatives and money market funds.
European fund-of-funds portfolios are heavily weighted toward US large-cap blend equities, where low-cost passive funds such as the iShares Core S&P 500 ETF and Invesco S&P 500 ETF dominate. Rising market concentration has led some investors to equal-weight strategies like the Xtrackers S&P 500 EW ETF to reduce reliance on mega-cap stocks.
The JPM US Research Enhanced Index Equity JSEU is Europe’s most held active ETF, becoming the first in Europe to surpass EUR 10 billion in assets. It blends low-cost, index-enhanced alpha and a sustainability focus.
Index funds dominate the list of the 10 most popular fixed-income funds held, serving as key building blocks for fixed-income allocation. Regional options are favored over diversified global funds.
What Are Fund of Funds?
Funds investing in other funds offer investors diversification without having to build and rebalance portfolios at security level. It also means the fund fee covers both the fund-of-fund and the fees of the underlying vehicles it holds. However, in many cases, fees are on level with standard counterparts.
Traditional fund-of-funds have used active funds as building blocks, but these have declined in popularity among UK advisors and investors due to high double-layered fees. The rise of passive and blended portfolios is driving fees down, and hybrid models that combine low-cost beta exposure with selective active management are growing steadily in popularity.
This is an abridged version of the European Fund-of-Funds Landscape, written by Lena Tsymbaluk and Giovanni Cafaro. The article was compiled by Sunniva Kolostyak.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
