LHV lowered index fund management fees by half

18. February 2021

As of today, LHV lowered the management fees of passively managed pension funds from 0.39% to 0.20%. As a result, LHV index funds became pension funds with the most affordable management fees in Estonia.

The reduction also affects the total costs of LHV index funds, which in addition to the fund manager’s management fee also contain all other costs, such as brokerage fees, management fees paid to other funds, audit fees and other fees. The total cost of funds is now 0.39% in the case of the second pillar index fund, and 0.42% in the case of the third pillar index fund, which also places the funds among the most affordable index funds.

Estonian second pillar pension savers can choose between four different index funds that invest in equities. Even though they are essentially similar, the fund invests its assets on different markets and in different asset classes. According to Joel Kukemelk, Manager of LHV index funds and green pension funds, LHV index funds stand out from their competitors with their share of equity markets, which is approximately three times larger. “We based the model portfolio of our funds on the distribution of global GDP between different countries. We abandoned the market capitalisation-based approach because we believe it places a disproportionally large emphasis on developed countries,” Kukemelk explained. “In the long term, we believe that emerging equity markets will grow faster than developed markets.”

All LHV pension funds lowered their fees considerably in recent years and new, green-oriented funds were added to the selection. By offering green funds, LHV became the company with the widest investment spectrum among Estonian pension funds. At LHV, savers can choose between three pension fund types: the management fee is 0.2% in the case of the most affordable way of saving, indices; 0.4% in the case of green funds and 0.6% in the case of actively managed funds with a long-term high absolute return.

According to LHV Fund Manager Joel Kukemelk, the decision of whether or not to save for a pension is not held back by the lack of choice in terms of pension funds. “The selection offers something for every pension saver: a suitable pension fund can be chosen based on their appetite for risk, but also personal beliefs and world view. According to the calculations of Eesti Pank and the Ministry of Finance, people who save money in a second pillar throughout their working life can add up to 30% to their retirement income and this applies to lower than average, average and higher than average salary alike,” said Kukemelk. “Investing via the second and third pillar is the most affordable and cost-effective way to increase the value of your assets in the long term.”

LHV launched Estonia’s first index funds in November 2016. The funds, both the second and third pillar index, started out with a management fee of 0.39%. In less than five years, the volume of second pillar LHV Pension Fund Index has grown to 42 million and third pillar LHV Pension Fund Index Plus to over 11 million euros. In recent years, the investment restrictions on funds have changed considerably and as of this January, both LHV index funds invest 100% in equities.

Further information:
*The effective management fee rate of LHV Pension Fund Green is 0.41% and the total cost rate 0.85%.
**The effective management fee rate is 0.58% in the case of Pension Funds XL, L, M and S and 0.49% in the case of XS. The respective total cost rates are 0.98%, 1.01%, 0.84%, 0.69% and 0.61%. The management fee rate of funds may increase to the rate published in the prospectus as the volume of funds decreases. In the case of LHV Pension Fund X, LHV Pension Fund L and LHV Pension fund M, a success fee may be added to the management fee.

LHV has seven second pillar pension funds and three third pillar pension funds. AS LHV Varahaldus, which manages the pension funds of LHV, is a subsidiary of LHV Group, the largest local financial group and capital provider. The pension funds managed by LHV have approximately 180,000 active clients. The market share of AS LHV Varahaldus in the Estonian mandatory pension fund market according to volume is 29%.

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