Thematic ETFs: Advisers' active passive strategy

Eight new exchange-traded funds will list on the NZX on Thursday, including ESG international equities funds and two “megatrend” funds that target automation and robotics, and healthcare innovation.

NZX head of funds management Hugh Stevens said the ESG ETFs were a way for investors and financial advisers to build a “sustainable core” for portfolios.

They could then flesh out the investment strategy with individual stocks or other funds.

The funds were offered were moving beyond cap-weighted index tracking, he said, and instead offering more sophisticated investment approaches.

Initial expressions of interest had shown strong demand for the thematic funds, particularly in automation.

Stevens said it was clear that advisers and wealth managers could add value for their clients allocating their money to the right types of asset classes and themes within the market – not by stock picking.

ETFs could be used as building blocks for a portfolio, he said, "rather than starting with sand and water".

He said there had been growing interest in ETFs from financial advisers who had traditionally recommended unlisted managed active funds.

Most had used ETFs for international exposure for a long time but were starting to see them as a good, lower cost way of getting access to investment markets locally, too.

Stevens said the listing of eight funds was a big deal for the exchange, which has been under pressure over a lack of new listings.

He said it was pleasing for Smartshares that BlackRock had decided to offer its funds via NZX rather than going direct into the market as a competitor.

Stevens said, once the foreign exchange spreads, international custody and other fees were taken into account, it was many times more expensive to invest in the funds directly through iShares than it would be to use Smartshares funds.

Comments from our readers

On 6 June 2019 at 11:24 am Pragmatic said:

Great initiative from the NZX
Whilst I haven’t seen the pricing, i’m sure that it compares favorably against the 12bps ESG ETF offered by Vanguard

On 6 June 2019 at 8:59 pm Sam Handwich said:

Pragmatic, please can you ask a few NZ brokers how much they charge (brokerage, forex spreads, custody fees and admin fees) to invest $10,000 into Vanguard's US listed ESG ETF, and report back? As outlined in the final paragraph above, I think you'll find Vanguard's annual management fees are a very small component of total costs.

On 7 June 2019 at 8:46 am Pragmatic said:

Thanks @Sam Handwich.

To be fair I didn't spend a lot of time on the challenge, although quickly discovered that Commsec (AU), Schwab and E.Trade (US) were easily accessible for kiwi investors, with pricing starting at circa $10 per trade. This covers admin (as listed transactions are pretty well commoditised nowadays), with scrip held directly by the client. Like all platforms, there is a bit of establishment time required, albeit that Commsec wasn't onerous (AML of course taking up the bulk of the time).

I didn't think that forex spreads were overly relevant - but for the purposes of a response, these come in at circa 7bps (NZD/USD). Again - I'm sure that these can be reduced by shopping around, with positive carry on the NZD/AUD helping to fund any costs.

So where are we at: $10 + 12bps (vanguard esg etf) + 7bps (fx) = $10 + 19bps. For a $10,000 investment into Vanguard's US listed ESG ETF, it's looking more like 20bps than 12bps for a Kiwi investor. This compares favourably to the 54bps charged by the NZX Smartshares Global Equities ESG ETF.

On 8 June 2019 at 8:41 am Sam Handwich said:

I tried all those and couldn’t sign up as I don’t have a US or Australian address. What’s your work around for that?

On 10 June 2019 at 5:01 am henry Filth said:

Have a look at Saxo, Internaxx, IB, TD Direct or some of the other crowds targeting expats, Sam.

On 14 June 2019 at 11:29 am Pragmatic said:

Apologies for the delayed response. To be fair I already have a CommSec account - so it was relatively easy to conduct cheap trades

Whilst I haven’t tried the other recommendations, the point is that cheaper (much cheaper!!!) gateways are available to investors with a few moments work

Hope this helps

Thematic ETFs: Advisers' active passive strategy

New, more targeted exchange-traded funds are a way for advisers to take an active approach to passive investment, the NZX says.

Thursday, June 6th 2019, 6:00AM 6 Comments

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