areonthemenu,andhowmany.Checktheproviders
becauseyouwantavarietyofETFs.Oftentheproduct
disclosure statement doesn’t specify which ETFs the
platform offers. For example, some bank investment
platforms offer only their in-house ETFs.
Elsworth says independent financial advisers use
ETFsmorethandothosealignedtoabank.“ETFsfit
the fee-for-service model very well.”
ETFprovidersarelistedinvestmentsanddonot
pay commissions to financial advisers. Only 21% of
currentETFholderstoldInvestmentTrendsthat
afinancialplannerplayedaroleintheirmostrecent
ETF investment.
PlatformsthatdoofferETFsincludeAsgard,AMP,
BTWrapandBTSuperWrap,CFSFirstWrap,HUB24,
IOOF, JBWere, Macquarie Consolidator and Macquarie
Wrap,MLCNavigatorandMLCWrap,Netwealth,
OnePathOasisandOneVue.
There are 180 ETFs and 23 exchange traded man-
agedfunds(ETMFs)listedontheASX.Investorshave
astrongappetiteforbroad-basedAustralianshare
ETFs with $1 billion flowing into S&P/ASX 200 and
300 indices over the 12 months to the end of January.
Vanguard’s index-tracking ETFs dominated the new
YOUNGER
CROWD FUELS
GROWTHY
ounger investors are
increasingly embrac-
ingexchangetradedfunds.
The average age of an ETF
investoris39,downfrom
58 five years ago.
Diversification is the
main driving factor for
using ETFs, according
to Investment Trends.
“Millennials are expected
to be significant drivers of
future ETF growth,” says
Recep Peker, the research
director.
Thirty-eight per cent
of ETF investors invest
via a self-managed super
fund (SMSF).
SMSF investors use
ETFsforawiderangeof
reasons, citing their access
to overseas markets and
specific investment types
as important factors. They
are more comfortable with
ETFs than they are with
managed funds, according
toPeterHogan,fromthe
SMSF Association.
He says ASX data shows
that financial planners
struggle to get SMSF
investors to invest in
managed funds. “SMSF
investorswanttohave
an argument with the
fund manager and what
companiestheybuy.”
Active managed funds
do not typically tell inves-
tors what they’re investing
in at the time, whereas
ETFs reveal their invest-
ments daily. For example,
the Magellan Global Equi-
ties managed fund has a
special disclosure agree-
mentanddoesnothave
to disclose its investments
more regularly than every
two months.inflowsforthe12monthstotheendof2016,attracting
$2 billion. Increasingly financial planners are running
investment strategies based on ETFs. They are offering
low-cost portfolios made up entirely of ETFs as part
of a move to robo-advice.
James Bailey, global head of channel management at
S&P Dow Jones Indices, says that in the US financial
adviserswhohavehadatrackrecordfortheirETF
strategies are now offering them as indexed, listed
products to investors. This opens up financial plan-
ners’ products to other clients. It also allows clients to
compare different portfolios from various planners.
Formostinvestors,stickingtothebroadindexETFs
isbest.Theyarelowcostanddelivertheindexreturn
(minus a very low management expense ratio). This
isagoodoutcomeforAustralianinvestorswhocan
see from the long- and short-term returns that actively
managed funds rarely perform strongly continuously
and most underperform their benchmarks.
In fact, Australia’s active investment returns last
year were the worst for many years, according to
PriscillaLuk,seniordirectorofglobalresearchatS&P
Dow Jones Indices and author of the SPIVA scorecard,
whichcomparestheperformanceofactivemanagers
andtheirbenchmarks.“Only10outof286Australian
active funds consistently beat the benchmark over
a five-year period,” says Luk.
For investors it is impossible to know which funds
willbeamongthose10,soagoodstrategyistoinvest
in the index. “It is very challenging for active manag-
ers to charge the fees that they have been charging,”
says Luk.
Butforinvestorswhowantaparticularstrategy,
such as income, there are specialist “smart beta” ETFs.
Paul Moran, principal of Moran Howlett, says that
actively managed funds provide income accidentally.
“They might give income by accident but ETFs can
giveusincomepredictably,”hesays.
Peker says Investment Trends research shows that
advisers have a strong interest in actively managed
ETFs,with52%sayingthattheywouldliketouse
these products in the next 12 months if they were
available to them.
OneofthemostpopularactivelymanagedETFsis
Magellan Global Equities hedged (ASX: MHG), which
offers Magellan’s successful, longstanding flagship
global equity strategy on the ASX. It was launched in
March 2015. Magellan has attracted $40 billion to its
global equity and infrastructure funds.M