Strong retail demand for ETFs

ETFs offer advisers a simple way to construct the solid core of a client’s investment portfolio, around which they can then innovate, NZX’s head of fund management Aaron Jenkins says.

Friday, September 16th 2016, 6:00AM

by Susan Edmunds

Aaron Jenkins

NZX has today moved the large bulk of its Smartshares business to the Financial Markets Conduct Act framework, with new product disclosure statements online this morning.

Smartshares said under the FMCA investors would get simpler and standardised information. It will pay brokerage fees for the funds out of the fund themselves rather than from their management fees, and would align Smartshare distribution dates with the cash flows from underlying investments.

Some ETFs with quarterly distributions will be reduced to semi-annual.

At the same time, it reduced its NZ Top 50 fund fee, as earlier reported by Good Returns.

Jenkins said that was a reflection of the success of the fund, which was still the most popular despite the launch of a range of others.

Jenkins said Smartshares had been surprised by the level of retail participation in ETFs. Large numbers of people were making direct approaches about investing in the ETFs, he said. “They can see what they can now do and the international funds they can invest in and get exposure, for example to the US500 in New Zealand dollars with a dividend in New Zealand dollars, it appeals to people.”

Ninety per cent of people who applied did so online, he said.

Jenkins said while historically ETFs had attracted more sophisticated investors with higher balances, many people opting for the Smartshares regular savings plan option were new investors.

“It’s positive in terms of investor literacy.”

But Jenkins said advisers also had a key role to play with the ETFs, too. It was important that people had the knowledge to navigate the options, he said, and that often came from an adviser. He said the ETFs were a good tool that could be coupled with a good advice strategy.

“ETFs are good for an adviser business, they can for the core of a strategy and then allow the adviser to be a bit innovative around that core. Many are using it from that point of view. Or they offer access to markets and sectors that are more difficult to get to otherwise.”

The more literate investors became, the more opportunity there would be for advisers, he said.

Tags: NZX Smartshares