Dimensional launches NZ PIE to investing sustainable Australian equities

Global fund manager Dimensional Funds Advisors is launching a new sustainable equities fund investing in Australian stocks but within a New Zealand portfolio investment entity, or PIE, structure to make it more tax effective for local investors.

Thursday, October 5th 2023, 6:37AM

by Jenny Ruth

Bhanu Singh, Dimensional's Australian chief executive and head of Asia Pacific portfolio management, says the NZ PIE will be using the same methodology in building a portfolio as the existing Australian Sustainability Trust, which currently has about A$800 million invested.

It will, however, provide local investors with the tax benefits of the PIE structure (the highest tax rate on PIE returns is 28%) – it is partnering with registered manager and issuer of funds FundRock New Zealand to offer the new PIE.

Essentially, Dimensional rank the stocks within the S&P/ASX 300 Index on the basis of each company's carbon emissions and then actively manages that part of the equation.

The process also takes account of potential emissions as well – for example, Chevron and Shell currently have relatively low emissions but both own a lot of high-emitting assets still in the ground.

The company also filters that index by measuring their profitability against size, because smaller companies tend to have lower prices, and then goes over-weight the more profitable companies, Singh says.

That results in the trust having a 3.4% weighting to iron ore minor and green technology developer Fortesque but is underweight biotechnology company CSL “because it's too expensive for the profitability it has,” he says.

But the trust doesn't own BHP, even though “the big Australian” is that country's largest listed stock with a market capitalisation of A$221.4 billion, because of its heavy involvement in coal mining.

That approach delivers the benefits of indexation but with an overlay of active management to enhance investment outcomes, he says.

It does own supermarket chain Woolworths, which owns the Countdown chain in NZ, but it doesn't own Whitehaven Coal.

Dimensional also fine-tunes its funds according to the preferences of investors in different countries – for example, NZ and Australian investors are opposed to investment in nuclear weapons manufacturers but with investors in Europe or the US, “it's not something that comes up.”

It's that active management overlay that distinguishes Dimensional from other global fund managers such as BlackRock and Vanguard, which both tend to stick to strategies based on indexation alone, Singh says.

“We think that's subpar, we think that leaves money on the table,” he says, describing Dimensional as “probably the biggest asset manager you haven't heard of.”

Tags: investment