The NZX-owned exchange-traded fund (ETF) operator, Smartshares, slashed fees by 15 basis points (bps) off its local equities mid-cap product last week, leaving just one in the 23-strong range costing above 0.6 per cent.
After cutting the NZ Mid Cap ETF (trading under the MDZ code – known colloquially as MIDZ) fees to 0.6 per cent last week only its trans-Tasman doppelgänger (the Australian mid cap – or MOZY ETF) charges above that threshold – holding the 0.75 per cent rate for now.
In a statement last week, Dean Anderson, Smartshares product manager, said growing scale enabled it to pare back fees on the MIDZ, which was named NZ equity fund of the year at the recent awards hosted by NZX-owned research house FundSource.
“There is a growing appetite from investors for low cost investment solutions, and Smartshares is committed to passing on savings, as investment in our product offering grows,” Anderson said in the statement.
The MIDZ recently broke through $90 million in funds under management (FUM). Based on latest valuations the MOZY has about $110 million in FUM.
In September 2016 the NZX chopped fees on its flagship NZ Top 50 Fund (FNZ) to 0.5 per cent (down by 25 bps) after FUM breached the $200 million mark (now at about $240 million).
“While costs associated with running an ETF reduce proportionally as funds under management grow, it is important to note that each ETF has a different cost structure, which is influenced by factors such as, regional exposure, asset class and the number of underlying securities,” an NZX spokesperson said. “Smartshares is committed to regularly reviewing the management fees across its 23 ETFs.”
Currently, Smartshares fees range from 0.33 per cent for its cash fund (managed by Nikko Asset Management) to 0.75 per cent for the MOZY with the majority sitting in a band between 0.53 to 0.6 per cent – including all but one of the nine Vanguard-backed ETFs. The Smartshares version of the Vanguard US S&P 500 ETF costs 0.35 per cent, of which the NZX fee is 0.3 per cent (it takes up to 0.45 per cent of the other Vanguard-backed ETFs in the suite).
To date only Smartshares NZ top 50 and domestic bond funds have cracked $200 million under management but the Europe ETF (which feeds into a Vanguard product) at slightly over $190 million is close. Just four other Smartshares funds are above $100 million – the S&P 500, MOZY, global bond (managed by PIMCO) and NZ cash products – with the smallest, the Australian financials ETF, reporting a shade under $23 million in FUM.
Tracking error on the Smartshares-managed ETFs ranges from 0.7 per cent for NZ Top 10 fund to -3.47 per cent for the MOZY. However, the – ultimately much larger – Vanguard-backed ETFs reported tracking error of between 0 per cent (on the S&P 500 fund) to -0.63 per cent for the US large growth product.
Smartshares claims about 12,000 direct underlying unit-holders with most of those concentrated among the firm’s original five NZ and Australian shares-based ETFs. The NZ Top 50 Smartshares fund reports almost 5,000 underlying investors with the remaining four foundation Australasian ETFs holding between almost 2,000 to 2,750 apiece.
Membership of the 19 Smartshares ETFs launched since late 2015 ranges from 31 for the NZ cash fund to 939 for the Vanguard-based S&P 500 tracker, according to the Disclose website.
As at the end of August Smartshares reported FUM just shy of $2 billion with $1.35 billion (or about 70 per cent) sourced from NZX-owned fund manager SuperLife. The externally-sourced Smartshares FUM of $610 million was up 26 per cent year-on-year, NZX metrics show.
In the six months to June 30 this year, Smartshares reported revenue of almost $2.7 million compared to just under $2.4 million for the first half of 2016.
Paul Baldwin, previously head of investment platform NZX Wealth Technologies, replaced ex NZX CEO, Tim Bennett, on the Smartshares board last December. Baldwin, one of the chief architects of the NZX platform (formerly known as Apteryx and owned by NZAM interests), “now holds an executive consultant role”, the Smartshares annual report says.
Meanwhile, the NZX head of funds management, Aaron Jenkins, still holds the fort after announcing his resignation this May.
“Aaron will continue in his role until NZX recruit a replacement,” the NZX spokesperson said. “The recruitment process is progressing well, and we will update the market further as soon as we are in a position to do so.”