Harbour Asset Management will convert its approximately $250 million quasi-passive NZ shares fund into a full-blown index-tracker in a move that more than halves the fees and signals surrender on the previous factor-tilt approach.
However, Craig Stent, Harbour portfolio manager, said the firm had already aligned the NZ Equity Advanced Beta Fund closely to the benchmark S&P/NZX Portfolio Index in recent months.
Stent said there “won’t be too much work to do” when the strategy officially switches to a pure index play (and new name – the Harbour NZ Index Shares Fund) on April 1.
Launched in 2014, the Advanced Beta product was built to offer a low-cost (0.45 per cent) exposure to the NZ shares benchmark targeting outperformance by combining a 70 per cent index weight with a 30 per cent tilt to growth, value and yield factors.
“This fund has not been performing as we would like it to,” Harbour said in a statement. “… While value and yield factors may turn around, we believe it’s time to make changes to the portfolio construction process to improve client outcomes and better reach the purpose of this fund…”
Over the five years to the end of December the Beta fund returned about 14.8 per cent after fees compared to almost 17 per cent for the raw benchmark.
Following the change, the Harbour NZ Index Shares Fund fees will drop to 0.2 per cent.
The Wellington-headquartered boutique will also roll out an ESG version of the index fund in the coming months, screening out sectors such as tobacco, high carbon-emitters, gambling and alcohol. Priced at 0.25 per cent, the Harbour Sustainable NZ Shares Fund will also track the S&P/NZX Portfolio Index.
In practice, the Harbour ESG screens will only exclude five stocks – Sky City, Air NZ, Fonterra, Genesis and Z Energy – in the first cut, Stent said.
He said Harbour would review the ESG exclusions every quarter with the potential for Genesis, for example, to re-enter the portfolio as it transforms to a lower-emission outfit. On the other hand, Stent said the wine producer Delegats – currently on the cusp of the NZX top 50 – would be screened out.
Despite bowing to the growing demand for passive funds with the new product range, he said Harbour remained true to its active management roots.
“But we now have a suite of products that can appeal to different client needs,” Stent said.
Meanwhile last month, factor-investing pioneer Dimensional Fund Advisors (DFA) pared back fees in a range of products with the cost-cuts flowing through to NZ investors.
Following a round of fee cuts last March in 14 products, DFA later announced further fee reductions across 77 US funds to take effect at the end this February.
Earlier in February, the manager also knocked off a few basis points from 10 of the Australian-domiciled products typically used by NZ investors.
Post the cuts of between 2 to 5 basis points, the management fees on the DFA funds – including seven in the ‘sustainability’ series – will range between 0.16 per cent and just above 0.4 per cent.
In note to clients mid-February, the Hastings-based Stewart Group, said it had “also negotiated a reduction in the Smartshares NZ Core Equity Fund which is sub managed by Dimensional”.
“This reduced by 10bps from 50 to 40 bps exclusively for our clients,” the note says.
The approximately $143 million NZ Core fund, launched in 2014, is the sole Smartshares product only offered in unlisted format.
DFA has a loyal following among some NZ financial advisers, including the Stewart Group and many Consilium clients. The Booster KiwiSaver Asset Class funds – advised on by the Stewart Group – largely invest in DFA products.
But the Texas-based quantitative investment house suffered a rare spate of outflows in its home base last year that saw US net assets under management decline by about 10 per cent. Overall, DFA still had a sizable US601 billion under management as at early February, according to Bloomberg.
And the DFA outflows may have been stemmed by a surge of investors into the manager’s recently launch suite of three exchange-traded funds (ETFs).
Since listed the three actively managed ETFs in the US near the end of 2020, DFA has accrued more than US$700 million in the products, Bloomberg reported, including almost US$340 million in this year to date.
“DFA announced its attention to shift $20 billion from its mutual funds into ETFs last November, and it’s possible this could be boosting flows,” the Bloomberg report says. “But trading patterns suggest organic flows from investors keen to access the firm’s strategies at a relatively low price…”
The new ETFs range in price from 0.12 per cent to 0.35 per cent.
Nate Geraci, president of US advisory business the ETF Store, told Bloomberg: “DFA wields a big brand name and offers low-cost strategies that come with minimal career risk for advisors.
“There is likely pent-up demand from advisors who aren’t part of DFA’s gated mutual fund distribution channel, along with from retail investors who couldn’t previously access the DFA lineup without an advisor.”