The Kiwi Wealth-owned US share-trading platform, Hatch, is weighing up a foray into exchange-traded fund (ETF) distribution, according to founder Kristen Lunman.
Lunman said Hatch, which has to date focused on easing access to US markets for direct investors, was exploring new ways to offer low-cost ETFs in NZ.
“We don’t want to just mimic other platforms and offer lots of funds,” she said. “But we’re interested in looking at the next problem for investors and how to solve it in our unique way.”
Technology could substantially reduce the cost of packaging offshore ETFs for NZ investors, Lunman said. For example, US retail investors can buy some large-cap ETFs with annual fees of just .03 per cent – or 3 basis points.
While NZ investors can buy the same on-market US ETFs – including via Hatch – they face additional currency, brokerage, custody and tax costs that can blow out both expenses and risks.
By contrast, the NZX-listed Smartshares US 500 ETF (which feeds into a Vanguard product) has an annual fee of 0.34 per cent that covers all other costs.
“We’re looking at how we can offer the same things for less to NZ investors,” Lunman said. “Technology allows that.”
Interestingly, ETFs represent only about a quarter of current $66 million of securities traded on Hatch since it launched late in 2018.
But the Hatch pricing model – which incurs trading, currency and other fees – is not particularly economic for ETF investors who drip-feed savings into funds.
Nonetheless, the Vanguard S&P 500 ETF did make the top 10 stock picks for 2020 in a recent survey of Hatch’s almost 20,000-member base (not all are active traders). ETFs comprised about 13 per cent of all Hatch member share tips for the year.
The Vanguard ETF was seventh on the Hatch top 10 list that features a mix of old- and new-school tech titans (Apple, Amazon, Microsoft, Facebook and Alphabet/Google), chip stock AMD, fake steak firm Beyond Meat, sugary entertainment firm Disney… and Tesla.
Tesla, in fact, comprises about 10 per cent of all holdings on Hatch, Lunman said, as die-hard believers pile in to the divisive electric vehicle manufacturer.
“Many Kiwi eggs are in the Tesla basket,” the Hatch survey report says. “We aren’t surprised as it’s been our most popular share since we launched (and with a share price up more than 110% over the past three months, Hatch investors aren’t complaining about Elon’s antics!).”
Most of the Tesla fans on Hatch have hung on, too, she said despite the stock spiking almost 40 per cent over two days last week. The Elon Musk-founded vehicle venture hit a pothole later in the week, sliding down 20 per cent at one point in a day.
“But our investors say they back the Tesla vision and believe it represents the future,” Lunman said.
The overweight Tesla position could also reflect the Hatch demographics with average age peaking around 35 in a spread mostly ranging from 25 to 55.
“Hatch 2020 predictions prove that Kiwi investors are a diverse bunch and that they’re taking advantage of the ability to fully align their investments with their values – with investors backing plant-based proteins, electric vehicles and clean energy,” the survey says.
As well as thematic growth trends, the survey found Hatch investors would be watching new listings (especially Airbnb) and considering ‘insurance’ plays such as gold to counter looming risks such as the US election.
Hatch investors typically hold between 10 to 15 stocks in their portoflios, Lunman said, in buy-and-hold strategies: about 90 per cent of trades on the platfom are buys.
She said 30 per cent of Hatch members are new to share markets while the remainder rate themselves as ‘confident’ investors.
Born in a Kiwibank incubator, Hatch now lives with the Kiwi Wealth family, although Lunman said the platform is not directly distributed through the related group channels.
“Kiwi Wealth has helped build with trust and setting high standards for the partners we deal with in areas like technology and anti-money laundering,” she said.
The platform saw a big spike in new member sign-ups in January, against precedent for the historically slow-business month.
“We were surprised to see the member growth early in January – usually activity doesn’t pick up until February,” Lunman said.