The booming exchange-traded fund (ETF) market hasn’t crowded out old-school listed investment vehicles, according to Geoff Driver, Australian Foundation Investment Company (AFIC) head of business development.
Driver said, in fact, the traditional listed investment company (LIC) sector has experienced spin-off benefits from the current spike in ETF traffic in Australasia.
“Because people are looking for ETFs, they also find listed investment companies,” he said. “[The rise of ETFs] has been good for the sector.”
Driver has been in New Zealand over the last few days meeting with local AFIC shareholders, who make up about 10 per cent of the almost 90-year old investment firm’s register.
He said AFIC, which is an income-focused LIC with an investment universe covering the ASX300, has grown its shareholder base in NZ through word-of-mouth and also good support from broker networks.
“Because there’s a strong background of UK listed investment trusts there, New Zealand investors also have a good grasp of the LIC concept,” Driver said.
He said LICs have seen increasing interest from investors on both sides of the Tasman along with the burgeoning trade in ETFs and other exchange-enhanced pooled unlisted investment options such as the ASX-owned mFunds platform.
The ASX currently lists over 125 exchange-traded products (a definition that includes ETFs) and almost 80 LICs or listed investment trusts.
Meanwhile, the NZX has rolled out 19 ETFs over the last year, bringing the total range to 23 products. At the same time, the NZX-listed UK LICs continue to garner support from local investors, according to Peter Irwin, First NZ Capital director investment trusts.
“There’s always a market for UK listed investment trusts – particularly in specialised areas” Irwin said.
He said while 2008 was a peak year for UK listed investment trust in NZ, the sector has seen increasing numbers of investors over the last couple of years.
However, he said First NZ model portfolios do include ETFs where they offer cheap exposure to large markets.
“I wouldn’t be surprised if we see growth this year in ETFs [among the First NZ clientbase],” Irwin said.
AFIC’s Driver said LIC investors have typically been self-directed investors but there’s been new demand from advisers in Australia following the introduction of the recent Future of Financial Advice (FOFA) reforms. Commissions on investment products were banned under FOFA (with grandfathering rules for existing arrangements).
Driver said adviser-demand has led to AFIC being rated by research groups.
“We don’t actively look for ratings, but Morningstar has put us on its recommended lists,” he said.
AFIC, which launched in 1928 before listing on the ASX in 1936, has about A$6.6 billion under management.