Smartshares will launch the country’s cheapest NZ equities true index-tracking fund in April among a new tranche of low-cost exchange-traded funds (ETFs) targeting ‘core’ asset classes.
Hugh Stevens, chief of the NZX-owned funds management division, let slip the news during the passive v active ‘great debate’ hosted in Auckland by the Financial Markets Authority (FMA) last week.
“We already have the cheapest global bond fund in NZ,” Stevens said during the debate. “And we will launch a range of core funds later this year that will see fees drop further [in other asset classes].”
The new Smartshares ETFs would cover NZ, Australian and global equities, he later told Investment News NZ.
While the manager already has funds in these asset classes, Stevens said the new local and Australian products would track different indices – a pure market cap-weighted NZX 50 and the ASX 200 – than any in the existing range. The current Smartshares NZX 50 product tracks the S&P/NZX 50 Portfolio Index, which puts a 5 per cent cap on the “float-adjusted market capitalization weights of the constituents”, according to the benchmark description.
“And we don’t have a fund yet that tracks the ASX 200, which is the core index for the Australian market,” he said. The new global equities ETF would be a hedged version of an existing Smartshares fund.
According to Stevens, the new core range would offer access to retail investors at institutional-level pricing.
The NZX-owned manager has also made some back-office efficiency tweaks this year, consolidating custody for all its funds under BNP Paribas in a move that saw about $1 billion shift from JB Were. Furthermore, in January Smartshares in-housed investment duties for its $180 million cash ETF, previously managed by Nikko.
During the FMA debate, Rebecca Thomas, Mint Asset Management chief – arguing in the active camp – pointed out that some Smartshares NZ equities ETFs still cost 50 basis points, high by global standards.
Stevens said fees would come down across the board as the-now $4 billion plus Smartshares suite built further scale.
Sam Stubbs, Simplicity founder and passive lead in the FMA event, also joined in the race-to-the-bottom, suggesting fees for managing local shares could come close to zero.
“We charge 10 basis points for our NZ equities fund – and we think that’s too much,” Stubbs said. “Eventually we think [managing NZ equities] will come down to $30 a year no matter how much investors have – because that’s what it costs.”
But despite the passive fee-bargaining – and against market flow trends – the active team won the day in Auckland as the FMA debate audience voted with its feet, standing up in favour of the Thomas-led arguments.
The Mint chief – supported by Pathfinder co-founder, John Berry, and Pie Funds head of investments, Paul Gregory – put the case that passive management is counter to fiduciary duty, impedes true ESG investing and could permanently damage investor wealth during a serious market downturn.
She said the growing weight of passive money was also damaging the integrity of the local share market.
FMA chief, Rob Everett, noted the debate highlighted “arguments in favour of both” active and passive management.
But the FMA show set the scene for a more serious regulatory nosey into manager investment styles through a ‘value for money’ study carried out by consultancy firm, MyFiduciary.
The FMA-commissioned MyFiduciary research primarily targeted passive and active management in the KiwiSaver space but its findings may be more generalised, too.
“If New Zealanders are paying half-a-billion dollars in KiwiSaver fees it’s important we debate what they are paying for,” Everett said. “… there are few more important and contentious debates than this one.”
He said the MyFiduciary would compare the reality of active management versus the promise.
“We will share the results shortly,” Everett said.
