The NZX looks likely to cut fees on some of its Smartshares products following the launch of a pair of aggressively-priced local asset funds by passive fund provider, Simplicity.
Mark Peterson, NZX chief, told a concerned shareholder at the group’s AGM last week that the stock exchange operator had noted the competitive risk posed by the Simplicity fund launch earlier in April.
Simplicity released two portfolio investment entity (PIE) funds this month tracking the NZ equities and local fixed income indices, respectively: both priced at a flat 0.1 per cent management fee plus an annual $30 member fee (equating to an effective annual fee of 0.4 per cent at the minimum $10,000 investment).
“We will respond to [Simplicity] with our offer,” Peterson said. “We’re working on a response right now.”
The $265 million Smartshares NZX top 50 fund has a annual management fee of 0.5 per cent while the firm’s NZ bond product (managed by Nikko Asset Management and designed to beat the index) costs 0.54 per cent.
“From the passive point of view it’s a good thing to have [Simplicity] in the market,” Peterson said.
In his speech to the AGM he said there were a couple of reasons “why our passive funds management business is strategically important to NZX at present”.
“There is growth in the value of this business to maximise and it assists with the growth of our core markets business,” Peterson told the AGM crowd.
He said the combined SuperLife KiwiSaver/superannuation and Smartshares exchange-traded funds (ETF) businesses grew about 25 per cent last year.
“Smartshares funds under management increased 45% and SuperLife KiwiSaver grew 23%,” Peterson said. “Underneath these numbers, SuperLife member numbers increased 4.8%, and Smartshares exchange traded funds retail applications climbed by a record 84%, of which 49% of applications were received from first time investors.”
As well as healthy growth, the NZX funds operation “generated material cost savings” by consolidating trustee duties under Public Trust. Previously, Guardian Trust was trustee (or supervisor as it now known) of the original batch of five Smartshares ETFs – a product suite since expanded to 23.
The NZX plans to launch a new index soon tracking the local agricultural sector with a basket of 15 listed companies including a2 Milk, Fonterra, Comvita, New Zealand King Salmon, Scales, Sanford and Seeka.
Meanwhile, Peterson said the NZX-owned investment platform business – Wealth Technologies – was almost ready to transfer its first major new client after taking longer “than originally envisaged… [and] more resource than first thought”.
“I can tell you, that today we are on track to have the core system ready in June, with platform transition occurring at the end of Q3,” he said. “We are committed to delivering a quality product.”
NZX bought the platform – then know as Apteryx – from parties associated with boutique alternative asset manager NZAM in 2015 for $1.5 million.
The platform signed up both Craigs Investment Partners and Macquarie (now Hobson Wealth) in 2016 but it is understood the latter deal may be in doubt.
According to the latest NZX metrics, Wealth Technologies has just over $1.1 billion under administration: existing clients include NZAM and Public Trust private wealth division.
The AGM capped off a big week for the NZX which recently signed mutual recognition deals with Hong Kong Exchanges and Clearing Limited (HKEX), the Singapore Exchange (SGX), and the Toronto Stock Exchange (TSX).
“HKEX, SGX and TSX join the London Stock Exchange and the Australian Securities Exchange, as recognised NZX stock exchanges,” a NZX release says, in arrangements that lower cross-listing barriers.
In the lead-up to the AGM, the NZX also released a consultation paper on plans to “improve liquidity and increase price transparency in the secondary market”. The bourse concurrently published the second round of consultation on new listing rules designed to simply the market’s multi-tier structure.
“… we are proposing outcomes which deliver an open architecture to facilitate the listing of equity, funds, debt and issuers who are already listed overseas,” the paper says.
Peterson replaced Tim Bennett in the NZX top job 12 months ago with a brief to streamline the operation.
“Our strategy identified the non-core areas of our business which we will exit, it highlighted the growth areas we will focus on, and it highlighted a necessary lift in efficiency in within our operations and project delivery,” he told the AGM.
The NZX is selling its Farmer Weekly publication and Melbourne-based grain business.
“… we continue to make progress to exit our non-core businesses, and will update the market further on this shortly,” Peterson said.
NZX shares closed up almost 1 per cent on Friday to $1.09, representing an annual gain of 2.3 per cent.