Christine St Anne: Morningstar's Tim Murphy joins us today to talk about the new LICs and ETF products that have come into the market. Tim, welcome back.
Tim Murphy: Thanks Christine.
St Anne: Tim a number of big name fund managers have recently launched LICs or listed investment company. What is the key driver behind this trend?
Murphy: Yeah, it's certainly been interesting as you say the number of fund managers have traditionally played in the unlisted managed funds base coming to the listed market with offerings recently. I think there are a couple of reasons behind that. I think firstly and this is only the primary reason that the managers involved would tell you is that. The SMSF market is obviously growing quite strongly. And SMSFs generally haven't been big investors in managed funds. And so by creating a list of vehicles through issuing a list of investment company appeals possibly more to that audience.
I think the more cynical view models would be that fund managers have struggled generating meaningful inflows into their unlisted managed funds in recent years and they have seen a bit of trend into the listed investment company market and they have seen that as a way of quickly growing some assets in the door. So I think there is both some investor merit to the investor type behind there as well as some more commercial reasons that will be driving the activity you've seen.
St Anne: Now one of these fund managers Perpetual aims to report its NTA or net tangible asset at the end of each day. What is the benefit of this to investors?
Murphy: It really depends on your timeframe. I mean if you are investing in these things on a long term view than it doesn’t really make that much of difference to. That being said, we are certainly big fans of transparency and certainly the greater transparency through issuing a daily NTA as opposed to weekly or monthly is more from the case elsewhere. That certainly – it can only be good for investors, it's certainly not a bad thing.
St Anne: Now we've also had some activity in the ETF or exchange traded fund space. Can you give us an idea about the new ETFs that have come into the market?
Murphy: There is continuing to be ETF growth. In the last couple of months probably most of the new ETFs coming to market have been different flavors of global equities. We've seen a number of traditional market cap based ETF indices tracking global markets come to market from the likes of Vanguard. Another more interesting one with a strategic beta focused to it has been Market Vectors Global Quality ETF that’s come to market.
So tilting portfolio stocks towards circle higher quality stocks. That’s certainly been an interesting discussion point in investing circles in the last couple of years. Particularly the characteristics of those stocks tending to be lower beta or drawing down less in down market. So the role that that potentially plays for retirees and SMSFs is going to be interesting and we'll be watching that one closely.
St Anne: So Tim what key factors should investors look at when assessing these new ETFs and LICs.
Murphy: Well, you should always look at what's under the bonnet. As we say firstly obviously if there is Morningstar research available try and have a look at that for premium subscribers. Plus we've obviously done a lot of the kicking under the bonnet for you, that’s the case. If there isn’t Morningstar research available on the particular investment you are looking at. Certainly look at the holdings, look at the strategy, look at what it's trying to achieve and consider whether those – what it's trying to do and its objectives are similar to what you are trying to achieve for your own portfolio and your own objectives.
St Anne: Now these LICs and ETFs cover range of asset classes and countries and sectors. They are also touted as low cost. So can investors affectively view the whole portfolio using these listed investment products.
Murphy: It's only build a robust diversified portfolio using, ETFs and LICs. I think it costs is certainly something to keep an eye on. As we've seen more LICs coming to market, more ETFs coming to market, the costs are becoming more variable. So many of the first players particularly in ETF space cost was a big selling point it's not as big a selling point for some of the newer flavors of ETFs coming to market. And similarly with some of the newer LICs the management fees on those are more akin in some cases to their unlisted managed fund rivals as opposed to some of the more traditional LICs that have been around for decades, who certainly won't mind for their low costs.
St Anne: Finally Tim do you expect more products in 2015?
Murphy: There is always going to be new products coming to market and I think ETFs are going to continue to grow that’s definitely a structural growth story on a listed investment company side. Maybe I think it will depend on the market environment and how that plays out, whether market stays strong and to its appetite. If there are new listings in that area so one of those is probably little bit more cyclical in the LIC side. So hard to tell will be somewhat market dependent, but on the ETF side that really is the stronger structural growth story and you are going to continue to see more ETFs list on the ASX in 2015 and beyond.
St Anne: Tim as always thanks for your insights today.
Murphy: No, problem Christine.