Biggest ETF launches this year (so far)
New products look to provide access to sustainable investing, tap into high growth US tech giants and provide income in retirement.
Mentioned: Hyperion Global Growth Companies ETF (HYGG), BetaShares Capital Ltd (BHYB), Magellan FuturePay ETF (), BlackRock Investment Mgmt (AUS) Ltd (IESG), Monash Investors Small Comps Tr (Hdg) (MAAT)
Exchange traded product launches are off to a cracking start as issuers race onto Australian exchanges, according to new Morningstar data.
There are 15 new exchange traded funds and products spanning a range of management styles and asset classes. This lifts the number of Australian ETPs to 241.
Thematic equity ETFs, which aim to track the performance of long-term "megatrends", remain popular with issuers with funds drawing on the rise of cloud computing and ESG-themes like climate change and clean energy.
ETPs launched in the first half of 2021
Source: Morningstar, ASX, Chi-X
Active managers have also continued to make versions of their unlisted funds available on exchanges. The eight listed are a far cry from the 30 predicted by Chi-X's Shane Miller earlier this year but demonstrate a willingness among managers to diversify their avenues for distribution.
Several active managers have launched their first ETPs in the last half-year including Hyperion Asset Management, Monash Investors, Apostle Funds Management and Alliance Bernstein.
New listing by year – via management style
Most new launches track Australian and global equities. However, issuers are dabbling in the 'alternatives' and 'miscellaneous' categories as exchanges welcome more active-managers.
The number of funds that offer dedicated exposure to hybrids—a security which has both debt and equity characteristics—has tripled with BetaShares and Elstree bringing products to market.
New listing by year – via broad global category
Magellan FuturePay (FPAY)
Global equity giant Magellan Financial Group took aim at Australia's retirement income problem with the launch of FuturePay in June. The actively managed fund invests in a portfolio of high-quality, low volatility global listed companies which the manager believes can deliver attractive, risk-adjusted returns over the medium to long term. Alongside returns and capital growth, the fund provides investors with a predictable monthly income that grows with quarterly inflation via a cash reserve called a Support Trust attached to the fund.
It's not known how many assets this unique structure has gathered. However, with the added complexities, it will take months if not years for it to be reviewed by research analysts and appear on adviser approved product lists. This product further demonstrates Magellan's willingness to experiment with ETF structures having just restructured its three global equity funds into a single trust with on and off market entry points.
BetaShares Australian Major Bank Hybrids Index ETF (BHYB)
Another example of managers launching products to appeal to investors seeking income as interest rates remain, and are expected to remain, at record lows -- BetaShares has now launched a passive complement to their Active Australian Hybrids Fund (managed fund) (HBRD). Thje fund aims to track a portfolio of listed hybrid securities issued by the ‘Big 4’ Australian banks. To be eligible for inclusion, a hybrid security must be a listed preference share with a market capitalisation of at least $100 million.
Hyperion Global Growth Companies ETF (HYGG)
Global equities growth manager Hyperion capitalised on its exceptional 2020 performance (up 46 per cent) with the launch of its first listed strategy. The actively managed fund, overseen by Mark Arnold and Jason Orthman invests in a concentrated portfolio of largely North American equities including big names like Tesla, PayPal, Amazon and Microsoft.
This is one of the first instances of a manager (apart from Magellan) combining the features of a traditional unlisted managed fund and an active ETF. Previously managers were forced to create a copy of their existing fund for the purpose of listing.
MORE ON THIS TOPIC: Pros and cons of active ETFs
iShares Core MSCI Australia ESG Leaders ETF (IESG)
The world's largest asset manager took some investors by surprise opting to change the benchmarks of two of its existing global equity ETFs to ESG Leaders indexes. IWLD and IHWL funds will now only invest in companies that have high MSCI ESG ratings. At the same time, they launched IESG, iShares' first local ESG product tracking the Australian equity market. With a management fee of 0.09 per cent, it is the cheapest fund to offer this type of exposure and signals iShares’ readiness to compete for ESG dollars.
Monash Absolute Active ETF (MAAT)
Once a LIC, now an ETF. Monash Investors took the drastic move of converting its MA1 fund to an active ETF to deal with its persistent discount problem. It's the first of the LICs to do so but could signal the start of an exodus for the structurally challenged market. Today, 80 per cent of LICs trade at a discount to their NTA and for 45 per cent the discount is greater than 10 per cent. Portfolio manager Simon Shields acknowledges the open-ended model could lead to big withdrawals.
A long/short Australian share fund, MAAT targets performance of 5 per cent above the RBA cash rate and aims for a 6 per cent annual yield paid quarterly.
Are bitcoin ETFs coming?
It could soon become easier to buy crypto via traditional exchanges. ASIC released a consultation paper on crypto ETPs last week, setting out proposed best practices for operators and issuers and seeking feedback. It comes as rival managers BetaShares and VanEck jockey to launch the first ASX-listed Bitcoin ETF.
In the US, a host of ETF sponsors have asked the US Securities and Exchange Commission for approval to launch cryptocurrency ETFs including New York-headquartered VanEck. In Canada, where these products are trading, one crypto-ETF has amassed over $500 million in net assets, growing sharply in the first few days of trading. Details about proposed local products are scant, with both managers remaining tight-lipped.
Flows into two Canadian bitcoin ETFs
The regulator is aware of the demand for domestic crypto-ETFs. However, they say there is a "real risk of harm to consumers and markets" if these products "are not developed and operated properly". They're focused on how to price crypto assets, how to classify crypto assets, and how to issue crypto assets that comply with regulations. Some of their proposals include identifying crypto assets that are appropriate for ETPs and the basis for a pricing mechanism.
Market making goes global
ASIC has opened the Australian ETP market to overseas market makers, issuing an order removing the requirement for authorised participants to be Australian residents for tax purposes. The regulator decided the requirement did not support competition and market efficiency.
Market makers sit on the other side of ETP trades, creating liquidity for funds and products. They estimate the fund’s net asset value and create a bid and offer price to allow buyers and sellers to trade. All listed funds are required to have at least one market maker to ensure liquidity even at times of market stress.
The move could encourage new entrants into a sector that has historically been dominated by a handful of major global players – Deutsche Bank and Susquehanna and CitiGroup. Other players include US-based Virtu Financial, fixed-income specialist Jane Street, and Sydney-based newcomer Nine Mile Financial.
Deutsche closed its Australian cash equities business in July 2019 and signalled its intention to scale back its local operation. Nine Mile Financial was recently appointed market-maker for two major issuers – Blackrock and Russell Investments.