Glenn Freeman: We are talking today about listed investment vehicles. And Matt, you spoke about this at length at the Morningstar Individual Investor Conference a couple of weeks ago. You asked one of the questions right at the start of your session who has a listed investment company, ETFs or exchange-traded managed funds in their portfolio. And it was a pretty strong response, wasn't it?

Matthew Wilkinson: It was, Glenn. What we was that the audience very much participated in LICs and ETFs. The newer structures, the ETMFs, which is an exchange-traded managed fund, was less popular but not so that it wasn't popular at all. There was certainly interest there. But understandably, because those structures are newer, there were fewer people invested in those products.

Freeman: Now, in addition to talking about how Morningstar rates and regards various structures within its research universe, you also spoke about some of the specific attributes of listed investment companies, ETFs, ETMFs, comparing and contrasting and some things that people need to look out for. What were some of the key things that you, sort of, discussed there?

Wilkinson: Yeah. The list of products bring their own challenges versus an unlisted product or an Australian Unit Trust, the typical managed fund. And what we see that is when products are traded on market, the way they are priced can bring up some challenges for investors.

Now, the first one is for ETFs and ETMFs and it is that the net asset value can actually move around a fair through the day. And some of the pricing can be – or some of the valuations of those funds can actually fluctuate and be misleading on occasions. Now, what that leads to is spreads widening. And the market makers who essentially provide most of those spreads are very much a player and move those spreads. And when markets are volatile, what that can do is be sort of an unfavorable environment for investors to trade.

Freeman: I was particularly interested in what you were saying about the timing. And it almost seems to be because of our time zone, where we are in Australia, how these products trade, how they perform at different times of the day can vary depending on when the U.S. market comes online, the European markets come online. What was going on there?

Wilkinson: What we are seeing is that prices can spike in these types of products, because the market makers aren't there or that the underlying securities are very difficult to price. And part of that reason is because some of those underlying securities are traded either in the U.S., in Europe or Asia. Now, all those markets are closed through the Australian morning trade where Asia is the first market to come online in the morning. So, market makers are forced to make an assessment, albeit a valid one, on those prices. But when there's volatile trading environments, those assessments have a lot greater risk and therefore, market makers stand further back, the spread is wider and consequently, prices can actually spike far more than what you would normally expect them to.

Freeman: Given that these are listed vehicles, they are much more visible to people. They can check what they are doing, and which also gives rise to some of those behavioural biases that we apply to – we are quite familiar with them in the context of, say, trading direct shares. Normal managed funds, it's maybe not an issue because people can't log on and see what these products are doing. How does that sort of tie into the importance of having good research on these products?

Wilkinson: Sure. We are very much long-term investment advocates. And so, having the ability, having the access to those products, which is certainly one of the great advantages of them, is a bit of a double-edged sword. Because, because you have that access, it can encourage you to trade more. Now, we think that typically the more you trade, the more likely your behavioral biases will come out in your activity. And those biases only lead to subpar performances. So, a long-term mindset requires good research, as you suggested, and discipline to stick to, I guess, your structural views on – or your structural asset allocation.