Why should investors look at ASX listed active funds?

There has been a quiet revolution in the range of investment products available on the Australian Securities Exchange over the last couple of years, with the introduction of actively managed Exchange Traded Funds. Starting with Magellan in 2015, when they launched their Magellan Global Equity Fund, there are now many managers and investment choices in this space.

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14 Jun 2019 · 2 min read

What are Actively Managed ETFs?

Essentially, actively managed ETFs are ordinary managed funds that can be bought and sold on the ASX trading platform. They have the same reporting and tax characteristics as unlisted managed funds; however, they are much easier to buy and sell. They are regulated by ASIC, in the same way as unlisted funds, and offer all the same benefits:

  • professional active management of your money (which you pay a fee for)
  • cost efficiencies in buying and selling the underlying shares in the portfolio
  • flow through of all the tax advantages (franking credits and discounted capital gains)
  • you get access to investment opportunities not always available to ordinary investors (placements and new floats)

The additional benefits of listed active unit trusts are:

  • no paperwork to buy and sell (use your online share trading account or broker)
  • no minimum investment amount
  • you can see live unit prices throughout the trading day
  • units will always trade at the net tangible asset value (the real-time value of the underlying portfolio of shares)

The last benefit is the advantage that all ETFs have over other listed investment products. Listed investment companies can trade at a discount (or a premium) to the value of the assets that they hold.  This means investors are at risk of losing money based on a change of sentiment in the manager, as well as the performance of the underlying portfolio.

What is the difference between an index EFT and an active ETF?

Most of the managed funds listed on the ASX are index funds, which means the manager is trying to match the performance of an index, such as the S&P/ASX 200 or the MSCI World Index. They will only buy shares that are in those indices and only in the weightings that match the index.

Active ETF managers will try to outperform an appropriate index by picking shares they believe can deliver superior returns, and through having relatively concentrated portfolios (usually 25 – 50 shares) rather than the hundreds of shares that index managers buy. 

Disclosure

InvestSMART has recently listed an active ETF that invests in ethical Australian shares with the ASX Code INES. For more information, please click here.


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