New Active ETFs offer ease and diversification
Exchange-traded funds (ETFs) have become popular with investors due to their simple structure and comparatively low cost. Now, Active ETFs are available that utilise the same simple structure yet have the ability to respond to current market conditions.
According to ASX there were over 200 Exchange Traded Products (ETFs and similar products) listed on the Australian Securities Exchange in February 2017. The market at that time was worth $26.1 billion, a 146% increase from February 2014. Significant growth in these products is anticipated to continue going forwards.
ETFs are investment products that typically only track an index such as the ASX200. Therefore, investors only receive the return of the index by investing in ETFs, without the opportunity for outperformance.
ETFs have proven popular with self-managed super funds and it is expected they will also have appetite for the new Active ETFs. The AMP Capital Black Sky Report 2016 found that there was a 55% increase in SMSF investors intending to invest in ETFs in 2016 compared to the same report in 2015 and 67 per cent said they wanted to use them to get access to hard to reach asset classes such as international equities.
Active ETFs have all the benefits of a traditional-ETF. They can be bought and sold on the Australian Securities Exchange, but rather than tracking an index, they are managed by professional fund managers. The live market price is created by the fund acting as market maker during the day and will use an indicative net asset value (iNAV) to provide investors with a “fair value” for the funds throughout the trading day.
Unlike unlisted managed funds, Active ETFs don’t require substantial paperwork to be completed before investing, and investors don’t need to be vetted under anti-money laundering/counter-terrorism financing provisions. As the product is traded on an exchange, prices are fully transparent, unlike an unlisted managed fund, where unit prices are only set periodically.
AMP Capital, in alliance with BetaShares, has recently launched three Active ETFs. The Dynamic Markets Fund (Hedge Fund) (ASX:DMKT) invests in up to 80 local and global opportunities including global equities, commodities, foreign exchange, property and cash. It uses dynamic portfolio management, which allows the fund manager to respond quickly to opportunities in global markets, including fast movement into favourable global opportunities and away from overvalued and over loved assets, which can be hard for investors to do.
The Global Listed Infrastructure Securities Fund (Unhedged) (Managed Fund) (ASX: GLIN) invests in monopoly infrastructure assets across a number of sectors, including transport, water and energy. Infrastructure is an attractive asset class as governments around the world have flagged a funding shortfall for projects, and are relying on the private sector as a source of capital. This fund offers visible and stable cash flow, with the potential for capital improvements. It’s a source of diversification in a portfolio of equities and fixed interest assets, and could form part of a balanced portfolio.
The Global Property Securities Fund (Unhedged) (Managed Fund) (ASX: RENT) largely invests in real estate investment funds (REITs) and other listed property securities around the world. It allows local investors to diversify away from the Australian property market, while achieving an exposure to the real estate sector. This fund also provides the opportunity for income and capital growth, and can also be a source of diversification for investors.
All three products are listed on the ASX and comprise investments that would otherwise be inaccessible by retail investors such as interests in emerging markets, large, global infrastructure and real estate businesses. As the investments are held in a fund structure, SMSF investors can access a universe of opportunities in one trade and can be managed alongside all other broker portfolio holdings for each. Moreover, they are cost-effective compared to many managed funds.
All three Active ETFs, which are the first in their asset class, are based on existing AMP Capital managed funds. They have the same investment management strategy, investment portfolios and management costs as the original funds.
Of course, it’s also important to be aware of risks when trading. For instance, the trading price of Active ETFs units traded on the ASX may differ from the underlying net asset value. But as the funds are open ended and act as their own market maker, each fund will aim to provide bids and offers in the market at a tight spread. As a result, it is expected that the fund’s units will generally trade at or around each fund’s net asset value.
Liquidity may also be a risk. While the funds’ unit prices are traded on the ASX, there’s no guarantee there will be a liquid market for units or the fund’s investments.
Before investing in these funds, it’s important to read the product disclosure statement and consider factors such as the likely investment return, the risks of investing and your investment timeframe.
Taking these risks into account, Active ETFs offer investors a great opportunity to diversify their portfolio into new sectors and gain global exposure, through familiar and easy to use investment vehicles.
Find out more about AMP Capital's Active ETFs - Learn more here.
Important note: This article has been prepared by AMP Capital Investors Ltd (ABN 59 001 777 591, AFSL 232497) ("AMP Capital"). BetaShares Capital Ltd (ACN 139 566 868, AFSL 341181 ("BetaShares") is the responsible entity and the issuer of units in the Fund. AMP Capital is the investment manager of the Fund and has been appointed by the responsible entity to provide investment management and associated services in respect of the Fund. Investors should consider the Product Disclosure Statements (PDS) for the AMP CAPITAL DYNAMIC MARKETS FUND (HEDGE FUND), AMP CAPITAL GLOBAL INFRASTRUCTURE SECURITIES FUND (UNHEDGED) (MANAGED FUND), and AMP CAPITAL GLOBAL PROPERTY SECURITIES FUND (UNHEDGED) (MANAGED FUND) before making any decision regarding the Fund. The PDS contains important information about investing in the Fund and it is important investors read the PDS before making a decision about whether to acquire, continue to hold or dispose of units in the Fund. Neither BetaShares, AMP Capital, nor any other company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this document. Past performance is not a reliable indicator of future performance. While every care has been taken in the preparation of this email, neither BetaShares nor AMP Capital makes any representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. This email has been prepared for the purpose of providing general information, without taking account of any particular investor's objectives, financial situation or needs. Investors should, before making any investment decisions, consider the appropriateness of the information in this email, and seek professional advice, having regard to their objectives, financial situation and needs.
ant investors read the PDS before making a decision about whether to acquire, continue to hold or dispose of units in the Fund. Neither BetaShares, AMP Capital, nor any other company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this document. Past performance is not a reliable indicator of future performance. While every care has been taken in the preparation of this email, neither BetaShares nor AMP Capital makes any representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. This email has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. Investors should, before making anyinvestment decisions, consider the appropriateness of the information in this email, and seek professional advice, having regard to their objectives, financial situation and needs.