1 00:00:00,080 --> 00:00:02,600 Speaker 1: We do get a lot more queries during times of volativity. 2 00:00:02,840 --> 00:00:05,400 Speaker 1: Lots of people do what we call panic selling, and 3 00:00:05,440 --> 00:00:07,640 Speaker 1: that is that emotional reaction to oh my god, it 4 00:00:07,680 --> 00:00:09,280 Speaker 1: might lose more money, so I should sell it now 5 00:00:09,320 --> 00:00:11,840 Speaker 1: and cut my losses. Yes, you're cutting your losses, but 6 00:00:11,880 --> 00:00:15,520 Speaker 1: you're also crystallizing those losses. Key we Savor in New 7 00:00:15,600 --> 00:00:18,439 Speaker 1: Zealand has really grown this area of interest in a 8 00:00:18,480 --> 00:00:23,520 Speaker 1: diversified fund so that has brought a new complexity in 9 00:00:23,560 --> 00:00:27,160 Speaker 1: New Zealand. We have far less in index tracking funds 10 00:00:27,200 --> 00:00:30,840 Speaker 1: than Australia does, and that's far less again than America. 11 00:00:30,880 --> 00:00:32,600 Speaker 1: Say so, I think that's a little bit of that 12 00:00:32,680 --> 00:00:33,760 Speaker 1: sophistication journey. 13 00:00:37,720 --> 00:00:42,000 Speaker 2: Kirakoto, Welcome to Shared Lunch. I'm Garth Bray. Active investing 14 00:00:42,040 --> 00:00:44,599 Speaker 2: picking what to buy, sell and the hold, and the 15 00:00:44,640 --> 00:00:48,440 Speaker 2: passive approach tracking the market, buying the momentum. They both 16 00:00:48,479 --> 00:00:51,519 Speaker 2: have their fans and their flaws. We are talking to 17 00:00:51,560 --> 00:00:55,920 Speaker 2: fund managers about both approaches and today I'm with Anna Scott, 18 00:00:55,960 --> 00:00:59,640 Speaker 2: the CEO of Smart to talk about that passes perspective. 19 00:01:00,120 --> 00:01:03,040 Speaker 2: We've also been speaking to an active fund manager, so 20 00:01:03,080 --> 00:01:06,040 Speaker 2: I consider this as the second half of that match. 21 00:01:06,319 --> 00:01:08,280 Speaker 2: But before you get into any of that. Here's some 22 00:01:08,360 --> 00:01:11,880 Speaker 2: important information you should always consider before investing. 23 00:01:12,240 --> 00:01:14,840 Speaker 3: Investing involves the risk you might lose the money you 24 00:01:14,880 --> 00:01:18,160 Speaker 3: start with. We recommend talking to a licensed financial advisor. 25 00:01:18,880 --> 00:01:22,720 Speaker 3: We also recommend reading product disclosure documents before deciding to invest. 26 00:01:22,959 --> 00:01:25,360 Speaker 3: Everything you're about to see and here is current at 27 00:01:25,360 --> 00:01:26,200 Speaker 3: the time of recording. 28 00:01:26,240 --> 00:01:30,440 Speaker 2: Hello Anna, good morning. You are running a series of 29 00:01:30,800 --> 00:01:34,080 Speaker 2: passive funds, aren't you. Yes, so you're probably the best 30 00:01:34,080 --> 00:01:37,520 Speaker 2: person to ask what is your definition of what passive 31 00:01:37,560 --> 00:01:38,800 Speaker 2: investing really means? 32 00:01:39,360 --> 00:01:41,480 Speaker 1: Very good question, because I get asked this quite a lot, 33 00:01:41,680 --> 00:01:44,000 Speaker 1: and I think we try and sometimes get caught up 34 00:01:44,000 --> 00:01:46,600 Speaker 1: in that passive versus active debate. And I'm a big 35 00:01:46,640 --> 00:01:48,600 Speaker 1: believer in actually and you need a bit of both 36 00:01:48,640 --> 00:01:51,200 Speaker 1: for that. But yes, we do have a passive series 37 00:01:51,240 --> 00:01:53,360 Speaker 1: of funds. So when you think about what does a 38 00:01:53,400 --> 00:01:55,560 Speaker 1: fund do, the first thing you start with is what's 39 00:01:55,600 --> 00:01:57,320 Speaker 1: the objective of the fund? Now you can go and 40 00:01:57,360 --> 00:01:59,880 Speaker 1: read the pds to get that, but objectives and the 41 00:02:00,080 --> 00:02:02,520 Speaker 1: words that come with that talk about if you're going 42 00:02:02,560 --> 00:02:06,360 Speaker 1: to be passive, they will talk about match or replicate 43 00:02:06,600 --> 00:02:10,320 Speaker 1: or mirror. So their job is to track an index. 44 00:02:10,919 --> 00:02:13,000 Speaker 1: If you're in an active fund, it might say something 45 00:02:13,120 --> 00:02:16,079 Speaker 1: like beat or outperform. So the first thing is what's 46 00:02:16,120 --> 00:02:18,520 Speaker 1: your objective of your fund? And so a passive fund 47 00:02:18,560 --> 00:02:21,080 Speaker 1: or an index tracking fund is one that does exactly that, 48 00:02:21,200 --> 00:02:23,880 Speaker 1: it tracks an index. Then the next thing is, well, 49 00:02:23,919 --> 00:02:26,440 Speaker 1: what is the index that that fund is meant to 50 00:02:26,480 --> 00:02:29,680 Speaker 1: track or beat? So what is the benchmark? And when 51 00:02:29,720 --> 00:02:32,919 Speaker 1: you get into that, that isn't something that is determined 52 00:02:33,040 --> 00:02:35,000 Speaker 1: necessarily by us as a fund manager. There are a 53 00:02:35,040 --> 00:02:37,840 Speaker 1: bunch of companies who are index providers out in the market. 54 00:02:37,919 --> 00:02:41,519 Speaker 1: So you might have heard of SMP or MSCI, Bloomberg, 55 00:02:41,639 --> 00:02:45,480 Speaker 1: Fltsy do them and they create an index that reflects 56 00:02:45,520 --> 00:02:48,280 Speaker 1: a market. And most of the time those are market 57 00:02:48,320 --> 00:02:51,640 Speaker 1: tracking funds. That's the most common area, which means that 58 00:02:51,880 --> 00:02:54,840 Speaker 1: you're not in a diversified fund, but you've particularly chosen 59 00:02:54,880 --> 00:02:55,400 Speaker 1: a market. 60 00:02:55,760 --> 00:02:59,120 Speaker 2: It sounds like a beguilingly simple idea. It's one that's 61 00:02:59,160 --> 00:03:01,200 Speaker 2: been around for a long time, or is this more 62 00:03:01,240 --> 00:03:02,640 Speaker 2: of a recent rise that we've seen. 63 00:03:02,760 --> 00:03:04,919 Speaker 1: It's been around for a long time, But I think 64 00:03:04,960 --> 00:03:08,440 Speaker 1: that perhaps in the evolution or the sophistication of time, 65 00:03:08,560 --> 00:03:11,200 Speaker 1: ETFs have really brought those to the four because they're 66 00:03:11,360 --> 00:03:14,360 Speaker 1: listed on markets around the world. They're listed in those 67 00:03:14,400 --> 00:03:17,960 Speaker 1: market tracking component parts, rather than probably at the beginning 68 00:03:17,960 --> 00:03:21,240 Speaker 1: of funds when they were unlisted or a managed fund. 69 00:03:21,720 --> 00:03:25,880 Speaker 1: Lots of times those were hedge funds or a diversified 70 00:03:25,880 --> 00:03:28,120 Speaker 1: fund with an active manager. So now we're getting into 71 00:03:28,160 --> 00:03:30,800 Speaker 1: the component parts. I like to think of it actually 72 00:03:30,840 --> 00:03:33,120 Speaker 1: as everyone's sophistication level. It's a little bit like the 73 00:03:33,120 --> 00:03:35,880 Speaker 1: coffee drinker's journey. So at the beginning, and particularly in 74 00:03:35,880 --> 00:03:38,040 Speaker 1: New Zealand, if you go back, say five ten years, 75 00:03:38,200 --> 00:03:40,320 Speaker 1: you had two choices for coffee. It was black or 76 00:03:40,320 --> 00:03:42,800 Speaker 1: it was white. Maybe we then got onto the decaf 77 00:03:43,200 --> 00:03:46,520 Speaker 1: and now people have choices where they might have their 78 00:03:46,560 --> 00:03:49,840 Speaker 1: double shot trim flat latte, or you might have oat milk, 79 00:03:49,960 --> 00:03:53,240 Speaker 1: or you really want your beans to have been come 80 00:03:53,280 --> 00:03:55,360 Speaker 1: from Brazil. So we've got a lot more choice. And 81 00:03:55,400 --> 00:03:58,240 Speaker 1: I think that's the same as the investing public. There's 82 00:03:58,320 --> 00:03:59,080 Speaker 1: more choice there. 83 00:03:59,200 --> 00:04:01,560 Speaker 2: I'm not sure where high class poor over fits into 84 00:04:01,600 --> 00:04:03,720 Speaker 2: that analogy, but I get what you're talking about that 85 00:04:03,720 --> 00:04:06,400 Speaker 2: there's an increasing kind of sophistication to the products and 86 00:04:06,440 --> 00:04:10,040 Speaker 2: so on. I mean, we know that the chezy's client 87 00:04:10,080 --> 00:04:13,960 Speaker 2: base and audience really are into those. What brought those about, 88 00:04:14,040 --> 00:04:16,280 Speaker 2: when did they first sort of emerge and what have 89 00:04:16,320 --> 00:04:16,960 Speaker 2: they enabled. 90 00:04:17,279 --> 00:04:19,640 Speaker 1: So at the very beginning, you could only trade if 91 00:04:19,680 --> 00:04:22,159 Speaker 1: you had a broker, and that was a physical person, 92 00:04:22,400 --> 00:04:25,960 Speaker 1: right who traded on the exchange. That's become far more electronic. 93 00:04:26,000 --> 00:04:29,160 Speaker 1: We've seen the growth of online trading platforms and we've 94 00:04:29,160 --> 00:04:33,200 Speaker 1: seen that follow the global trend to where real everyday 95 00:04:33,200 --> 00:04:36,400 Speaker 1: people retail we call them in the investing market. Retail 96 00:04:36,440 --> 00:04:39,800 Speaker 1: customers want to get involved and diversify their own assets. 97 00:04:39,960 --> 00:04:42,520 Speaker 1: Because you think about the evolution of New Zealand. You 98 00:04:42,600 --> 00:04:44,680 Speaker 1: might have known about property, right we start and we 99 00:04:44,760 --> 00:04:47,200 Speaker 1: grow up on that the physical property that we live 100 00:04:47,200 --> 00:04:50,400 Speaker 1: in or maybe we rent out. Now we're diversifying. So 101 00:04:50,440 --> 00:04:53,160 Speaker 1: we talked about cash, and people knew about term deposits, 102 00:04:53,320 --> 00:04:55,919 Speaker 1: and then they knew about bonds and now equities and 103 00:04:55,960 --> 00:04:58,200 Speaker 1: it's an extension of that. So rather than go to 104 00:04:58,240 --> 00:05:00,840 Speaker 1: the share market and decide I'm going to select these 105 00:05:00,880 --> 00:05:03,400 Speaker 1: two stocks myself because I think they're going to be 106 00:05:03,760 --> 00:05:06,200 Speaker 1: winners on the long term, actually I can buy a 107 00:05:06,240 --> 00:05:09,360 Speaker 1: basket of those stocks. So the most common example that 108 00:05:09,400 --> 00:05:11,760 Speaker 1: we give is the US five hundred, because there's a 109 00:05:11,800 --> 00:05:14,800 Speaker 1: lot of interest in that as the biggest economy and 110 00:05:14,839 --> 00:05:18,000 Speaker 1: biggest market in the world. So when we create an 111 00:05:18,040 --> 00:05:20,640 Speaker 1: index tracking fund for the US five hundred, we are 112 00:05:20,640 --> 00:05:23,440 Speaker 1: giving the opportunity to track that market. So our job 113 00:05:23,480 --> 00:05:25,720 Speaker 1: is to mirror, to replicate, to give you the same 114 00:05:25,760 --> 00:05:28,240 Speaker 1: returns that that market would give you. But there's five 115 00:05:28,320 --> 00:05:30,480 Speaker 1: hundred stocks in that index. That's why it's called the 116 00:05:30,560 --> 00:05:33,640 Speaker 1: US five hundred. And when you do that, how do 117 00:05:33,720 --> 00:05:35,719 Speaker 1: you know which ones of those are going to be 118 00:05:35,760 --> 00:05:37,680 Speaker 1: the best performing or not. So a lot of people 119 00:05:37,800 --> 00:05:40,080 Speaker 1: like the idea that you are actually just getting the 120 00:05:40,120 --> 00:05:43,080 Speaker 1: returns of that market. So an index provider puts them 121 00:05:43,080 --> 00:05:46,520 Speaker 1: together with the waitings. They specify what those waitings are 122 00:05:46,520 --> 00:05:49,440 Speaker 1: and the proportion of those stocks within that, and then 123 00:05:49,480 --> 00:05:52,080 Speaker 1: our job as the fund manager is to buy each 124 00:05:52,120 --> 00:05:55,440 Speaker 1: of those five hundred stocks in the waiting to match 125 00:05:55,640 --> 00:05:58,960 Speaker 1: that that the index provider specifies. So our job is 126 00:05:59,000 --> 00:06:01,760 Speaker 1: to hold all five hundred in the same waiting to 127 00:06:01,920 --> 00:06:05,160 Speaker 1: give that investor the same return as if they were 128 00:06:05,160 --> 00:06:08,240 Speaker 1: doing that themselves, and the same return as that whole market. 129 00:06:08,760 --> 00:06:11,440 Speaker 2: So if you're doing that in the S and P 130 00:06:11,560 --> 00:06:14,520 Speaker 2: five hundred, then like a third of that shareholding that 131 00:06:14,560 --> 00:06:17,000 Speaker 2: you've got to reflect that index is going to be 132 00:06:17,040 --> 00:06:20,680 Speaker 2: the Big seven, and then if there are movements there, 133 00:06:20,839 --> 00:06:23,159 Speaker 2: you're going to have to try and match those. Not 134 00:06:23,200 --> 00:06:25,640 Speaker 2: so much in real time, but you're catching up here. Yeah. 135 00:06:25,720 --> 00:06:28,800 Speaker 1: Our job is the index provider will on a schedule, 136 00:06:29,000 --> 00:06:31,800 Speaker 1: most of them are quarterly, will specify that they will 137 00:06:31,880 --> 00:06:35,680 Speaker 1: rewait or rebalance the index, and so our job is 138 00:06:35,720 --> 00:06:38,279 Speaker 1: to match that. So every quarter you'll hear that talk 139 00:06:38,320 --> 00:06:40,640 Speaker 1: in the market about oh it's the rebalance week, and 140 00:06:40,680 --> 00:06:43,120 Speaker 1: a lot of movement and trading will go on in 141 00:06:43,120 --> 00:06:46,320 Speaker 1: index tracking fund managers because our job is to make 142 00:06:46,360 --> 00:06:49,680 Speaker 1: sure that when the index provider specifies that there's been 143 00:06:49,800 --> 00:06:53,279 Speaker 1: changes in market capitalization and value in the market and 144 00:06:53,320 --> 00:06:56,120 Speaker 1: they've reweighted all those companies, our job is to make 145 00:06:56,160 --> 00:06:58,200 Speaker 1: sure that our holding matches that. 146 00:06:58,279 --> 00:07:01,760 Speaker 2: Waiting Again, it sounds a bit like football, like you know, 147 00:07:01,800 --> 00:07:04,320 Speaker 2: the English Premier League. You get sort of relegation or promotion. 148 00:07:04,440 --> 00:07:06,839 Speaker 2: You're either on the top of the table or you've 149 00:07:06,920 --> 00:07:10,200 Speaker 2: dropped off for whatever reason. Your performance as a company 150 00:07:10,600 --> 00:07:13,160 Speaker 2: doesn't entitle you to be in that bracket. As you say, 151 00:07:13,200 --> 00:07:15,640 Speaker 2: that happens like quarterly. Usually I know that there was 152 00:07:15,680 --> 00:07:17,640 Speaker 2: a rebalance. I think for a couple of the New 153 00:07:17,720 --> 00:07:20,960 Speaker 2: Zealand indexes end of last week or so on, YEP. 154 00:07:21,200 --> 00:07:24,040 Speaker 2: So you had, let's take a company, for example, Ryman 155 00:07:25,000 --> 00:07:28,560 Speaker 2: dropped out of the top ten yep and A two 156 00:07:29,040 --> 00:07:31,840 Speaker 2: jumped in there. But there would have been a lot 157 00:07:31,880 --> 00:07:36,600 Speaker 2: of change happened before that decision, and there's potentially a 158 00:07:36,640 --> 00:07:39,040 Speaker 2: bit of value that's gone missing. Is this the bit 159 00:07:39,160 --> 00:07:41,880 Speaker 2: that you have to just accept You don't get if 160 00:07:41,920 --> 00:07:43,560 Speaker 2: you are in a passive fund that you're going to 161 00:07:43,760 --> 00:07:44,640 Speaker 2: be catching up. 162 00:07:45,400 --> 00:07:47,920 Speaker 1: So it comes back to what's your goals? Right in 163 00:07:47,920 --> 00:07:50,360 Speaker 1: index tracking funds, So in that debate about should you 164 00:07:50,440 --> 00:07:54,400 Speaker 1: be with a passive manager or an active manager, index 165 00:07:54,440 --> 00:07:56,720 Speaker 1: tracking funds are tracking a market, so you can decide 166 00:07:56,760 --> 00:07:59,600 Speaker 1: which slice of that market you can be US five hundred, 167 00:07:59,640 --> 00:08:04,400 Speaker 1: the ASX two hundred, emerging markets, Asia, Pacific, robotics and automation. 168 00:08:04,560 --> 00:08:07,880 Speaker 1: They're all slices of a market, and you're choosing the 169 00:08:07,920 --> 00:08:10,360 Speaker 1: market that you wish to be tracking the performance on. 170 00:08:10,560 --> 00:08:13,520 Speaker 1: And most of the time that's a long term play 171 00:08:13,600 --> 00:08:16,240 Speaker 1: because if you want to get the value of the 172 00:08:16,280 --> 00:08:21,360 Speaker 1: instex ten, say, over your investment horizon, then you're wanting 173 00:08:21,440 --> 00:08:25,120 Speaker 1: that whole market return over that horizon, whether there's a 174 00:08:25,160 --> 00:08:28,600 Speaker 1: little bit of lost value and one quarterly rebalanced cycle 175 00:08:28,640 --> 00:08:31,440 Speaker 1: because someone dropped out and someone Elstrup came in, and 176 00:08:31,480 --> 00:08:34,360 Speaker 1: you need to pay the cost of it in the 177 00:08:34,400 --> 00:08:36,560 Speaker 1: fund fee. Right, you're not paying additional to that, but 178 00:08:36,640 --> 00:08:39,920 Speaker 1: the fund cost of doing that trading in the long term, 179 00:08:39,920 --> 00:08:43,280 Speaker 1: that's not really part of the objective of the fund. 180 00:08:43,480 --> 00:08:45,480 Speaker 1: Forget what I mean. You know, if you're if you're 181 00:08:45,520 --> 00:08:50,680 Speaker 1: investing for twenty years until retirement, then when you're choosing 182 00:08:50,880 --> 00:08:54,000 Speaker 1: a fund manager, you're really saying, well, do I think 183 00:08:54,000 --> 00:08:56,720 Speaker 1: that the US five hundred over twenty years is going 184 00:08:56,760 --> 00:09:01,080 Speaker 1: to perform better or worse than an active fund manager 185 00:09:01,120 --> 00:09:04,880 Speaker 1: with specific portfolio managers and people making stock selections. And 186 00:09:04,880 --> 00:09:07,520 Speaker 1: that's why there's a lot of trend or data that 187 00:09:07,640 --> 00:09:11,079 Speaker 1: talks about long term investing horizons the market will be 188 00:09:11,160 --> 00:09:13,760 Speaker 1: to person, twenty years is a long time for the 189 00:09:13,800 --> 00:09:16,319 Speaker 1: same portfolio managers to sit there and manage that fund 190 00:09:16,320 --> 00:09:18,560 Speaker 1: in the same way and beat the market every single year. 191 00:09:18,840 --> 00:09:21,560 Speaker 1: And that's where you get that kind of passive because 192 00:09:21,600 --> 00:09:24,640 Speaker 1: it's about market growth and long term market growth versus 193 00:09:24,679 --> 00:09:27,520 Speaker 1: individual people stock picking. But that's a long term play. 194 00:09:28,240 --> 00:09:30,720 Speaker 1: If you're investing for a two year time horizon, you 195 00:09:30,840 --> 00:09:33,680 Speaker 1: might choose a particularly well performing fund with some massive 196 00:09:33,679 --> 00:09:36,760 Speaker 1: managers or folio managers who you think are really focused 197 00:09:36,800 --> 00:09:39,640 Speaker 1: on that, and you're not going to be worried about 198 00:09:39,679 --> 00:09:42,120 Speaker 1: whether the New Zealand twenty is going to be up 199 00:09:42,200 --> 00:09:43,240 Speaker 1: or down in two years time. 200 00:09:44,040 --> 00:09:47,600 Speaker 2: We're in an error of volatility. Does that give a 201 00:09:47,600 --> 00:09:49,560 Speaker 2: preference one way or the other. Does it say, hey, 202 00:09:50,000 --> 00:09:52,960 Speaker 2: now's a good time to be looking at the noise 203 00:09:53,120 --> 00:09:55,120 Speaker 2: and trying to screen that out and go passive, or 204 00:09:55,200 --> 00:09:57,600 Speaker 2: is it, hey, you actually need to think about active 205 00:09:57,640 --> 00:10:01,080 Speaker 2: management to try and take advantage of that to deal 206 00:10:01,200 --> 00:10:04,160 Speaker 2: with stuff coming in much more quickly, news coming in 207 00:10:04,240 --> 00:10:06,600 Speaker 2: much more quickly. Change is happening much more quickly. 208 00:10:07,120 --> 00:10:08,959 Speaker 1: So I believe in a bit of both. What about 209 00:10:08,960 --> 00:10:12,319 Speaker 1: in times of volatiley again, how long you're investing for? 210 00:10:12,920 --> 00:10:15,760 Speaker 1: What is your goal with that investment? So if I 211 00:10:15,960 --> 00:10:17,959 Speaker 1: was in Key with Saver and I think I want 212 00:10:18,000 --> 00:10:20,400 Speaker 1: to buy a house in the next year, well that 213 00:10:20,559 --> 00:10:23,440 Speaker 1: means that my risk tolerance ride is lower right now 214 00:10:23,640 --> 00:10:26,280 Speaker 1: because I don't want to be able to want to 215 00:10:26,320 --> 00:10:28,959 Speaker 1: take my money out at a downturn in the economy, 216 00:10:29,400 --> 00:10:33,040 Speaker 1: So it's about the diversification of where you're invested. And 217 00:10:33,120 --> 00:10:35,199 Speaker 1: we see, particularly in charesis when we look at the 218 00:10:35,520 --> 00:10:38,480 Speaker 1: top six ETFs that people are trading there, we can 219 00:10:38,520 --> 00:10:41,959 Speaker 1: see that people are actually building a portfolio. So in 220 00:10:41,960 --> 00:10:44,560 Speaker 1: that top six we have the US five hundred, the 221 00:10:44,720 --> 00:10:49,079 Speaker 1: NZD X fifty, the ASX twenty. Actually we have Asia 222 00:10:49,120 --> 00:10:52,400 Speaker 1: Pacific emerging markets. So actually we can see that people 223 00:10:52,480 --> 00:10:56,520 Speaker 1: are spreading their investment around the globe and around different 224 00:10:56,520 --> 00:10:59,319 Speaker 1: markets to try and smooth out that volatility. 225 00:10:59,440 --> 00:11:01,480 Speaker 2: Is that the respectants to the flux that you're seeing 226 00:11:01,520 --> 00:11:03,079 Speaker 2: is that a lot of people are just going, Hey, 227 00:11:03,120 --> 00:11:05,360 Speaker 2: I'm just going to tune the noise out and I'm 228 00:11:05,400 --> 00:11:08,520 Speaker 2: going to go for the ride and work out that 229 00:11:08,559 --> 00:11:10,280 Speaker 2: twenty years from now to be fine. Or do you 230 00:11:10,360 --> 00:11:13,200 Speaker 2: a mean to you? As fund managers actually hearing from 231 00:11:13,240 --> 00:11:15,760 Speaker 2: people panicking and saying what do I do? Yeah? 232 00:11:15,840 --> 00:11:20,520 Speaker 1: Volatility is always really concerning because money is a personal thing, right, 233 00:11:20,600 --> 00:11:23,760 Speaker 1: so it's emotional when you look at your balance and 234 00:11:23,800 --> 00:11:26,800 Speaker 1: it's down. So we do get a lot more queries 235 00:11:26,880 --> 00:11:29,040 Speaker 1: during times of volatilty because the point of being in 236 00:11:29,040 --> 00:11:31,040 Speaker 1: a market tracking fund is you're going to track the 237 00:11:31,040 --> 00:11:34,040 Speaker 1: performance of the market. So when the US market drops 238 00:11:34,040 --> 00:11:37,240 Speaker 1: off four percent overnight, then your value of your fund 239 00:11:37,280 --> 00:11:40,200 Speaker 1: holding is also going to do that. The point is 240 00:11:40,960 --> 00:11:43,559 Speaker 1: what are you invested for and should that matter? Lots 241 00:11:43,600 --> 00:11:46,000 Speaker 1: of people do what we call panic selling, and that 242 00:11:46,160 --> 00:11:48,319 Speaker 1: is that emotional reaction to oh my god, it might 243 00:11:48,360 --> 00:11:49,840 Speaker 1: lose more money, so I should sell it now and 244 00:11:49,840 --> 00:11:52,520 Speaker 1: cut my losses. Yes, you're cutting your losses, but you're 245 00:11:52,520 --> 00:11:56,240 Speaker 1: also crystallizing those losses. So if you don't need the 246 00:11:56,280 --> 00:11:59,240 Speaker 1: money today, you should hold on because if you look 247 00:11:59,320 --> 00:12:03,280 Speaker 1: at the historical trend on a long term basis, markets 248 00:12:03,360 --> 00:12:07,559 Speaker 1: largely go and grow. But that's not to say, right, 249 00:12:07,559 --> 00:12:10,840 Speaker 1: we always say that previous performance is no indication of future. 250 00:12:11,440 --> 00:12:13,640 Speaker 1: Do you really have to be clear about again what 251 00:12:13,760 --> 00:12:17,400 Speaker 1: you invested for. It's not the old adage of it. 252 00:12:17,520 --> 00:12:20,120 Speaker 1: It's not the timing the market and will you buy 253 00:12:20,160 --> 00:12:23,520 Speaker 1: and sell, it's actually time in the market. It's that accumulation, 254 00:12:24,200 --> 00:12:27,800 Speaker 1: it's the compounding investment. Those are the things over the 255 00:12:27,880 --> 00:12:31,920 Speaker 1: long term if you're saving for retirement that really help out. 256 00:12:32,760 --> 00:12:36,320 Speaker 2: Sure, And I guess a part of that is the 257 00:12:36,360 --> 00:12:38,520 Speaker 2: cost of all of that activity and what it's costing 258 00:12:38,559 --> 00:12:42,400 Speaker 2: you to take part that's often a football that it's 259 00:12:42,440 --> 00:12:45,680 Speaker 2: thrown around. I suppose between the passive and active side, Right, 260 00:12:45,800 --> 00:12:49,000 Speaker 2: is that a passive approach you can afford to do 261 00:12:49,040 --> 00:12:50,600 Speaker 2: it a little bit more cheaply. 262 00:12:50,960 --> 00:12:53,400 Speaker 1: Yeah, So we talk about the cost yep so the 263 00:12:53,440 --> 00:12:57,320 Speaker 1: three p's of fund management and when you look into 264 00:12:57,320 --> 00:12:59,520 Speaker 1: a fund to kind of the philosophy of the funds. 265 00:12:59,520 --> 00:13:01,800 Speaker 1: We talked about the objective, the process that they run. 266 00:13:01,880 --> 00:13:04,160 Speaker 1: So in an index tracking, that is the tracking and 267 00:13:04,200 --> 00:13:07,600 Speaker 1: the people who do that. People become far more important 268 00:13:07,640 --> 00:13:11,480 Speaker 1: in an active fund because you are actually selecting stocks 269 00:13:11,920 --> 00:13:15,440 Speaker 1: and in within that fund you have different objectives as well. Right, 270 00:13:15,440 --> 00:13:17,560 Speaker 1: you're trying to outperform or beat, but it's a particular 271 00:13:17,600 --> 00:13:19,920 Speaker 1: market you're trying to outperform. But when we look at 272 00:13:19,920 --> 00:13:22,679 Speaker 1: the costs over all of those, both of us, in 273 00:13:22,760 --> 00:13:24,920 Speaker 1: terms of all those types of funds, are paying an 274 00:13:24,960 --> 00:13:27,760 Speaker 1: index provider for an index. Some of those indexes are 275 00:13:27,760 --> 00:13:30,160 Speaker 1: more expensive and more esoteric than others, but you've got 276 00:13:30,160 --> 00:13:33,400 Speaker 1: that cost both sets trading. So you're going to rebalance, 277 00:13:33,480 --> 00:13:35,600 Speaker 1: or you're going to choose stocks that you no longer 278 00:13:35,760 --> 00:13:38,200 Speaker 1: like and think have value, or depending on the feature 279 00:13:38,240 --> 00:13:41,240 Speaker 1: of your fund, you might be volatility trading fund or 280 00:13:41,440 --> 00:13:44,080 Speaker 1: looking for cheapness versus long term value. But you're going 281 00:13:44,120 --> 00:13:46,320 Speaker 1: to make different selections and choices, so you're both going 282 00:13:46,360 --> 00:13:48,880 Speaker 1: to trade on that. Where it comes into the underlying 283 00:13:48,880 --> 00:13:51,360 Speaker 1: cost and where you traditionally see that an index tracking 284 00:13:51,400 --> 00:13:54,079 Speaker 1: fund would have a cheaper management fee is the cost 285 00:13:54,080 --> 00:13:57,040 Speaker 1: of research and the cost of people. Because if you 286 00:13:57,040 --> 00:13:59,320 Speaker 1: are an active fund manager and so you are pouring 287 00:13:59,400 --> 00:14:04,439 Speaker 1: over stocks and selecting those based on your own philosophy, 288 00:14:04,880 --> 00:14:07,439 Speaker 1: then that is a labor intensive job. You need more 289 00:14:07,480 --> 00:14:09,960 Speaker 1: research analysts in that team. You need to pay for 290 00:14:10,120 --> 00:14:13,560 Speaker 1: more research to get into what those companies' analytics are. 291 00:14:13,960 --> 00:14:16,800 Speaker 1: And you have a market professional who is a conviction 292 00:14:17,080 --> 00:14:20,720 Speaker 1: led stock picker, right, and that's not everyone's cup of tea. 293 00:14:20,760 --> 00:14:22,720 Speaker 1: There's a lot of nights that you don't sleep with 294 00:14:22,800 --> 00:14:25,160 Speaker 1: that when you've got a position on. So that is 295 00:14:25,160 --> 00:14:28,520 Speaker 1: inherently a more expensive fund to run for research and 296 00:14:28,680 --> 00:14:31,560 Speaker 1: expertise and number of people that you need in your 297 00:14:31,560 --> 00:14:35,680 Speaker 1: team versus a pure index tracking fund isn't going to 298 00:14:35,800 --> 00:14:38,000 Speaker 1: need that research because the job is to get the 299 00:14:38,040 --> 00:14:41,880 Speaker 1: index provider's information and weight your portfolio in line with that. 300 00:14:43,200 --> 00:14:45,400 Speaker 2: I think someone we spoke to recently said it's the 301 00:14:45,400 --> 00:14:49,680 Speaker 2: difference between professional football and more social league football. Is 302 00:14:49,720 --> 00:14:50,960 Speaker 2: that an unfair comparison. 303 00:14:51,680 --> 00:14:54,360 Speaker 1: There's probably a little unfair, but I think they just 304 00:14:54,400 --> 00:14:56,160 Speaker 1: so if we come back to the philosophy, they're very 305 00:14:56,160 --> 00:14:59,040 Speaker 1: different philosophies. You have a different job function in each 306 00:14:59,080 --> 00:15:01,640 Speaker 1: of those and if you're in a restaurant, say that's 307 00:15:01,640 --> 00:15:04,440 Speaker 1: a difference between being the sou chef or in charge 308 00:15:04,440 --> 00:15:07,600 Speaker 1: of the vegetable plating versus the overall headshift who's putting 309 00:15:07,640 --> 00:15:11,120 Speaker 1: together a whole menu. They're different jobs. And one thing 310 00:15:11,160 --> 00:15:13,400 Speaker 1: I think that we think about when we think about 311 00:15:13,840 --> 00:15:16,200 Speaker 1: active and passive is and this is why I continue 312 00:15:16,240 --> 00:15:18,800 Speaker 1: to talk about index tracking, because if there's an index 313 00:15:18,840 --> 00:15:20,800 Speaker 1: in a market, then that's what you're doing. In a 314 00:15:20,840 --> 00:15:24,960 Speaker 1: passive fund, that's your job right to replicate. In mirror key, 315 00:15:25,000 --> 00:15:27,680 Speaker 1: we Savor in New Zealand has really grown this area 316 00:15:27,760 --> 00:15:32,160 Speaker 1: of interest in a diversified fund. So that has brought 317 00:15:32,200 --> 00:15:37,080 Speaker 1: in new complexity. When you get into a diversified fund, anybody, 318 00:15:37,200 --> 00:15:40,440 Speaker 1: regardless of whether you're using index tracking, building blocks or 319 00:15:40,480 --> 00:15:44,840 Speaker 1: stock selection, you're making a active choice on how you 320 00:15:44,960 --> 00:15:47,920 Speaker 1: build that diversified fund. And so that's where the line. 321 00:15:47,960 --> 00:15:50,760 Speaker 1: I think that blurs between passive and active. So yes, 322 00:15:50,840 --> 00:15:53,440 Speaker 1: it's smart. Do we have a bunch of index tracking etips, 323 00:15:53,680 --> 00:15:56,800 Speaker 1: Absolutely we do. Do We also, under the super Life 324 00:15:56,800 --> 00:15:59,600 Speaker 1: brand that we're going to change to Smart, have diversified 325 00:15:59,640 --> 00:16:02,640 Speaker 1: fund We have those two. You need extra acid alloication 326 00:16:02,760 --> 00:16:03,960 Speaker 1: expertise to go into that. 327 00:16:04,280 --> 00:16:06,360 Speaker 2: So give you a little bit more color, give you 328 00:16:06,360 --> 00:16:08,080 Speaker 2: a little bit more cost as well, from the sound 329 00:16:08,120 --> 00:16:08,400 Speaker 2: of it too. 330 00:16:08,480 --> 00:16:11,760 Speaker 1: Absolutely, but that's where you get the extra expertise. So 331 00:16:11,840 --> 00:16:14,200 Speaker 1: we talk about how risk tolerant are you. You might 332 00:16:14,240 --> 00:16:17,480 Speaker 1: be conservative or balanced or growth. With that becomes a 333 00:16:17,680 --> 00:16:22,200 Speaker 1: pretty global standard way of thinking how you spread your 334 00:16:22,240 --> 00:16:26,120 Speaker 1: assets for that. So a balance portfolio pretty traditionally is 335 00:16:26,440 --> 00:16:30,640 Speaker 1: sixty percent in equities which are called growth assets forty 336 00:16:30,680 --> 00:16:34,800 Speaker 1: percent and bonds or fixed income or defensive stable assets. 337 00:16:34,920 --> 00:16:38,000 Speaker 1: That's the worldwide acknowledged. You can chat YOUPT that and 338 00:16:38,040 --> 00:16:40,200 Speaker 1: will tell you what your standard asset allocation is. 339 00:16:40,280 --> 00:16:40,560 Speaker 2: Right. 340 00:16:41,080 --> 00:16:43,000 Speaker 1: So from there, right, we've started at the top. We've 341 00:16:43,000 --> 00:16:46,720 Speaker 1: got some growth, some stability. That's the balance. But underneath 342 00:16:46,760 --> 00:16:49,560 Speaker 1: that you've got asset categories. You've got New Zealand equities, 343 00:16:49,600 --> 00:16:53,600 Speaker 1: Australian equities, International, the Europe. You've got fixed income which 344 00:16:53,640 --> 00:16:56,400 Speaker 1: comes into your stable. You've also got cash, and increasingly 345 00:16:56,400 --> 00:16:59,400 Speaker 1: you've got alternative assets, so you have to look at 346 00:16:59,400 --> 00:17:02,520 Speaker 1: those in that. You've got commodities. We've talked about gold 347 00:17:02,600 --> 00:17:06,800 Speaker 1: before as a great diversifier. You've got property that's become listed. 348 00:17:06,840 --> 00:17:10,280 Speaker 1: Property become really popular and far more standard in terms 349 00:17:10,280 --> 00:17:12,679 Speaker 1: of that. So you've got asset categories. Then what you 350 00:17:12,720 --> 00:17:14,479 Speaker 1: do as a fund manager and say, right, well, if 351 00:17:14,520 --> 00:17:18,120 Speaker 1: those are the core ingredients, what's my strategic acid allocation? 352 00:17:18,359 --> 00:17:20,359 Speaker 1: So when I break down the sixty forty, how do 353 00:17:20,440 --> 00:17:23,480 Speaker 1: I make that up? And in that zone, we're all 354 00:17:23,520 --> 00:17:27,040 Speaker 1: making a decision about where our target waiting is in 355 00:17:27,119 --> 00:17:29,720 Speaker 1: any of those asset categories and what our range is. 356 00:17:30,359 --> 00:17:33,120 Speaker 1: So you set that'll be in the SIPO and that's 357 00:17:33,119 --> 00:17:36,000 Speaker 1: what you're set with. But then within that you have 358 00:17:36,080 --> 00:17:38,880 Speaker 1: tactical plays. So even though you might be labeled a 359 00:17:38,960 --> 00:17:43,240 Speaker 1: passive fund manager, when you're buying a diversified fund that's 360 00:17:43,280 --> 00:17:48,720 Speaker 1: growth or balanced, we're all making conscious choices around acid allocation. 361 00:17:49,280 --> 00:17:52,840 Speaker 1: So here it's smart when we choose our diversified fund, 362 00:17:53,000 --> 00:17:55,960 Speaker 1: we will build that up with index tracking building blocks 363 00:17:56,160 --> 00:17:58,879 Speaker 1: because we think that those are tracking the market and 364 00:17:59,359 --> 00:18:03,040 Speaker 1: are a good lower cost alternative. So that's how we 365 00:18:03,040 --> 00:18:05,199 Speaker 1: build it, but we still need to put that together 366 00:18:05,520 --> 00:18:08,159 Speaker 1: and know how our acid allocation looks. If you're an 367 00:18:08,160 --> 00:18:11,399 Speaker 1: active fund manager, you've got the same acid allocation that 368 00:18:11,440 --> 00:18:13,720 Speaker 1: you're working on, but at the lower level of fund, 369 00:18:13,920 --> 00:18:16,280 Speaker 1: you might choose instead of having index tracking funds, you 370 00:18:16,359 --> 00:18:19,480 Speaker 1: might choose to build it up via active stock selection. 371 00:18:19,760 --> 00:18:23,200 Speaker 1: So you're picking individual names, individual companies to build. 372 00:18:23,080 --> 00:18:25,280 Speaker 2: Which is a little bit more intensive but potentially gives 373 00:18:25,280 --> 00:18:29,159 Speaker 2: you exposure to greater greater gain but greater losses. 374 00:18:29,359 --> 00:18:31,520 Speaker 1: Well yeah, and so there's a whole lot more onus 375 00:18:31,560 --> 00:18:34,560 Speaker 1: there on doing the research, finding the right companies and 376 00:18:34,600 --> 00:18:37,040 Speaker 1: doing that. The tricky thing for investors, I think with 377 00:18:37,160 --> 00:18:40,440 Speaker 1: a diversified fund is there's no easy benchmark or index, 378 00:18:40,760 --> 00:18:46,240 Speaker 1: So there's no global New Zealand based investor balanced risk profile, 379 00:18:46,280 --> 00:18:48,879 Speaker 1: there's no index for that. So it's really hard to 380 00:18:48,920 --> 00:18:52,080 Speaker 1: compare the performance of our diversified funds. And that's why 381 00:18:52,119 --> 00:18:55,680 Speaker 1: it comes into league tables and why people constantly talk 382 00:18:55,760 --> 00:18:59,280 Speaker 1: in that space around as your fund performing in the 383 00:18:59,280 --> 00:19:01,680 Speaker 1: top quart eye or not, and where does it rank 384 00:19:01,760 --> 00:19:04,199 Speaker 1: versus its peers. But when you dig into all of 385 00:19:04,200 --> 00:19:07,080 Speaker 1: our sipos, we're all going to be slightly different in 386 00:19:07,119 --> 00:19:10,159 Speaker 1: our acid allocation that we've employed and the width of 387 00:19:10,160 --> 00:19:14,159 Speaker 1: our ranges and where we can tactically tilt given market conditions. 388 00:19:14,240 --> 00:19:16,960 Speaker 1: So we might hold more in cash right now less 389 00:19:17,000 --> 00:19:20,320 Speaker 1: than international equities, and we can do that because that's 390 00:19:20,320 --> 00:19:24,120 Speaker 1: within an acid allocation guideline rather than very specifically having 391 00:19:24,200 --> 00:19:27,800 Speaker 1: to track to. There's no global common standard of what 392 00:19:27,840 --> 00:19:29,239 Speaker 1: a diversified fund should look like. 393 00:19:29,400 --> 00:19:31,240 Speaker 2: So does that mean that some of the umpires were 394 00:19:31,280 --> 00:19:36,040 Speaker 2: used to for this game? The spever or MJW, the 395 00:19:36,400 --> 00:19:39,600 Speaker 2: people that produce tables that rate the performance of various funds, 396 00:19:39,920 --> 00:19:42,720 Speaker 2: are kind of only part of the picture. They're not 397 00:19:42,720 --> 00:19:45,760 Speaker 2: going to give you a really solid answer thereon where 398 00:19:45,760 --> 00:19:47,040 Speaker 2: to look to put your mind. 399 00:19:47,359 --> 00:19:49,680 Speaker 1: So they can tell you because you will over time, 400 00:19:49,760 --> 00:19:51,560 Speaker 1: you know, and you look at the one year, the 401 00:19:51,640 --> 00:19:54,000 Speaker 1: three year, the five year, the ten year returns, which 402 00:19:54,080 --> 00:19:58,000 Speaker 1: tell you how much consistency there is, and that group 403 00:19:58,040 --> 00:20:01,400 Speaker 1: of professionals who are managing that fund philosophy that they're employing. 404 00:20:01,440 --> 00:20:04,800 Speaker 1: So those are really useful tools, but you're comparing things 405 00:20:04,800 --> 00:20:07,000 Speaker 1: most of the time with the same name on them. 406 00:20:07,160 --> 00:20:09,959 Speaker 1: When you dig into the detail, you might find that 407 00:20:10,000 --> 00:20:15,040 Speaker 1: someone's target waiting is fifty five percent for international equities, 408 00:20:15,240 --> 00:20:18,320 Speaker 1: but someone else's might be seventy five. They're still going 409 00:20:18,400 --> 00:20:21,280 Speaker 1: to be within a range. But that's already where you 410 00:20:21,320 --> 00:20:25,399 Speaker 1: can see differences, and that's the manager's call about where 411 00:20:25,840 --> 00:20:29,080 Speaker 1: where you weight the asset allocations, the asset categories, and 412 00:20:29,119 --> 00:20:32,280 Speaker 1: how you employ your view of the world and the 413 00:20:32,359 --> 00:20:33,560 Speaker 1: economics and that. 414 00:20:33,920 --> 00:20:35,960 Speaker 2: So that's some of the fine print. There's an investor 415 00:20:35,960 --> 00:20:38,160 Speaker 2: you need to be reading before we can which one to. 416 00:20:38,320 --> 00:20:40,480 Speaker 1: And sometimes that's hard, which is why I think we've 417 00:20:40,520 --> 00:20:42,560 Speaker 1: gone with the league tables, which are an excellent tool. 418 00:20:42,840 --> 00:20:45,240 Speaker 1: But if you want to choose any of the balanced 419 00:20:45,280 --> 00:20:47,720 Speaker 1: funds on the street to then go in it will 420 00:20:47,760 --> 00:20:51,400 Speaker 1: talk about it's trying to replicate the benchmark of global say, 421 00:20:51,600 --> 00:20:53,400 Speaker 1: but you have to really dig in to find if 422 00:20:53,400 --> 00:20:55,480 Speaker 1: they got the waitings in there. And most of the 423 00:20:55,520 --> 00:20:59,040 Speaker 1: time you'll find that it's a composite index. So as 424 00:20:59,080 --> 00:21:00,800 Speaker 1: I said, there's no kind of SMP. You pick it 425 00:21:00,840 --> 00:21:03,320 Speaker 1: off the shelf and that's the standard. So you have 426 00:21:03,359 --> 00:21:04,840 Speaker 1: to go into that and most of us will have 427 00:21:04,880 --> 00:21:08,400 Speaker 1: put together our composite index with maybe the MASCI world. 428 00:21:09,440 --> 00:21:12,440 Speaker 1: Some of New Zealand's the Index fifty because this is 429 00:21:12,480 --> 00:21:14,280 Speaker 1: where we live and this is the economy that our 430 00:21:14,320 --> 00:21:17,440 Speaker 1: investors are living within. There'll be some Australia because it's 431 00:21:17,600 --> 00:21:20,560 Speaker 1: close in our geographic but you'll have a ninety day 432 00:21:20,640 --> 00:21:23,399 Speaker 1: bank bill, say for the cash return that you're trying 433 00:21:23,400 --> 00:21:27,600 Speaker 1: to beat, or a corporate bond index. So we're putting 434 00:21:27,640 --> 00:21:30,480 Speaker 1: together a bunch of indexes to reflect what we're trying 435 00:21:30,520 --> 00:21:34,600 Speaker 1: to achieve with that fund in a holistic, diversified portfolio 436 00:21:34,640 --> 00:21:35,680 Speaker 1: for round investors. 437 00:21:36,240 --> 00:21:40,160 Speaker 2: We were talking a bit about themes previously and how 438 00:21:40,280 --> 00:21:43,520 Speaker 2: different ETFs express different themes and how passive can still 439 00:21:43,520 --> 00:21:45,960 Speaker 2: catch some of those themes. Are there any untapped themes 440 00:21:45,960 --> 00:21:48,359 Speaker 2: out there or are there any really strong themes that 441 00:21:48,400 --> 00:21:50,080 Speaker 2: you think are going to continue through this sit a 442 00:21:50,080 --> 00:21:51,120 Speaker 2: period of volatility. 443 00:21:51,520 --> 00:21:54,520 Speaker 1: It's a good question because as a product manufacturer, particularly 444 00:21:54,520 --> 00:21:56,719 Speaker 1: of index tracking funds, you try and do that very 445 00:21:56,800 --> 00:21:59,680 Speaker 1: much on an investor demand basis. So that's part of 446 00:21:59,720 --> 00:22:01,639 Speaker 1: the res and why we partnered with I Shares by 447 00:22:01,680 --> 00:22:05,800 Speaker 1: black Rock because that's a big global ETF manufacturer and 448 00:22:05,840 --> 00:22:09,480 Speaker 1: they're exposed to a global investing public, so we can 449 00:22:09,480 --> 00:22:12,600 Speaker 1: look to them to see what has been of real 450 00:22:12,640 --> 00:22:15,720 Speaker 1: interest globally, where that investor bases come from or that 451 00:22:15,920 --> 00:22:18,840 Speaker 1: level of interest, and how we do that in terms 452 00:22:18,840 --> 00:22:22,040 Speaker 1: of the evolution of our fund size. Here is one 453 00:22:22,040 --> 00:22:23,800 Speaker 1: of the things that we can do first is we 454 00:22:23,840 --> 00:22:28,720 Speaker 1: can wrap one of I shares offshore funds, so we 455 00:22:29,160 --> 00:22:31,760 Speaker 1: list that here on the inside X as a local 456 00:22:31,920 --> 00:22:33,960 Speaker 1: pie so that people can get the benefit of the 457 00:22:34,000 --> 00:22:38,280 Speaker 1: local twenty eight percent tax rather than worrying about an 458 00:22:38,280 --> 00:22:42,000 Speaker 1: offshore holding. And we can start with just wrapping an 459 00:22:42,040 --> 00:22:44,320 Speaker 1: I shares fund. When that gets to size, we may 460 00:22:44,400 --> 00:22:46,920 Speaker 1: well unwrap that and go and look to hold the 461 00:22:46,960 --> 00:22:50,639 Speaker 1: constituents ourselves because you get more tax efficiency its size, 462 00:22:51,119 --> 00:22:53,760 Speaker 1: and it's a better way to deliver value to the 463 00:22:53,880 --> 00:22:56,240 Speaker 1: end investor. But that's a great way for us to 464 00:22:56,280 --> 00:22:58,760 Speaker 1: see what global trend's going on and what might be 465 00:22:58,800 --> 00:22:59,640 Speaker 1: of interest. 466 00:23:00,359 --> 00:23:03,480 Speaker 2: Of funds under management and passive rather than active in 467 00:23:03,520 --> 00:23:04,200 Speaker 2: the strict sense. 468 00:23:04,520 --> 00:23:06,399 Speaker 1: So that's a really hard one to do in New 469 00:23:06,480 --> 00:23:08,959 Speaker 1: Zealand because I think, as they talked about those diversified, 470 00:23:09,000 --> 00:23:10,520 Speaker 1: which pocket do you put them in? So do you 471 00:23:10,600 --> 00:23:14,280 Speaker 1: tag that by a fund manager? But that's not necessarily 472 00:23:14,760 --> 00:23:18,560 Speaker 1: the key component. So we in New Zealand, he compared 473 00:23:18,560 --> 00:23:21,359 Speaker 1: to We've did some research last year around Australia. We 474 00:23:21,480 --> 00:23:25,320 Speaker 1: have far less in index tracking funds than Australia does, 475 00:23:25,680 --> 00:23:28,679 Speaker 1: and that's far less again than America. Say so, I 476 00:23:28,680 --> 00:23:31,680 Speaker 1: think that's a little bit of that sophistication journey. Lots 477 00:23:31,680 --> 00:23:33,960 Speaker 1: of our New Zealand investing public are still buying their 478 00:23:34,000 --> 00:23:37,440 Speaker 1: coffee black or white because that is how you get 479 00:23:37,440 --> 00:23:39,320 Speaker 1: into the market, and it's a safe way because you're 480 00:23:39,320 --> 00:23:42,239 Speaker 1: putting your diversification in the hands of a professional. But 481 00:23:42,280 --> 00:23:45,760 Speaker 1: as that investing public gets more sophisticated and has more views, 482 00:23:45,840 --> 00:23:49,000 Speaker 1: people are looking to unpack that and actually have the 483 00:23:49,080 --> 00:23:52,920 Speaker 1: opportunity to pick the building blocks and the components themselves. 484 00:23:53,359 --> 00:23:55,480 Speaker 1: And one of the easiest ways to do that on 485 00:23:55,520 --> 00:23:58,639 Speaker 1: a component basis where you just want slices of market 486 00:23:58,920 --> 00:24:02,239 Speaker 1: are ETFs and index tracking funds because a lot of 487 00:24:02,240 --> 00:24:06,359 Speaker 1: your fund managers, so a professional active fund manager isn't 488 00:24:06,359 --> 00:24:09,200 Speaker 1: going to offer those index tracking components because their job 489 00:24:09,280 --> 00:24:11,639 Speaker 1: is to put them together in a package that outperforms 490 00:24:11,680 --> 00:24:14,439 Speaker 1: the market. So you can see that level of interest, 491 00:24:14,480 --> 00:24:17,600 Speaker 1: particularly from retail investors, and you can see in America 492 00:24:17,680 --> 00:24:20,960 Speaker 1: quite often if in my previous background we worked at 493 00:24:21,280 --> 00:24:24,639 Speaker 1: wealth management. You would see American investors coming over and 494 00:24:24,680 --> 00:24:28,040 Speaker 1: their entire portfolio would be made up of index tracking ittifs, 495 00:24:28,600 --> 00:24:31,800 Speaker 1: because that's how they thought in that market they got 496 00:24:31,840 --> 00:24:34,280 Speaker 1: value for money and that they were able to express 497 00:24:34,359 --> 00:24:37,520 Speaker 1: themes in there without worrying that they had packaged it 498 00:24:37,560 --> 00:24:40,359 Speaker 1: all up for someone else in a fund. Australia's ahead 499 00:24:40,359 --> 00:24:42,480 Speaker 1: of us. New Zealand's getting there, and I think it 500 00:24:42,520 --> 00:24:44,720 Speaker 1: will be quite some time because lots of people will 501 00:24:44,720 --> 00:24:46,680 Speaker 1: still want black a white coffee. 502 00:24:46,840 --> 00:24:49,720 Speaker 2: So some people are still just sticking black and white. 503 00:24:50,080 --> 00:24:52,800 Speaker 1: Yeah, they are, and I think that's totally fine because 504 00:24:52,840 --> 00:24:55,800 Speaker 1: you should do what's right for your level of expertise, 505 00:24:55,960 --> 00:24:59,280 Speaker 1: your risk tolerance, your investment profile. But even in that 506 00:24:59,680 --> 00:25:02,160 Speaker 1: where we have an active fund manager ourselves, and there 507 00:25:02,200 --> 00:25:04,800 Speaker 1: is a lot of others in the street, they may 508 00:25:04,880 --> 00:25:07,640 Speaker 1: well use an index tracking fund as well, so it's 509 00:25:07,640 --> 00:25:09,640 Speaker 1: not just a retail play in a way to build 510 00:25:09,640 --> 00:25:12,240 Speaker 1: a portfolio. ETFs and that's why you've seen them grow 511 00:25:12,320 --> 00:25:14,960 Speaker 1: so much around the world because they've become a tool 512 00:25:15,320 --> 00:25:19,640 Speaker 1: in the toolbox of huge fund managers, pension schemes, etc. 513 00:25:20,200 --> 00:25:22,720 Speaker 1: Because that is a great way to get a slice 514 00:25:22,720 --> 00:25:24,520 Speaker 1: of the market and to track that return. 515 00:25:25,880 --> 00:25:29,320 Speaker 2: Given that huge amount of growth and how there's this 516 00:25:29,400 --> 00:25:31,479 Speaker 2: massive sort of momentum building up in the market, all 517 00:25:31,480 --> 00:25:35,199 Speaker 2: that passive money, which as it flows into a market 518 00:25:35,640 --> 00:25:38,240 Speaker 2: tends to reflect the bigger and bigger players. Does it 519 00:25:38,280 --> 00:25:40,280 Speaker 2: sort of become a bit of a self fulfilling prophecy, 520 00:25:40,440 --> 00:25:44,399 Speaker 2: Like the Magnificence even aren't just getting bigger in that 521 00:25:44,760 --> 00:25:48,040 Speaker 2: index because of the performance and fundamentals of the company, 522 00:25:48,080 --> 00:25:50,320 Speaker 2: it's simply because there's so much passive money flowing in. 523 00:25:50,520 --> 00:25:53,440 Speaker 2: Is through a way to work out if that's happening. 524 00:25:53,200 --> 00:25:56,080 Speaker 1: For me personally. I think there's two aspects. One is, 525 00:25:56,080 --> 00:25:58,919 Speaker 1: as an investing public, we're all buying shares in a company. 526 00:25:59,000 --> 00:26:00,960 Speaker 1: That money doesn't go to directly to the company to 527 00:26:01,040 --> 00:26:03,840 Speaker 1: invest The company has to stand on its own two 528 00:26:03,880 --> 00:26:06,159 Speaker 1: feet in terms of the economics of it. So the 529 00:26:06,240 --> 00:26:10,680 Speaker 1: Magnificence seven are they driven by retail demand and a look, 530 00:26:11,160 --> 00:26:14,960 Speaker 1: it is informative and people are interested in that investment 531 00:26:14,960 --> 00:26:17,160 Speaker 1: and they're going to follow and track those indices. So 532 00:26:17,200 --> 00:26:19,719 Speaker 1: a lot of those passive fund managers, yes, that's going 533 00:26:19,760 --> 00:26:22,800 Speaker 1: to have an impact, But the underlying fundamentals of how 534 00:26:22,840 --> 00:26:24,719 Speaker 1: Amazon is going to do as a business or how 535 00:26:24,840 --> 00:26:28,719 Speaker 1: Navidio is really comes down to what their core fundamentals 536 00:26:28,720 --> 00:26:31,040 Speaker 1: of their business are. What is their supply chain, how 537 00:26:31,040 --> 00:26:34,439 Speaker 1: big is their moat, Where are they selling product to, 538 00:26:34,600 --> 00:26:37,960 Speaker 1: what priced? What's their margin? Who are the people running it, 539 00:26:38,040 --> 00:26:40,399 Speaker 1: what's their long term strategy for the company. So the 540 00:26:40,440 --> 00:26:42,440 Speaker 1: big company is going to stand on its own economics 541 00:26:42,440 --> 00:26:45,280 Speaker 1: and fundamentals. It's going to drop in and out of 542 00:26:45,280 --> 00:26:47,560 Speaker 1: an index, ay the top ten or the top twenty, 543 00:26:47,640 --> 00:26:51,160 Speaker 1: based on the economics of it. Because the index provider 544 00:26:51,200 --> 00:26:54,040 Speaker 1: has a methodology and it doesn't look at volume of 545 00:26:54,080 --> 00:26:58,120 Speaker 1: trading flow. It looks at what the capitalization are, what's 546 00:26:58,160 --> 00:27:01,439 Speaker 1: the waiting So they have very satisfiic sticated methods. What 547 00:27:01,480 --> 00:27:04,280 Speaker 1: it does mean is that when those changes happen, they 548 00:27:04,560 --> 00:27:07,800 Speaker 1: hurt or benefit that company more because there may be 549 00:27:07,960 --> 00:27:11,560 Speaker 1: we'll be more trading activity off the back of that 550 00:27:11,680 --> 00:27:15,240 Speaker 1: than if it had just been we increased our earnings guidance, 551 00:27:15,400 --> 00:27:17,879 Speaker 1: or we had a poor year. So those kind of 552 00:27:17,920 --> 00:27:20,840 Speaker 1: things I think it highlights and probably magnifies as the 553 00:27:20,880 --> 00:27:23,679 Speaker 1: word I'm looking for in terms of how that change 554 00:27:23,680 --> 00:27:26,639 Speaker 1: happens versus the people who have just actively chosen the stock, 555 00:27:26,920 --> 00:27:29,600 Speaker 1: because if a company goes down in terms of market 556 00:27:29,640 --> 00:27:32,800 Speaker 1: capitalization or it has a really bad earnings year, your 557 00:27:32,840 --> 00:27:34,439 Speaker 1: active fund managers are still going to be in the 558 00:27:34,440 --> 00:27:36,480 Speaker 1: analysis of the stock. They're going to have a conviction 559 00:27:36,640 --> 00:27:38,520 Speaker 1: whether they think that was a blip or a long 560 00:27:38,640 --> 00:27:41,600 Speaker 1: term Do they want to reduce their holding or stay 561 00:27:41,600 --> 00:27:44,400 Speaker 1: the course, do they want to sell out completely? So 562 00:27:44,400 --> 00:27:47,199 Speaker 1: those are all choices that happen in the investing market. Anyway. 563 00:27:47,480 --> 00:27:49,680 Speaker 1: If you're in a passive fund or an index tracking, 564 00:27:49,720 --> 00:27:51,280 Speaker 1: you're going to be driven by what the method is. 565 00:27:51,320 --> 00:27:54,120 Speaker 1: And if it's downweighthed and now it's this much smaller 566 00:27:54,760 --> 00:27:57,439 Speaker 1: part of that index, then everyone's going to hold a 567 00:27:57,480 --> 00:28:01,720 Speaker 1: much smaller amount. So it does magnify that fascinating. 568 00:28:01,760 --> 00:28:04,080 Speaker 2: I think I've learned a lot more about passive and 569 00:28:04,119 --> 00:28:06,640 Speaker 2: how it's a little bit more active, perhaps than some 570 00:28:06,720 --> 00:28:07,560 Speaker 2: of us thought. 571 00:28:07,520 --> 00:28:10,239 Speaker 1: When we put together those diversified funds. That's exactly what 572 00:28:10,280 --> 00:28:12,040 Speaker 1: it is, and I think it's the delayering for me. 573 00:28:12,200 --> 00:28:14,480 Speaker 1: When I talk to people, you know, you have to 574 00:28:14,680 --> 00:28:16,600 Speaker 1: what is the objective of the fund? And that's the 575 00:28:16,640 --> 00:28:18,919 Speaker 1: first part to check out, So do you know what 576 00:28:18,960 --> 00:28:21,800 Speaker 1: the fund's job is that's the first thing. And when 577 00:28:21,920 --> 00:28:23,640 Speaker 1: it's doing that job, how do you know if it's 578 00:28:23,640 --> 00:28:25,320 Speaker 1: doing a good job or not. Well, that's what the 579 00:28:25,359 --> 00:28:28,359 Speaker 1: benchmark's job is to do. It's to tell you whether 580 00:28:28,440 --> 00:28:31,399 Speaker 1: that person is truly mirroring that chosen benchmark or it's 581 00:28:31,440 --> 00:28:33,400 Speaker 1: outperforming it. So you've got to get down to those 582 00:28:33,440 --> 00:28:36,040 Speaker 1: fundamentals to truly understand what the purpose of your fund is. 583 00:28:36,400 --> 00:28:38,200 Speaker 1: And some of it's nice and clean and easy. As 584 00:28:38,240 --> 00:28:40,040 Speaker 1: we said with the ETFs, it says it on the 585 00:28:40,040 --> 00:28:42,960 Speaker 1: tin and that's our job. I am tracking the US 586 00:28:43,040 --> 00:28:46,120 Speaker 1: five hundred, or I am in healthcare, or I am 587 00:28:46,200 --> 00:28:48,760 Speaker 1: in listed property, super easy. But you're going to be 588 00:28:48,760 --> 00:28:50,880 Speaker 1: in the building block component of those. If you're talking 589 00:28:50,880 --> 00:28:53,480 Speaker 1: about index tracking funds, you can put them together yourself, 590 00:28:53,840 --> 00:28:56,480 Speaker 1: or you can have someone in the investment professional community 591 00:28:56,520 --> 00:28:58,960 Speaker 1: put them together for you. That's when you start layering 592 00:28:59,000 --> 00:29:02,000 Speaker 1: and what your tactical and your state strategic as allocation 593 00:29:02,160 --> 00:29:04,440 Speaker 1: is and what that view is of where you want 594 00:29:04,440 --> 00:29:06,760 Speaker 1: to be positioned in terms of your risk profile and 595 00:29:06,800 --> 00:29:07,560 Speaker 1: your volatility. 596 00:29:07,960 --> 00:29:11,160 Speaker 2: Easy, thank you and nothing passive at all about you, 597 00:29:12,280 --> 00:29:14,680 Speaker 2: and thank you if you're watching us on YouTube or 598 00:29:14,680 --> 00:29:18,640 Speaker 2: listening on spotify, Apple Podcasts or iHeart or Hot off 599 00:29:18,680 --> 00:29:21,480 Speaker 2: the Chasis app. Make sure you lock in for this 600 00:29:21,640 --> 00:29:25,440 Speaker 2: episode and that other one on the active perspective, and 601 00:29:25,520 --> 00:29:27,680 Speaker 2: all of the other insights that you'll find on Shared 602 00:29:27,760 --> 00:29:30,320 Speaker 2: Lunch courd Metu. That's us for now,