Speaker 1: We do get a lot more queries during times of volativity.
Speaker 1: Lots of people do what we call panic selling, and
Speaker 1: that is that emotional reaction to oh my god, it
Speaker 1: might lose more money, so I should sell it now
Speaker 1: and cut my losses. Yes, you're cutting your losses, but
Speaker 1: you're also crystallizing those losses. Key we Savor in New
Speaker 1: Zealand has really grown this area of interest in a
Speaker 1: diversified fund so that has brought a new complexity in
Speaker 1: New Zealand. We have far less in index tracking funds
Speaker 1: than Australia does, and that's far less again than America.
Speaker 1: Say so, I think that's a little bit of that
Speaker 1: sophistication journey.
Speaker 2: Kirakoto, Welcome to Shared Lunch. I'm Garth Bray. Active investing
Speaker 2: picking what to buy, sell and the hold, and the
Speaker 2: passive approach tracking the market, buying the momentum. They both
Speaker 2: have their fans and their flaws. We are talking to
Speaker 2: fund managers about both approaches and today I'm with Anna Scott,
Speaker 2: the CEO of Smart to talk about that passes perspective.
Speaker 2: We've also been speaking to an active fund manager, so
Speaker 2: I consider this as the second half of that match.
Speaker 2: But before you get into any of that. Here's some
Speaker 2: important information you should always consider before investing.
Speaker 3: Investing involves the risk you might lose the money you
Speaker 3: start with. We recommend talking to a licensed financial advisor.
Speaker 3: We also recommend reading product disclosure documents before deciding to invest.
Speaker 3: Everything you're about to see and here is current at
Speaker 3: the time of recording.
Speaker 2: Hello Anna, good morning. You are running a series of
Speaker 2: passive funds, aren't you. Yes, so you're probably the best
Speaker 2: person to ask what is your definition of what passive
Speaker 2: investing really means?
Speaker 1: Very good question, because I get asked this quite a lot,
Speaker 1: and I think we try and sometimes get caught up
Speaker 1: in that passive versus active debate. And I'm a big
Speaker 1: believer in actually and you need a bit of both
Speaker 1: for that. But yes, we do have a passive series
Speaker 1: of funds. So when you think about what does a
Speaker 1: fund do, the first thing you start with is what's
Speaker 1: the objective of the fund? Now you can go and
Speaker 1: read the pds to get that, but objectives and the
Speaker 1: words that come with that talk about if you're going
Speaker 1: to be passive, they will talk about match or replicate
Speaker 1: or mirror. So their job is to track an index.
Speaker 1: If you're in an active fund, it might say something
Speaker 1: like beat or outperform. So the first thing is what's
Speaker 1: your objective of your fund? And so a passive fund
Speaker 1: or an index tracking fund is one that does exactly that,
Speaker 1: it tracks an index. Then the next thing is, well,
Speaker 1: what is the index that that fund is meant to
Speaker 1: track or beat? So what is the benchmark? And when
Speaker 1: you get into that, that isn't something that is determined
Speaker 1: necessarily by us as a fund manager. There are a
Speaker 1: bunch of companies who are index providers out in the market.
Speaker 1: So you might have heard of SMP or MSCI, Bloomberg,
Speaker 1: Fltsy do them and they create an index that reflects
Speaker 1: a market. And most of the time those are market
Speaker 1: tracking funds. That's the most common area, which means that
Speaker 1: you're not in a diversified fund, but you've particularly chosen
Speaker 1: a market.
Speaker 2: It sounds like a beguilingly simple idea. It's one that's
Speaker 2: been around for a long time, or is this more
Speaker 2: of a recent rise that we've seen.
Speaker 1: It's been around for a long time, But I think
Speaker 1: that perhaps in the evolution or the sophistication of time,
Speaker 1: ETFs have really brought those to the four because they're
Speaker 1: listed on markets around the world. They're listed in those
Speaker 1: market tracking component parts, rather than probably at the beginning
Speaker 1: of funds when they were unlisted or a managed fund.
Speaker 1: Lots of times those were hedge funds or a diversified
Speaker 1: fund with an active manager. So now we're getting into
Speaker 1: the component parts. I like to think of it actually
Speaker 1: as everyone's sophistication level. It's a little bit like the
Speaker 1: coffee drinker's journey. So at the beginning, and particularly in
Speaker 1: New Zealand, if you go back, say five ten years,
Speaker 1: you had two choices for coffee. It was black or
Speaker 1: it was white. Maybe we then got onto the decaf
Speaker 1: and now people have choices where they might have their
Speaker 1: double shot trim flat latte, or you might have oat milk,
Speaker 1: or you really want your beans to have been come
Speaker 1: from Brazil. So we've got a lot more choice. And
Speaker 1: I think that's the same as the investing public. There's
Speaker 1: more choice there.
Speaker 2: I'm not sure where high class poor over fits into
Speaker 2: that analogy, but I get what you're talking about that
Speaker 2: there's an increasing kind of sophistication to the products and
Speaker 2: so on. I mean, we know that the chezy's client
Speaker 2: base and audience really are into those. What brought those about,
Speaker 2: when did they first sort of emerge and what have
Speaker 2: they enabled.
Speaker 1: So at the very beginning, you could only trade if
Speaker 1: you had a broker, and that was a physical person,
Speaker 1: right who traded on the exchange. That's become far more electronic.
Speaker 1: We've seen the growth of online trading platforms and we've
Speaker 1: seen that follow the global trend to where real everyday
Speaker 1: people retail we call them in the investing market. Retail
Speaker 1: customers want to get involved and diversify their own assets.
Speaker 1: Because you think about the evolution of New Zealand. You
Speaker 1: might have known about property, right we start and we
Speaker 1: grow up on that the physical property that we live
Speaker 1: in or maybe we rent out. Now we're diversifying. So
Speaker 1: we talked about cash, and people knew about term deposits,
Speaker 1: and then they knew about bonds and now equities and
Speaker 1: it's an extension of that. So rather than go to
Speaker 1: the share market and decide I'm going to select these
Speaker 1: two stocks myself because I think they're going to be
Speaker 1: winners on the long term, actually I can buy a
Speaker 1: basket of those stocks. So the most common example that
Speaker 1: we give is the US five hundred, because there's a
Speaker 1: lot of interest in that as the biggest economy and
Speaker 1: biggest market in the world. So when we create an
Speaker 1: index tracking fund for the US five hundred, we are
Speaker 1: giving the opportunity to track that market. So our job
Speaker 1: is to mirror, to replicate, to give you the same
Speaker 1: returns that that market would give you. But there's five
Speaker 1: hundred stocks in that index. That's why it's called the
Speaker 1: US five hundred. And when you do that, how do
Speaker 1: you know which ones of those are going to be
Speaker 1: the best performing or not. So a lot of people
Speaker 1: like the idea that you are actually just getting the
Speaker 1: returns of that market. So an index provider puts them
Speaker 1: together with the waitings. They specify what those waitings are
Speaker 1: and the proportion of those stocks within that, and then
Speaker 1: our job as the fund manager is to buy each
Speaker 1: of those five hundred stocks in the waiting to match
Speaker 1: that that the index provider specifies. So our job is
Speaker 1: to hold all five hundred in the same waiting to
Speaker 1: give that investor the same return as if they were
Speaker 1: doing that themselves, and the same return as that whole market.
Speaker 2: So if you're doing that in the S and P
Speaker 2: five hundred, then like a third of that shareholding that
Speaker 2: you've got to reflect that index is going to be
Speaker 2: the Big seven, and then if there are movements there,
Speaker 2: you're going to have to try and match those. Not
Speaker 2: so much in real time, but you're catching up here. Yeah.
Speaker 1: Our job is the index provider will on a schedule,
Speaker 1: most of them are quarterly, will specify that they will
Speaker 1: rewait or rebalance the index, and so our job is
Speaker 1: to match that. So every quarter you'll hear that talk
Speaker 1: in the market about oh it's the rebalance week, and
Speaker 1: a lot of movement and trading will go on in
Speaker 1: index tracking fund managers because our job is to make
Speaker 1: sure that when the index provider specifies that there's been
Speaker 1: changes in market capitalization and value in the market and
Speaker 1: they've reweighted all those companies, our job is to make
Speaker 1: sure that our holding matches that.
Speaker 2: Waiting Again, it sounds a bit like football, like you know,
Speaker 2: the English Premier League. You get sort of relegation or promotion.
Speaker 2: You're either on the top of the table or you've
Speaker 2: dropped off for whatever reason. Your performance as a company
Speaker 2: doesn't entitle you to be in that bracket. As you say,
Speaker 2: that happens like quarterly. Usually I know that there was
Speaker 2: a rebalance. I think for a couple of the New
Speaker 2: Zealand indexes end of last week or so on, YEP.
Speaker 2: So you had, let's take a company, for example, Ryman
Speaker 2: dropped out of the top ten yep and A two
Speaker 2: jumped in there. But there would have been a lot
Speaker 2: of change happened before that decision, and there's potentially a
Speaker 2: bit of value that's gone missing. Is this the bit
Speaker 2: that you have to just accept You don't get if
Speaker 2: you are in a passive fund that you're going to
Speaker 2: be catching up.
Speaker 1: So it comes back to what's your goals? Right in
Speaker 1: index tracking funds, So in that debate about should you
Speaker 1: be with a passive manager or an active manager, index
Speaker 1: tracking funds are tracking a market, so you can decide
Speaker 1: which slice of that market you can be US five hundred,
Speaker 1: the ASX two hundred, emerging markets, Asia, Pacific, robotics and automation.
Speaker 1: They're all slices of a market, and you're choosing the
Speaker 1: market that you wish to be tracking the performance on.
Speaker 1: And most of the time that's a long term play
Speaker 1: because if you want to get the value of the
Speaker 1: instex ten, say, over your investment horizon, then you're wanting
Speaker 1: that whole market return over that horizon, whether there's a
Speaker 1: little bit of lost value and one quarterly rebalanced cycle
Speaker 1: because someone dropped out and someone Elstrup came in, and
Speaker 1: you need to pay the cost of it in the
Speaker 1: fund fee. Right, you're not paying additional to that, but
Speaker 1: the fund cost of doing that trading in the long term,
Speaker 1: that's not really part of the objective of the fund.
Speaker 1: Forget what I mean. You know, if you're if you're
Speaker 1: investing for twenty years until retirement, then when you're choosing
Speaker 1: a fund manager, you're really saying, well, do I think
Speaker 1: that the US five hundred over twenty years is going
Speaker 1: to perform better or worse than an active fund manager
Speaker 1: with specific portfolio managers and people making stock selections. And
Speaker 1: that's why there's a lot of trend or data that
Speaker 1: talks about long term investing horizons the market will be
Speaker 1: to person, twenty years is a long time for the
Speaker 1: same portfolio managers to sit there and manage that fund
Speaker 1: in the same way and beat the market every single year.
Speaker 1: And that's where you get that kind of passive because
Speaker 1: it's about market growth and long term market growth versus
Speaker 1: individual people stock picking. But that's a long term play.
Speaker 1: If you're investing for a two year time horizon, you
Speaker 1: might choose a particularly well performing fund with some massive
Speaker 1: managers or folio managers who you think are really focused
Speaker 1: on that, and you're not going to be worried about
Speaker 1: whether the New Zealand twenty is going to be up
Speaker 1: or down in two years time.
Speaker 2: We're in an error of volatility. Does that give a
Speaker 2: preference one way or the other. Does it say, hey,
Speaker 2: now's a good time to be looking at the noise
Speaker 2: and trying to screen that out and go passive, or
Speaker 2: is it, hey, you actually need to think about active
Speaker 2: management to try and take advantage of that to deal
Speaker 2: with stuff coming in much more quickly, news coming in
Speaker 2: much more quickly. Change is happening much more quickly.
Speaker 1: So I believe in a bit of both. What about
Speaker 1: in times of volatiley again, how long you're investing for?
Speaker 1: What is your goal with that investment? So if I
Speaker 1: was in Key with Saver and I think I want
Speaker 1: to buy a house in the next year, well that
Speaker 1: means that my risk tolerance ride is lower right now
Speaker 1: because I don't want to be able to want to
Speaker 1: take my money out at a downturn in the economy,
Speaker 1: So it's about the diversification of where you're invested. And
Speaker 1: we see, particularly in charesis when we look at the
Speaker 1: top six ETFs that people are trading there, we can
Speaker 1: see that people are actually building a portfolio. So in
Speaker 1: that top six we have the US five hundred, the
Speaker 1: NZD X fifty, the ASX twenty. Actually we have Asia
Speaker 1: Pacific emerging markets. So actually we can see that people
Speaker 1: are spreading their investment around the globe and around different
Speaker 1: markets to try and smooth out that volatility.
Speaker 2: Is that the respectants to the flux that you're seeing
Speaker 2: is that a lot of people are just going, Hey,
Speaker 2: I'm just going to tune the noise out and I'm
Speaker 2: going to go for the ride and work out that
Speaker 2: twenty years from now to be fine. Or do you
Speaker 2: a mean to you? As fund managers actually hearing from
Speaker 2: people panicking and saying what do I do? Yeah?
Speaker 1: Volatility is always really concerning because money is a personal thing, right,
Speaker 1: so it's emotional when you look at your balance and
Speaker 1: it's down. So we do get a lot more queries
Speaker 1: during times of volatilty because the point of being in
Speaker 1: a market tracking fund is you're going to track the
Speaker 1: performance of the market. So when the US market drops
Speaker 1: off four percent overnight, then your value of your fund
Speaker 1: holding is also going to do that. The point is
Speaker 1: what are you invested for and should that matter? Lots
Speaker 1: of people do what we call panic selling, and that
Speaker 1: is that emotional reaction to oh my god, it might
Speaker 1: lose more money, so I should sell it now and
Speaker 1: cut my losses. Yes, you're cutting your losses, but you're
Speaker 1: also crystallizing those losses. So if you don't need the
Speaker 1: money today, you should hold on because if you look
Speaker 1: at the historical trend on a long term basis, markets
Speaker 1: largely go and grow. But that's not to say, right,
Speaker 1: we always say that previous performance is no indication of future.
Speaker 1: Do you really have to be clear about again what
Speaker 1: you invested for. It's not the old adage of it.
Speaker 1: It's not the timing the market and will you buy
Speaker 1: and sell, it's actually time in the market. It's that accumulation,
Speaker 1: it's the compounding investment. Those are the things over the
Speaker 1: long term if you're saving for retirement that really help out.
Speaker 2: Sure, And I guess a part of that is the
Speaker 2: cost of all of that activity and what it's costing
Speaker 2: you to take part that's often a football that it's
Speaker 2: thrown around. I suppose between the passive and active side, Right,
Speaker 2: is that a passive approach you can afford to do
Speaker 2: it a little bit more cheaply.
Speaker 1: Yeah, So we talk about the cost yep so the
Speaker 1: three p's of fund management and when you look into
Speaker 1: a fund to kind of the philosophy of the funds.
Speaker 1: We talked about the objective, the process that they run.
Speaker 1: So in an index tracking, that is the tracking and
Speaker 1: the people who do that. People become far more important
Speaker 1: in an active fund because you are actually selecting stocks
Speaker 1: and in within that fund you have different objectives as well. Right,
Speaker 1: you're trying to outperform or beat, but it's a particular
Speaker 1: market you're trying to outperform. But when we look at
Speaker 1: the costs over all of those, both of us, in
Speaker 1: terms of all those types of funds, are paying an
Speaker 1: index provider for an index. Some of those indexes are
Speaker 1: more expensive and more esoteric than others, but you've got
Speaker 1: that cost both sets trading. So you're going to rebalance,
Speaker 1: or you're going to choose stocks that you no longer
Speaker 1: like and think have value, or depending on the feature
Speaker 1: of your fund, you might be volatility trading fund or
Speaker 1: looking for cheapness versus long term value. But you're going
Speaker 1: to make different selections and choices, so you're both going
Speaker 1: to trade on that. Where it comes into the underlying
Speaker 1: cost and where you traditionally see that an index tracking
Speaker 1: fund would have a cheaper management fee is the cost
Speaker 1: of research and the cost of people. Because if you
Speaker 1: are an active fund manager and so you are pouring
Speaker 1: over stocks and selecting those based on your own philosophy,
Speaker 1: then that is a labor intensive job. You need more
Speaker 1: research analysts in that team. You need to pay for
Speaker 1: more research to get into what those companies' analytics are.
Speaker 1: And you have a market professional who is a conviction
Speaker 1: led stock picker, right, and that's not everyone's cup of tea.
Speaker 1: There's a lot of nights that you don't sleep with
Speaker 1: that when you've got a position on. So that is
Speaker 1: inherently a more expensive fund to run for research and
Speaker 1: expertise and number of people that you need in your
Speaker 1: team versus a pure index tracking fund isn't going to
Speaker 1: need that research because the job is to get the
Speaker 1: index provider's information and weight your portfolio in line with that.
Speaker 2: I think someone we spoke to recently said it's the
Speaker 2: difference between professional football and more social league football. Is
Speaker 2: that an unfair comparison.
Speaker 1: There's probably a little unfair, but I think they just
Speaker 1: so if we come back to the philosophy, they're very
Speaker 1: different philosophies. You have a different job function in each
Speaker 1: of those and if you're in a restaurant, say that's
Speaker 1: a difference between being the sou chef or in charge
Speaker 1: of the vegetable plating versus the overall headshift who's putting
Speaker 1: together a whole menu. They're different jobs. And one thing
Speaker 1: I think that we think about when we think about
Speaker 1: active and passive is and this is why I continue
Speaker 1: to talk about index tracking, because if there's an index
Speaker 1: in a market, then that's what you're doing. In a
Speaker 1: passive fund, that's your job right to replicate. In mirror key,
Speaker 1: we Savor in New Zealand has really grown this area
Speaker 1: of interest in a diversified fund. So that has brought
Speaker 1: in new complexity. When you get into a diversified fund, anybody,
Speaker 1: regardless of whether you're using index tracking, building blocks or
Speaker 1: stock selection, you're making a active choice on how you
Speaker 1: build that diversified fund. And so that's where the line.
Speaker 1: I think that blurs between passive and active. So yes,
Speaker 1: it's smart. Do we have a bunch of index tracking etips,
Speaker 1: Absolutely we do. Do We also, under the super Life
Speaker 1: brand that we're going to change to Smart, have diversified
Speaker 1: fund We have those two. You need extra acid alloication
Speaker 1: expertise to go into that.
Speaker 2: So give you a little bit more color, give you
Speaker 2: a little bit more cost as well, from the sound
Speaker 2: of it too.
Speaker 1: Absolutely, but that's where you get the extra expertise. So
Speaker 1: we talk about how risk tolerant are you. You might
Speaker 1: be conservative or balanced or growth. With that becomes a
Speaker 1: pretty global standard way of thinking how you spread your
Speaker 1: assets for that. So a balance portfolio pretty traditionally is
Speaker 1: sixty percent in equities which are called growth assets forty
Speaker 1: percent and bonds or fixed income or defensive stable assets.
Speaker 1: That's the worldwide acknowledged. You can chat YOUPT that and
Speaker 1: will tell you what your standard asset allocation is.
Speaker 2: Right.
Speaker 1: So from there, right, we've started at the top. We've
Speaker 1: got some growth, some stability. That's the balance. But underneath
Speaker 1: that you've got asset categories. You've got New Zealand equities,
Speaker 1: Australian equities, International, the Europe. You've got fixed income which
Speaker 1: comes into your stable. You've also got cash, and increasingly
Speaker 1: you've got alternative assets, so you have to look at
Speaker 1: those in that. You've got commodities. We've talked about gold
Speaker 1: before as a great diversifier. You've got property that's become listed.
Speaker 1: Property become really popular and far more standard in terms
Speaker 1: of that. So you've got asset categories. Then what you
Speaker 1: do as a fund manager and say, right, well, if
Speaker 1: those are the core ingredients, what's my strategic acid allocation?
Speaker 1: So when I break down the sixty forty, how do
Speaker 1: I make that up? And in that zone, we're all
Speaker 1: making a decision about where our target waiting is in
Speaker 1: any of those asset categories and what our range is.
Speaker 1: So you set that'll be in the SIPO and that's
Speaker 1: what you're set with. But then within that you have
Speaker 1: tactical plays. So even though you might be labeled a
Speaker 1: passive fund manager, when you're buying a diversified fund that's
Speaker 1: growth or balanced, we're all making conscious choices around acid allocation.
Speaker 1: So here it's smart when we choose our diversified fund,
Speaker 1: we will build that up with index tracking building blocks
Speaker 1: because we think that those are tracking the market and
Speaker 1: are a good lower cost alternative. So that's how we
Speaker 1: build it, but we still need to put that together
Speaker 1: and know how our acid allocation looks. If you're an
Speaker 1: active fund manager, you've got the same acid allocation that
Speaker 1: you're working on, but at the lower level of fund,
Speaker 1: you might choose instead of having index tracking funds, you
Speaker 1: might choose to build it up via active stock selection.
Speaker 1: So you're picking individual names, individual companies to build.
Speaker 2: Which is a little bit more intensive but potentially gives
Speaker 2: you exposure to greater greater gain but greater losses.
Speaker 1: Well yeah, and so there's a whole lot more onus
Speaker 1: there on doing the research, finding the right companies and
Speaker 1: doing that. The tricky thing for investors, I think with
Speaker 1: a diversified fund is there's no easy benchmark or index,
Speaker 1: So there's no global New Zealand based investor balanced risk profile,
Speaker 1: there's no index for that. So it's really hard to
Speaker 1: compare the performance of our diversified funds. And that's why
Speaker 1: it comes into league tables and why people constantly talk
Speaker 1: in that space around as your fund performing in the
Speaker 1: top quart eye or not, and where does it rank
Speaker 1: versus its peers. But when you dig into all of
Speaker 1: our sipos, we're all going to be slightly different in
Speaker 1: our acid allocation that we've employed and the width of
Speaker 1: our ranges and where we can tactically tilt given market conditions.
Speaker 1: So we might hold more in cash right now less
Speaker 1: than international equities, and we can do that because that's
Speaker 1: within an acid allocation guideline rather than very specifically having
Speaker 1: to track to. There's no global common standard of what
Speaker 1: a diversified fund should look like.
Speaker 2: So does that mean that some of the umpires were
Speaker 2: used to for this game? The spever or MJW, the
Speaker 2: people that produce tables that rate the performance of various funds,
Speaker 2: are kind of only part of the picture. They're not
Speaker 2: going to give you a really solid answer thereon where
Speaker 2: to look to put your mind.
Speaker 1: So they can tell you because you will over time,
Speaker 1: you know, and you look at the one year, the
Speaker 1: three year, the five year, the ten year returns, which
Speaker 1: tell you how much consistency there is, and that group
Speaker 1: of professionals who are managing that fund philosophy that they're employing.
Speaker 1: So those are really useful tools, but you're comparing things
Speaker 1: most of the time with the same name on them.
Speaker 1: When you dig into the detail, you might find that
Speaker 1: someone's target waiting is fifty five percent for international equities,
Speaker 1: but someone else's might be seventy five. They're still going
Speaker 1: to be within a range. But that's already where you
Speaker 1: can see differences, and that's the manager's call about where
Speaker 1: where you weight the asset allocations, the asset categories, and
Speaker 1: how you employ your view of the world and the
Speaker 1: economics and that.
Speaker 2: So that's some of the fine print. There's an investor
Speaker 2: you need to be reading before we can which one to.
Speaker 1: And sometimes that's hard, which is why I think we've
Speaker 1: gone with the league tables, which are an excellent tool.
Speaker 1: But if you want to choose any of the balanced
Speaker 1: funds on the street to then go in it will
Speaker 1: talk about it's trying to replicate the benchmark of global say,
Speaker 1: but you have to really dig in to find if
Speaker 1: they got the waitings in there. And most of the
Speaker 1: time you'll find that it's a composite index. So as
Speaker 1: I said, there's no kind of SMP. You pick it
Speaker 1: off the shelf and that's the standard. So you have
Speaker 1: to go into that and most of us will have
Speaker 1: put together our composite index with maybe the MASCI world.
Speaker 1: Some of New Zealand's the Index fifty because this is
Speaker 1: where we live and this is the economy that our
Speaker 1: investors are living within. There'll be some Australia because it's
Speaker 1: close in our geographic but you'll have a ninety day
Speaker 1: bank bill, say for the cash return that you're trying
Speaker 1: to beat, or a corporate bond index. So we're putting
Speaker 1: together a bunch of indexes to reflect what we're trying
Speaker 1: to achieve with that fund in a holistic, diversified portfolio
Speaker 1: for round investors.
Speaker 2: We were talking a bit about themes previously and how
Speaker 2: different ETFs express different themes and how passive can still
Speaker 2: catch some of those themes. Are there any untapped themes
Speaker 2: out there or are there any really strong themes that
Speaker 2: you think are going to continue through this sit a
Speaker 2: period of volatility.
Speaker 1: It's a good question because as a product manufacturer, particularly
Speaker 1: of index tracking funds, you try and do that very
Speaker 1: much on an investor demand basis. So that's part of
Speaker 1: the res and why we partnered with I Shares by
Speaker 1: black Rock because that's a big global ETF manufacturer and
Speaker 1: they're exposed to a global investing public, so we can
Speaker 1: look to them to see what has been of real
Speaker 1: interest globally, where that investor bases come from or that
Speaker 1: level of interest, and how we do that in terms
Speaker 1: of the evolution of our fund size. Here is one
Speaker 1: of the things that we can do first is we
Speaker 1: can wrap one of I shares offshore funds, so we
Speaker 1: list that here on the inside X as a local
Speaker 1: pie so that people can get the benefit of the
Speaker 1: local twenty eight percent tax rather than worrying about an
Speaker 1: offshore holding. And we can start with just wrapping an
Speaker 1: I shares fund. When that gets to size, we may
Speaker 1: well unwrap that and go and look to hold the
Speaker 1: constituents ourselves because you get more tax efficiency its size,
Speaker 1: and it's a better way to deliver value to the
Speaker 1: end investor. But that's a great way for us to
Speaker 1: see what global trend's going on and what might be
Speaker 1: of interest.
Speaker 2: Of funds under management and passive rather than active in
Speaker 2: the strict sense.
Speaker 1: So that's a really hard one to do in New
Speaker 1: Zealand because I think, as they talked about those diversified,
Speaker 1: which pocket do you put them in? So do you
Speaker 1: tag that by a fund manager? But that's not necessarily
Speaker 1: the key component. So we in New Zealand, he compared
Speaker 1: to We've did some research last year around Australia. We
Speaker 1: have far less in index tracking funds than Australia does,
Speaker 1: and that's far less again than America. Say so, I
Speaker 1: think that's a little bit of that sophistication journey. Lots
Speaker 1: of our New Zealand investing public are still buying their
Speaker 1: coffee black or white because that is how you get
Speaker 1: into the market, and it's a safe way because you're
Speaker 1: putting your diversification in the hands of a professional. But
Speaker 1: as that investing public gets more sophisticated and has more views,
Speaker 1: people are looking to unpack that and actually have the
Speaker 1: opportunity to pick the building blocks and the components themselves.
Speaker 1: And one of the easiest ways to do that on
Speaker 1: a component basis where you just want slices of market
Speaker 1: are ETFs and index tracking funds because a lot of
Speaker 1: your fund managers, so a professional active fund manager isn't
Speaker 1: going to offer those index tracking components because their job
Speaker 1: is to put them together in a package that outperforms
Speaker 1: the market. So you can see that level of interest,
Speaker 1: particularly from retail investors, and you can see in America
Speaker 1: quite often if in my previous background we worked at
Speaker 1: wealth management. You would see American investors coming over and
Speaker 1: their entire portfolio would be made up of index tracking ittifs,
Speaker 1: because that's how they thought in that market they got
Speaker 1: value for money and that they were able to express
Speaker 1: themes in there without worrying that they had packaged it
Speaker 1: all up for someone else in a fund. Australia's ahead
Speaker 1: of us. New Zealand's getting there, and I think it
Speaker 1: will be quite some time because lots of people will
Speaker 1: still want black a white coffee.
Speaker 2: So some people are still just sticking black and white.
Speaker 1: Yeah, they are, and I think that's totally fine because
Speaker 1: you should do what's right for your level of expertise,
Speaker 1: your risk tolerance, your investment profile. But even in that
Speaker 1: where we have an active fund manager ourselves, and there
Speaker 1: is a lot of others in the street, they may
Speaker 1: well use an index tracking fund as well, so it's
Speaker 1: not just a retail play in a way to build
Speaker 1: a portfolio. ETFs and that's why you've seen them grow
Speaker 1: so much around the world because they've become a tool
Speaker 1: in the toolbox of huge fund managers, pension schemes, etc.
Speaker 1: Because that is a great way to get a slice
Speaker 1: of the market and to track that return.
Speaker 2: Given that huge amount of growth and how there's this
Speaker 2: massive sort of momentum building up in the market, all
Speaker 2: that passive money, which as it flows into a market
Speaker 2: tends to reflect the bigger and bigger players. Does it
Speaker 2: sort of become a bit of a self fulfilling prophecy,
Speaker 2: Like the Magnificence even aren't just getting bigger in that
Speaker 2: index because of the performance and fundamentals of the company,
Speaker 2: it's simply because there's so much passive money flowing in.
Speaker 2: Is through a way to work out if that's happening.
Speaker 1: For me personally. I think there's two aspects. One is,
Speaker 1: as an investing public, we're all buying shares in a company.
Speaker 1: That money doesn't go to directly to the company to
Speaker 1: invest The company has to stand on its own two
Speaker 1: feet in terms of the economics of it. So the
Speaker 1: Magnificence seven are they driven by retail demand and a look,
Speaker 1: it is informative and people are interested in that investment
Speaker 1: and they're going to follow and track those indices. So
Speaker 1: a lot of those passive fund managers, yes, that's going
Speaker 1: to have an impact, But the underlying fundamentals of how
Speaker 1: Amazon is going to do as a business or how
Speaker 1: Navidio is really comes down to what their core fundamentals
Speaker 1: of their business are. What is their supply chain, how
Speaker 1: big is their moat, Where are they selling product to,
Speaker 1: what priced? What's their margin? Who are the people running it,
Speaker 1: what's their long term strategy for the company. So the
Speaker 1: big company is going to stand on its own economics
Speaker 1: and fundamentals. It's going to drop in and out of
Speaker 1: an index, ay the top ten or the top twenty,
Speaker 1: based on the economics of it. Because the index provider
Speaker 1: has a methodology and it doesn't look at volume of
Speaker 1: trading flow. It looks at what the capitalization are, what's
Speaker 1: the waiting So they have very satisfiic sticated methods. What
Speaker 1: it does mean is that when those changes happen, they
Speaker 1: hurt or benefit that company more because there may be
Speaker 1: we'll be more trading activity off the back of that
Speaker 1: than if it had just been we increased our earnings guidance,
Speaker 1: or we had a poor year. So those kind of
Speaker 1: things I think it highlights and probably magnifies as the
Speaker 1: word I'm looking for in terms of how that change
Speaker 1: happens versus the people who have just actively chosen the stock,
Speaker 1: because if a company goes down in terms of market
Speaker 1: capitalization or it has a really bad earnings year, your
Speaker 1: active fund managers are still going to be in the
Speaker 1: analysis of the stock. They're going to have a conviction
Speaker 1: whether they think that was a blip or a long
Speaker 1: term Do they want to reduce their holding or stay
Speaker 1: the course, do they want to sell out completely? So
Speaker 1: those are all choices that happen in the investing market. Anyway.
Speaker 1: If you're in a passive fund or an index tracking,
Speaker 1: you're going to be driven by what the method is.
Speaker 1: And if it's downweighthed and now it's this much smaller
Speaker 1: part of that index, then everyone's going to hold a
Speaker 1: much smaller amount. So it does magnify that fascinating.
Speaker 2: I think I've learned a lot more about passive and
Speaker 2: how it's a little bit more active, perhaps than some
Speaker 2: of us thought.
Speaker 1: When we put together those diversified funds. That's exactly what
Speaker 1: it is, and I think it's the delayering for me.
Speaker 1: When I talk to people, you know, you have to
Speaker 1: what is the objective of the fund? And that's the
Speaker 1: first part to check out, So do you know what
Speaker 1: the fund's job is that's the first thing. And when
Speaker 1: it's doing that job, how do you know if it's
Speaker 1: doing a good job or not. Well, that's what the
Speaker 1: benchmark's job is to do. It's to tell you whether
Speaker 1: that person is truly mirroring that chosen benchmark or it's
Speaker 1: outperforming it. So you've got to get down to those
Speaker 1: fundamentals to truly understand what the purpose of your fund is.
Speaker 1: And some of it's nice and clean and easy. As
Speaker 1: we said with the ETFs, it says it on the
Speaker 1: tin and that's our job. I am tracking the US
Speaker 1: five hundred, or I am in healthcare, or I am
Speaker 1: in listed property, super easy. But you're going to be
Speaker 1: in the building block component of those. If you're talking
Speaker 1: about index tracking funds, you can put them together yourself,
Speaker 1: or you can have someone in the investment professional community
Speaker 1: put them together for you. That's when you start layering
Speaker 1: and what your tactical and your state strategic as allocation
Speaker 1: is and what that view is of where you want
Speaker 1: to be positioned in terms of your risk profile and
Speaker 1: your volatility.
Speaker 2: Easy, thank you and nothing passive at all about you,
Speaker 2: and thank you if you're watching us on YouTube or
Speaker 2: listening on spotify, Apple Podcasts or iHeart or Hot off
Speaker 2: the Chasis app. Make sure you lock in for this
Speaker 2: episode and that other one on the active perspective, and
Speaker 2: all of the other insights that you'll find on Shared
Speaker 2: Lunch courd Metu. That's us for now,