When researchers identified the benefits of investing in ‘value’, index providers and asset managers created products to harness the ‘value’ factor. But is the construction of the index correct?
The company structure of LICs carries advantages for income smoothing versus the trust structure of LITs, ensuring it will continue as the vehicle of choice for many listings by investment managers.
A fund manager on the wrong side of the market must tough it out and have the strength of their convictions, satisfied that their investment process will bear fruit over the long term. The LIC structure gives more time.
Thematic trend investors relies more on recognising how the world is changing over the long term, and finding sectors that will benefit, rather than the more cyclical approach of picking short-term winners.
ETF users are younger and female, attracted to responsible investing, global equities and fixed income, as the sector continues to evolve rapidly. It will probably exceed $50 billion soon.
In the US, ETFs represent about 16% of the entire managed fund space, but in Australia, it is only 1.5%. With many strategies available including Active ETFs, the growth outlook is strong.
Some investors buy LICs at a discount in the hope of extra gain when the discount is removed, but it might never happen. There’s a way of judging the discount relative to its historic norms.
All vehicles come with pros and cons versus alternatives, and Active ETFs have a wide range of appealing characteristics in which Australia has led the world. Many more Active ETFs will be launched.
ETFs reached over $40 billion by the end of 2018, with international equities ranked first for net flows, and a rapid growth in fixed income products. Cap-weighted indexes dominated but smart beta is gaining ground.
It was a big year for Listed Investment Companies (LICs) and Exchange Traded Funds (ETFs), both finishing 2018 with about $40 billion on issue and vying for top spot on the ASX. Here are some 2019 expectations.
As ETFs and LICs compete for market share, there’s enough interest in listed investments for both to prosper, and product innovation in ETFs shows no sign of slowing. Where will the growth come from in 2019?
Most portfolios will benefit from a mix of passive and active strategies, as there are market conditions where one might do better than the other. ETFs now cover a wide range of structures, not only indexing.
ETFs have grown rapidly in popularity and diversity, but like managed funds, not all products will survive for the long term and there are consequences if a small-scale ETF is closed by its issuer.
This exclusive early access to IIR’s Monthly Report includes the latest recommendations on global LICs, and a summary of the Active ETFs listed on the ASX. There’s now a lot of choice in global listed funds.
A recent global survey revealed a lack of trust in investment firms. There are many areas for improvement such as disclosure, transparency, and conflicts of interest, and different LIC structures are examples.
It’s important to consider why a LIC is trading at a discount, as what might appear good value worth buying may be built into the price for many years, and the discount may even worsen.