From ASX
The Australian Securities Exchange is working towards quoting active managed funds on ASX this year. This important initiative will make it easier for investors to apply for and redeem units in managed funds, provide more certainty around managed fund entry and exit prices, and improve asset-allocation options for investors under a process similar to how ASX listed securities are currently bought and sold.
(Editor's note: ASX will run investor events on this service later in 2012. If you would like to be informed on upcoming ASX events about managed funds, as they are confirmed, reply to info@asx.com.au providing your email address and including ASX Managed Funds Service in the email subject line).
ASX Investor Update asked Ian Irvine, Head of Customer and Business Development at ASX, about the quotation of managed funds and what it means for investors.
ASX Investor Update: Ian, how will the new service work?
Ian Irvine: It is important to emphasise that managed funds will be quoted, not listed, on ASX. Fund managers will still work with their unit registry and set fund prices as they do now. But there will be two big differences for funds that choose to use ASX's service. The first is that entry and exit prices for a managed fund will be quoted on ASX, under its Aqua Quotation Rules. The second is investors will apply for, redeem and settle their fund holdings using ASX's world-class CHESS system, which is used to settle transactions of ASX-listed securities.
ASX Investor Update: What are the main benefits for investors?
Ian Irvine: I see four main benefits. First, by streamlining the process, ASX will make it easier for investors to apply for and redeem units in funds. Because the process uses the CHESS system, to communicate electronically between parties, it should mean less paperwork is needed to buy or sell units in funds. Second, quoting fund prices on ASX will provide more certainty around fund entry and exit prices for investors. Third, the process uses CHESS, which means investors will buy and sell funds and shares using the one electronic system that records there managed funds and all their ASX-listed investments under one client Holder Identification Number (HIN). The fourth benefit is service provides more asset allocation options for investors via ASX irrespective of the structure of the investment - i.e. listed or unlisted.
ASX Investor Update: Ian, can you elaborate on the asset-allocation benefits for investors.
Ian Irvine: Increasingly we are seeing more financial advisers and investors, especially those with self-managed super funds, focus on asset allocation. That is, investors are thinking much more about the five main stages progressing to retirement and for providing the best asset mix for retirement savings. (Editor's note: The article 'Five-Star Super Strategies' provides more information on the five main stages of retirement savings. It appeared in the June 2011 ASX Investor Update).
For example, an investor in the 'balanced' stage of retirement savings (within five years to retirement) may use low-cost index funds, such as exchanged-traded funds over Australian and international shares and listed property, in the core of their portfolio, to achieve the market return, or 'beta'.
In addition, the investor could hold direct shares and active managed funds as portfolio 'satellites', to achieve a return higher than the market, or 'alpha'. They might, for example, use a managed fund to gain exposure to small listed companies, especially if they feel confident in a manager's ability to identify small stocks that may not be well-researched by sharebroking firms.
At certain periods, investors might want to rebalance their asset allocation back to the target allocations in their portfolio. That is, they could take some profits in assets that have outperformed, and reinvest into others that unperformed, to restore their target weightings. Streamlining the application process for managed funds and quoting their prices on ASX will make portfolio rebalancing, as it applies to managed funds, considerably easier for self-managed super funds and other investors.
Essentially, quoting managed funds on ASX means another key building block of asset allocation - active managed funds - is available to investors with ASX. It is an important part of ASX's strategy to provide a one-stop shop for investors that serves all their asset-allocation needs, with high convenience and efficiency. Other exchanges worldwide have had success with a similar service.
ASX Investor Update: What are the benefits for managed funds and advisers?
Ian Irvine: The main benefit is that by streamlining the process, ASX can help reduce administration costs for managed funds. Over time, some of these cost savings might flow through to investors, in the form of lower fees, although that is at the fund's discretion. Another benefit is the quotation of funds on ASX will expose managed funds to a wider audience of investors and sharebroking firms. The third benefit is there is no big change to the way fund managers operate now, or for investment platforms used by financial advisers. The quotation of funds does not change the fund's liquidity or any other features, such as fund reporting.
From a financial adviser's perspective, the quotation of managed funds is aligned with the broader trend of sharebroking firms providing a range of wealth-management services, rather than just advising on shares. It creates more opportunity for sharebrokers to advise on managed funds. It will also help financial planners better service the rapidly growing segment of self-managed super funds, which have shown more interest in investing directly using ASX-listed or ASX-quoted products.
ASX Investor Update: When can investors expect managed funds to be quoted on ASX?
Ian Irvine: ASX is in discussion with a number of leading fund managers about this service. Early feedback has been very encouraging. ASX expects to be able to provide this service from June, but is unlikely to have significant fund quotations this calendar year. It is more likely that the number of fund quotations will grow substantially in 2013 and beyond as more managers take advantage of ASX's service. About 20 leading fund managers have already expressed strong interest to quote at least three of four funds on ASX, and more are expected to join them. Quoting managed funds on ASX makes a lot of sense for investors, the funds themselves and financial advisers.
