Advisers will soon be able to provide clients with access to a new range of listed active funds, with many fund managers set to follow the success of Magellan Asset Management’s “exchange-quoted managed fund”, MGE.
A year ago Magellan launched a new exchange-traded fund (ETF)-style product, dubbed an EQMF (exchange-quoted managed fund), which gives access via the Australian Stock Exchange (ASX) to the actively managed Magellan Global Fund.
Other asset managers are believed to be looking to cash in on the strong response to Magellan’s pioneering launch, after the product raised close to $400 million in its first year.
“We’re delighted with the level of support the fund has received,” says Magellan’s general manager of distribution, Frank Casarotti (pictured, after receiving the Fund Manager of the Year award at the Professional Planner|Zenith Fund Awards in October last year).
He says the ASX has indicated that a number of other fund managers are looking to replicate the model. Currently only one other asset manager, K2, uses a similar model.
The EQMF model now sits alongside other listed fund models including mFunds (unlisted managed funds), ETFs and LICs (listed investment companies), but it differs from those other models in terms of disclosure, greater suitability for actively managed funds and the market maker structure.
The MGE product was driven by Magellan’s desire to make it easier for investors and advisors to access its funds.
MGE units are bought and sold on the ASX and settle via the Clearing House Electronic Subregister System.
Overcome administrative friction
Casarotti says the model helps overcome administrative friction when trying to attract investors into its conventional fund, including the need to download large product disclosure statements and anti-money-laundering requirements.
Magellan had also seen the massive growth of ETFs globally, which reflected the enormous appetite for listed funds.
The fund manager looked at the ASX mFund model as an option. “But it wasn’t quite the same experience from an investor’s perspective as what we were proposing,” Casarotti says.
It also rejected an ETF model because of disclosure requirements. Casarotti says ETF disclosure is fine for passive investments, but Magellan didn’t want to disclose its investment intellectual property, based on deep research, on a daily basis.
It engaged with the Australian Securities and Investments Commission and the ASX to develop a solution. MGE (and MHG, the currency-hedged version) discloses the total portfolio quarterly with up to a two-month lag.
Traditional ETFs rely on third-party market makers to ensure the share price remains close to the net asset value (NAV) of the underlying fund, but in the case of the EQMF Magellan is the market maker for its own fund.
“We (the fund) make the price based on the value of the underlying securities,”
Casarotti says. “We aim to make a price that’s very close to the net asset value of the portfolio.”
Driven by value
Casarotti says the internal market maker model means that, unlike LICs, the market price of MGE is not driven by supply and demand, but by the portfolio’s value. That prevents the price becoming disconnected from NAV, particularly in periods of market dislocation. It also helps keep the spread tighter.
MGE has become popular with self-directed investors, but also advisers.
Casarotti says MGE allows advisers who use listed funds and securities to add an active component to the client’s portfolio. MGE also provides a listed active option for advisers looking for international equity exposure. “It gives advisors more optionality,” he says.
Magellan hasn’t copyrighted the intellectual property around the new-style ETF. “We would prefer other managers to look to what we have done and give advisers even further optionality,” he says.
Magellan is also looking to use the model for its infrastructure funds in the first half of this year.
