This article was produced in partnership with Macquarie Asset Management.
When fund managers are releasing new products, they need to make sure they are relevant to clients and offer portfolio solutions while being cognisant of cost.
The design behind Macquarie Asset Management’s (MAM) two core active ETFs aim to offer that, plus it gives investors an opportunity to outperform the index, the firm believes.
“We understand that there is a role for passive in investment portfolios and there is a role for active [style investments] to play in those portfolios,” Blair Hannon, the firm’s ETF Investment Strategist tells Professional Planner.
“What we continue to hear from investors is that they inherently seek the ability to outperform [the index], which is what active managers obviously aim to do.”
Earlier this year, Macquarie brought its quantitative investment strategy to the stock exchange via two actively managed ETFs, Macquarie Core Australian Equity Active ETF (MQAE) and Macquarie Core Global Equity Active ETF (MQEG), which are designed to play a role in long term core portfolio allocations as both funds aim to outperform consistently over the long term.
Although there has been an influx of passive ETFs tracking common indices, Macquarie’s goal is to deliver alpha into client portfolios through active management with their active ETFs.
Hannon believes more asset managers will look to active ETFs as an effective way to distribute funds due to the liquidity trading on an exchange generally offers.
“My expectation is that we will see a lot more of those managers come to the fore and you will also see a lot more of those managers start to innovate and think about how they can bring more interesting styles to those type of investors who buy ETFs,” Hannon says.
So, what problems can active ETFs solve for investors?
Hannon says that investors don’t want to miss out on alpha opportunities, and they want to be able to access a range of strategies, such as Macquarie’s managed funds, through an ETF.
He explains that Macquarie has built a strong track record across multiple asset classes including fixed income and equities, and there is strong value in democratising access to those strategies by bringing them onto the ASX. Hannon acknowledges the challenge faced by many fund managers – whether they have the capability to bring a solution to investors that gives them the best of both worlds by accessing lower cost investment styles that have the potential to add alpha.
He argues that consistency of returns is crucial, and systematic investing, designed to deliver results across all market conditions, has potential to help achieve that.
“If you are a fundamental active manager, your consistency is difficult to nail year in and year out,” Hannon says.
The power of systematic style investing is that it has the potential to offer more consistent results and allows for more targeted strategies. But this approach requires a fund manager with a strong track record and “the strength of the business behind you”.
“The systematic style is not widely used in the wealth market in Australia,” Hannon says.
“We have a strong track record and skilled managers which are necessary for successful systematic investing. Macquarie Asset Management has been offering this style of investing to institutions for over 30 years.”
Operating in this space would be very difficult for a manager “coming out of nowhere”, he says.
Macquarie says that its two active ETFs offer “an innovative fee structure”, including a “cost-effective management fee” and a performance fee which only applies when the fund beats the index.
According to MAM, this approach aligns the interests of the investment manager and the investors, with the innovative pricing reflecting the firm’s confidence in the high-quality product, which employs a systematic strategy.
“That strategy is definitely client driven, particularly from the fee perspective,” Hannon says.
Hannon stresses that the intention behind these two products was to help investors grow their wealth through outperformance.
