Kiwi ETFs

Smartshares, New Zealand’s only ETF provider, is widening out the Kiwi ETF market with eight new listings set to go live in early June.

Smartshares, which is owned by NZX, the New Zealand Exchange, will for the first time offer retail investors access to artificial intelligence and robotics, innovative healthcare, ESG, as well as popular market weighted indexes, through NZ listed ETFs.

The new funds are:

  • Smartshares Global Equities ESG ETF (ESG)
  • Smartshares US Equities ESG ETF (USA)
  • Smartshares Europe Equities ESG ETF (EUG)
  • Smartshares Japan Equities ESG ETF (JPN)
  • Smartshares Emerging Markets Equities ESG ETF (EMG)
  • Smartshares Automation and Robotics ETF (BOT)
  • Smartshares Healthcare Innovation ETF (LIV)
  • Smartshares Global Aggregate Bond ETF (AGG)

The new listings will gain market exposure via iShares’ Dublin-based UCITS ETFs. Smartshares will provide the NZ domicile and wrapper, while adding on some basis points of its own, enabling Kiwi investors to access these strategies in New Zealand dollar denominated ETFs.

Structuring the ETFs this way gives NZ retail investors direct access to iShares UCITS ETFs through a New Zealand licensed ETF issuer in a cost effective manner. It also allows Smartshares to avoid the cost of building an ETF issuer – complete with portfolio managers and capital markets capabilities – while still receiving basis points on ETF assets.

“There are a few advisors that are allocating directly into Vanguard and iShares on offshore markets,” said Thom Bentley, Client Director at Smartshares.

“But it’s a very inefficient way of doing it from a cost point of view. For example, the NZ market being what it is, the transaction cost of accessing Vanguard’s US500 ETF directly on the US market through an online NZ broker can be over $300  for a $10,000 investment once you take into account custody, admin fees, FX spreads and brokerage. Whereas coming to us saves you both time and money.”

ETFs make up only 2 – 3% of the total NZ retail managed funds industry, while passive investing takes up under 5%, or NZ$3.3 billion.

While these numbers are better than Australia’s – where ETFs take up A$45 billion of a total $3.7 trillion market, ABS and ASX data indicates, equating to roughly 1.2% market share – the NZ ETF market has been alive and running for five years longer, since 1996.

In addition to asset growth, Smartshares hopes the funds will help open some more sales channels.

Distribution of financial products in New Zealand is heavily controlled by the banks – much like it is in Australia. (It’s mostly the same banks: ANZ, Commonwealth Bank and Westpac).

When a bank notices that one of their salaried savers have put a certain amount of money away, they’ll usually call up and try to sell them a financial plan, where the financial planner works for the same bank. (If they have a large portfolio, they’ll offer them private banking.)

The bank financial planner will then typically put the saver’s money in a fund that’s owned by the same bank. In this way, banks capture the gains at every point in the value chain: low savings rates, which drive retail investors into plans; financial planning or advice fees; and asset management or product fees – all of which compound.

With the new funds bringing Smartshares’ suite of ETFs up to 31 funds, Mr Bentley hopes Smartshares will be more able to tap into institutional pockets of the market, where banks are less strong.

“Most of our $3.3B comes either direct or through advisers and stock brokers. We also have another business called SuperLife which provides KiwiSaver and corporate superannuation products, which also invest into our ETFs,” he says.

“We have a fairly significant sales channel through what I’d call investor-directed platforms. There are a couple of companies here that are direct to retail. Investors go through their website and pick funds, and then that money goes to the manager. We have significant share of funds coming through those platforms.”

He adds that Smartshares isn’t currently building out model portfolios for advisers in the way that the big Aussie providers are.

Going forward, he believes there is huge opportunity for foreign investors to gain access to New Zealand assets through ETFs, especially yield conscious ones. He adds that they have been talking to a white labeller in Europe about bringing  market weighted New Zealand ETFs onto one or more European exchanges.

“New Zealand is high yielding equity market and has been a phenomenal performer. If you like high yielding and utility-type stocks there’s opportunity here. We think there is a story to tell.”