Active Exchange Traded Funds (ETFs) are quoted on the Australian Securities Exchange (ASX) and are an easy way for investors to access the investment expertise of fund managers. Active ETFs are actively managed by a portfolio manager, who 'actively' manages the basket of underlying stocks with the aim of outperforming the market.
Active ETFs have unique features that distinguish them from other types of ETFs. This online platform is designed for investors who want to learn more about the technical elements of Active ETFs and why you may want to consider investing in them.
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Fidelity Australia’s Managing Director explains our Active ETF story and the benefits to investors.
The universe of managed funds is huge and deciding where to place your assets can be as tricky as choosing single shares.
Why might investors consider active ETFs, rather than those that are designed to track the performance of sharemarket indices?
Active ETFs provide access to a fund manager’s investment expertise via a simple trade on the ASX.
Active ETFs are open-ended actively-managed funds quoted on an exchange. The fund is managed by a portfolio manager, who ‘actively’ manages the basket of underlying stocks with the aim of outperforming the market. An active manager seeks to reduce the downside risks during volatile periods in the market.
Many of Fidelity's actively managed equity fund outperform their underlying index, net of fees, by 1-2% pa over the long term. With the power of both time and compounding, this additional amount of annual return can have a big impact on your portfolio over the long term. See for yourself how the Fidelity Global Equities Fund has performed compared to the fund's benchmark.
Chart as at: 31 January 2019
Total net returns represent past performance only. Past performance is not a reliable indicator of future performance. Returns of the Fund can be volatile and in some periods may be negative. The return of capital is not guaranteed. Benchmark: MSCI ACWI (All Country World Index) Index NR (effective 1 November 2011). Benchmark between December 2006 and 1 November 2011 was the MSCI World Index, and prior to December 2006 and 1 November 2011 was the MSCI World Index ex.Australia. NR: NR at the end of the benchmark name indicates the return is calculated including reinvesting net dividends. The dividend is reinvested after deduction of withholding tax, applying the withholding tax rate to non-resident individuals who do not benefit from double taxation treaties.
Diversification is the practice of spreading your investments between different asset classes, markets, and industry sectors which can provide investors with increased confidence that if one or two of the investments within the portfolio are performing poorly, there are other investments within the portfolio which may do better to balance out the returns.
Gain exposure to overseas markets, companies and asset classes that may be difficult to access directly or are less well understood such as global, Asian or emerging markets.
Gain exposure to multiple underlying companies in one trade - not just one single stock.
All investments carry risks and diversification is not a guarantee for achieving returns nor a guarantee against potential loss of capital.
‘Buy and sell’ orders are made via a broker/licensed adviser who initiates the transaction using the Active ETF's ASX ticker code e.g FEMX, similar to trading of shares. There is no paperwork for investors with a trading account and no minimum investment size.
The Active ETF will be held under your allocated Holder Identification Number (HIN), which is similar in concept to a bank account number and is normally linked to your trading account. You can view any of your Active ETF holdings alongside other shares you hold in the one account.
There is an increasing number of ways investors can access investment funds - some are available on the ASX and others aren’t, some are actively managed and others track the index. The below table helps to articulate the key differences between types of investment funds
|Active ETFs||Passive ETFs||Managed Funds (unlisted)||Listed Investment Companies (LIC)||Listed Investment Trusts (LIT)|
|Availability||ASX quoted||ASX quoted||Unlisted||ASX listed||ASX listed|
|Management style||Actively managed||Passively managed / index tracker||Actively and passively managed||Actively managed||Actively managed|
|Disclosure||All holdings are disclosed quarterly with a two- month lag, subject to ASX approval.||The daily basket of holdings are typically disclosed.||Typically, holdings are disclosed monthly with a 30-day lag.||Required to disclose NAV monthly, but not required to provide portfolio information.||Required to disclose NAV monthly, but not required to provide portfolio information.|
|Minimum investment||No minimum||No minimum||Typically A$25,000||No minimum||No minimum|
|Application process including anti-money laundering (AML) and know-your-customer (KYC)||
|Franking credits||All trust structures (including LITs), must distribute all underlying income and realised capital gains to investors on an annual basis. The level of realised capital gains depends on trading activity within the strategy and the level of embedded capital gains within the portfolio holdings. As a trust, unitholders are responsible for any tax obligation arising from the distribution and should seek professional tax advice on this matter.||LICs have the ability to pay franked dividends.||
LITs must pay out any surplus income to investors in the form of distributions. These distributions carry the franking credit level allocated by the underlying investment.
Active and passive funds can be used to create a portfolio to suit your investment objectives as determined by you or your adviser. Some asset classes are more suited to active investing and some to passive - and this also varies according to the risk you are prepared to take. Investors may choose to combine these strategies in their portfolio.
There are a number of unique features of an Active ETF which provides liquidity to investors:
Units in an Active ETF are traded at the market price on the ASX.
An Active ETF operates as an open-ended fund, and as a result is expected to trade relatively closely to the fund's NAV.
The Fund acts as the market maker and provides liquidity by issuing and redeeming units based on market demand.
Importantly, this means an Active ETF will generally trade at a reasonably tight spread around the NAV per unit.
Investors know the price they are buying/selling at, their trade is executed immediately and they can monitor the value of their investment holdings via their Broker Trading Account.
It is important to note that the trading price of units on the ASX may differ from the NAV (Net Asset Value) and iNAV (indicative NetAsset Value) of the Active ETF. Ideally an ETF will trade close to its NAV which is the underlying total value of net assets/number of securities on issue. The NAV can be used as an indicator of how much the ETF is worth and what sort of price is appropriate to pay for the investment.
An Active ETF is bought and sold via a broker in the same way as buying or selling a share on the ASX.
The difference is that this one trade gives you exposure to a diversified portfolio of shares. Investors can view their Active ETF holdings alongside any other direct share holdings they have.
Find out how to invest now.