Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Magellan launches its Core ETF series
The well-known fund manager has launched a series of low-cost ETFs which will help further its reach into the retail investor market. With approximately $95.5 billion in funds under management, the manager plans to offer a series of new lost cost strategies that will appeal to the “fee conscious” investor.
The MFG Core Series will be the equivalent of what iShares is to BlackRock. It’s basically a financial adviser focused tool that can be used by the industry to gain easy, low cost access to three new asset classes with as much ease as buying shares.
- MFG Core International Fund – Portfolio of 20-40 high quality global companies that is designed to achieve attractive risk-adjusted returns and preserve capital in adverse markets.
- MFG Core ESG (Environmental, Social and Governance) Fund – Portfolio of 20-50 high quality global companies that meet Magellan’s low carbon investment guidelines designed to achieve attractive risk adjusted returns and preserve capital in adverse markets.
- MFG Core Infrastructure Fund – Portfolio exposure will have between 80-100 infrastructure companies that provide investors with a diversified exposure to a strictly defined universe.
The new line-up comes with a cool price tag of only 50bps a year which is almost half of what Magellan charge on their normal funds. It does make you wonder whether such discounting will cannibalise performance if investors start to switch from existing funds. Either way, low cost ETFs are the flavour of the day and fee conscious investors are making the switch from expensive funds that eat into performance. The plans are to make each of the funds open-ended ASX listed funds and also assessable via the Chi-X exchange by direct application by the end of the year.
In the annual letter to shareholders this year, CEO Brett Cairns said “We believe it provides an attractive lower cost investment alternative for those wishing to gain an exposure to Magellan’s research and investment expertise but are not necessarily seeking our full actively managed portfolio services”.
Typical passive index hugging ETFs usually charge between 10-60bps, so this suite of funds fits neatly into that bracket. Investors are moving to low cost passive ETFs and they’re starting to take a larger share of the flow than active ETFs. For Magellan, it’s definitely a step in the right direction at the opportune time that will surely help increase their addressable market and grow their bottom line.
