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.
mFund hitches its wagon to the SMSF locomotive
(Pictured: Andrea Slattery)
Technical connections to its customers – fund managers, registry providers and brokers and platforms – represent the final phase prior to commencement for the ASX’s mFund Settlement Services, following the last regulatory hurdle being overcome last week.
ASIC’s approval followed the completion, from the ASX side, of the required technology build which will allow managed funds to be applied for and redeemed, with daily pricing, on the exchange via CHESS and the stockbroking system.
About 60 companies have been involved with the ASX in detailed discussions and will form the basis of a pilot program, which will include, at first, only simple products able to use short-form prospectuses. It is hoped more managers and more complicated products will join the list after the trial program is completed.
In a clear signal of what it sees as its main market for the managers’ products, Andrea Slattery, the chief executive of the SMSF body SPAA, provided a quote for the ASX release last week.
She said: “SMSF trustees want control over their own retirement savings and greater investment flexibility in how they achieve this. Any service that helps meet this goal will demand their attention, as well as that of the SPAA specialist advisors advising them in this superannuation sector. The more services that are offered to help SMSF trustees and their advisors oversee their investment portfolios, the greater the integrity that can be built into our sector…”
ASX’s strategy is interesting given that SMSF trustees tend to invest through managed funds to a lesser extent than retirees and non-SMSF investors. In fact, it’s the “control” factor, which everyone keeps talking about, that probably hinders managed funds’ use by SMSF trustees. They want to pick stocks themselves. How hard can it be?
Nevertheless, many in the industry have high hopes for mFunds and a new distribution channel for their products: stockbrokers. Investors will need to use a stockbroker – either discount or full-service – to apply for or redeem managed funds via CHESS, as they do with stocks.
Peter Hiom, ASX deputy chief executive, said: “It will allow brokers to offer a greater choice of products to their clients, and provide investors with a more convenient and efficient method for transacting in managed funds. The current process can be time consuming and paper intensive, and it is often difficult to get an overview of your holdings. The new mFund service changes all this.”
