Despite being a growing reservoir of funds under management, this critically important pool of capital is confronting mounting problems collating and disseminating key data in a timely manner.
The ratings house is pinning its growth strategy on a revamped methodology that increases the emphasis on governance to 25 per cent – a timely move considering APRA’s proposed reforms.
Clean screen Vanguard fund on shelf for Christmas
(pictured: Robin Bowerman)
The ethically-scrubbed new Vanguard global shares fund will leave investors just 23 stocks short of a full index, product information released last week revealed.
According to the release, the planned ‘Vanguard International Shares Select Exclusions Index Fund’ would hold 1,541 stocks compared to the 1,564 securities in the comparable fund currently managed to the MSCI World ex Australia index.
As well as stripping out the handful of companies caught in the cluster munitions KiwiSaver furore this August, the new Vanguard global equities product – to be released by early December at the latest – would also exclude nuclear weapons-associated firms and tobacco manufacturers.
The new fund would be managed to a benchmark specified by Vanguard, the MSCI World ex Australia ex Tobacco ex Controversial Weapons ex Nuclear Weapons Index.
Robin Bowerman, Vanguard Australia head of market strategy and communications, said the fund had been designed to appeal to both Australian and New Zealand investors.
“Tobacco is a common theme for Australian investors,” Bowerman said. “And from a New Zealand perspective it’s important the product builds scale over the long-term, which will allow fees to reduce.”
He said the NZ dollar hedged version of the new fund would cost 26 basis points, compared to the current 0.31 per cent management fee for the existing Vanguard fund (charged at 18 basis points to Australian investors).
“We’re also going to lower the fee for the existing [$NZ-hedged] fund down to 24 basis points,” Bowerman said.
In the wake of media coverage highlighting a potential breach of NZ cluster munitions law in several KiwiSaver funds exposed to passive global equities investments, a number of providers petitioned Vanguard to offer a screened product.
Bowerman, in NZ last week for discussions with clients, said the push from KiwiSaver funds hastened a process that was already underway at Vanguard.
“We had been working on [screened] product ideas for a while and were looking to launch something next year,” he said. “The concerns from NZ KiwiSaver providers accelerated that development.”
According to Bowerman, Vanguard’s NZ clients have been upbeat about the new screened fund.
“[NZ clients] will make their own decisions about whether to transition to the new fund,” he said. “But we’ve received a lot of positive feedback.”
Bowerman said Vanguard would work with providers to ensure a smooth transition process with up to $500 million of NZ money expected to make the switch.
Vanguard is the passive global shares provider of choice for four of the default funds – Kiwi Wealth, Westpac, Grosvenor and ASB – with the latter have the biggest exposure by far. The largest KiwiSaver provider, ANZ, uses a BlackRock passive fund for international equities in its $1 billion default product.
The $3 billion plus ASB default fund invests about 10 per cent via the Vanguard international share product as well as having further exposure in the scheme’s other funds.
Newly-launched KiwiSaver scheme, Simplicity, also uses the Vanguard fund for its offshore equities exposure.
The Vanguard International Shares Select Exclusions Index Fund – currently going through legal sign-off procedures – would overlap the standard ex Australia product by just over 97 per cent with a slightly higher P/E ratio (up 0.12) while trimming almost US$1 trillion off the market cap.
Collectively, tobacco firms represent the most significant exclusion from the new product with the largest of these, Phillip Morris, constituting 0.48 per cent of the MSCI ex Australia index.
As well as the cluster-implicated firms – General Dynamics and Textron – aircraft manufacturers Boeing (0.25 per cent of the index) and Airbus (0.11 per cent) would also be excluded from the new Vanguard fund.
Bowerman said despite the exclusions, the new product still offer NZ investors exposure to a broadly-diversified, low-cost portfolio of international shares.
According to the Vanguard release, the International Shares Select Exclusions Index Fund would have an expected tracking error of about 0.2 per cent from the MSCI World ex Australia index.
Vanguard Australia manages more than $100 billion on behalf of trans-Tasman investors across 27 wholesale funds, 11 retail products and 11 exchange-traded funds (ETFs).
– David Chaplin, Investment News NZ
