Morningstar launches its first active ETF
The head of Morningstar Investment Management Australia, Matt Wacher, reveals how the new International Shares Active ETF uses a quality- and value-led strategy to find opportunities in several global and emerging markets.
Glenn Freeman: In this edition of "Ask the Expert" I'm speaking with Matt Wacher from Morningstar Investment Management. Matt, thanks for your time today.
Matt Wacher: Sure Glenn, no problem.
Freeman: Now this is a pretty special day for you guys in Morningstar Investment Management Australia, because you've just launched the first exchange traded managed fund from your shop.
Wacher: We have it's our international shares fund. It's the first one we've launched globally. And I think you know if it goes well, we'll launch a whole lot more ETFs over the next few years.
Freeman: So, can you talk us through, so the structure that you've opted for. There's, various ways that you could have gone with a listed vehicle, you could have gone to more of a plain ETF, you could have gone a listed investment company, a listed investment trust. What appealed to you about the ETMF structure.
Wacher: So, we didn't really want to have a pure index play, which ruled out the standard ETF. We wanted to get some of our ideas into the portfolio, underlying portfolio, we've already got a unit trust based on this structure. And we thought that going for, a simple transparent option such as the ETMF was the best way to go. Each structure has their benefits and otherwise, but we thought that this was a good way to go for the end investor.
Freeman: The active ETFs are something that ASIC has looked at within the last couple of months. Does this impact the product at all?
Wacher: It doesn't. We don't believe it does. We think that was really focused around internal market making capability. And we're actually using external market maker and we'll focus on making sure that the prices that the external market maker are making are monitored on intraday basis. So, throughout the day will create a NAV, net asset value That we can make sure the pricing is appropriate for the end investor throughout the trading day. You know, we I think that also we're focusing on a very transparent approach, we're not having performance fees, we will disclose holdings on a daily basis. There will be no delays around that.
Freeman: Because that was at the heart of some of ASIC's concerns, wasn't it? It was that there's in some instances, there's a bit of a lack of transparency, because people couldn't see on a daily basis what the, the estimated NAV was.
Wacher: Yes. And we will calculate that as to, some markets will be closed, but we'll look to use futures and others to build up a price that we think is appropriate for investors to be able to trade off in the market maker. We'll monitor the market makers pricing around that.
Freeman: Sure. So, you mentioned the the holdings, how many stocks make up the portfolio of this product.
Wacher: So, there's about 300 stocks that might go down to 280 or up to 320. There's a bit of room around that depending on how we're seeing markets and what opportunities are available. It's across, global market. So, including emerging markets and developed markets is the opportunity set for these products.
Freeman: Sure. And what are some of those specific, the emerging markets? Which countries, can you narrow that down a little?
Wacher: So, at the moment, we're focused on areas such as, there's some China stocks, Taiwan, we're looking at India, it's a bit harder to invest in India at the moment. But we will look into add that in the future. Basically, emerging markets as an opportunity set, there's some really good opportunities in there from a quality values type portfolio like this one.
Freeman: Sure. So, then that's the tilt that you're following its quality value.
Wacher: That's correct. Yes. So, we think that having a quality overlay to value is really important to deliver great risk adjusted returns for end investors.
Freeman: Sure. And what's the benchmark that you're measuring this against?
Wacher: It's the MSCI equity benchmark. So again, that's developed in emerging markets takes in a very broad opportunity set.
Freeman: Have any similar products that’s being launched in any of the other regions in which Morningstar operates.
Wacher: Not in an ETF form. This is the first time that we've launched an ETF. And I think we'll see how it goes. But I think it's a really useful tool for us to be able to use you know, multi asset products more generally, but also for retail investors to get that exposure as well.