Chris Gosselin, CEO of FundMonitors.com, speaks with Sarah Shaw, Global Portfolio Manager and CEO/CIO at 4D Infrastructure.

The 4D Global Infrastructure Fund (Unhedged) has a track record of 8 years and 1 month and has outperformed the S&P Global Infrastructure TR (AUD) benchmark since inception in March 2016, providing investors with an annualised return of 9.22% compared with the benchmark's return of 8.49% over the same period.

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Why 2024 will be a 'show me' year

Alphinity Investment Management

March 2024

Funds operated by this manager:

Alphinity Australian Share Fund, Alphinity Concentrated Australian Share Fund, Alphinity Global Equity Fund, Alphinity Sustainable Share Fund

Disclaimer
The information on this website is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant Product Disclosure Statement or other offer document and the relevant Target Market Determination (available on the Apply Now page on this website) before making a decision whether to buy or hold a financial product.

An upgrade to the financial system's plumbing

Pendal

April 2024

THE plumbing of Australia's financial system is a bit like the plumbing in your house - of little interest until something goes wrong.

For those few who do take an interest in the RBA and our financial system's plumbing, the Assistant Governor Chris Kent gave a speech on Tuesday last week: "The Future of Monetary Policy Implementation".

By the end of this year, he explained, Australia will have a new system called "Ample Reserves".

In short, the central bank will set a price for "Open Market Operations" (repos) and offer unlimited quantity - instead of setting the quantity and letting the market determine the price, as was the previous system.

Banks have been flush (so to speak) with liquidity since early 2020, courtesy of RBA quantitative easing and the term funding facility over the pandemic.

These are now slowly rolling off, reducing excess reserves in the system.

The RBA is worried that the pre-pandemic "corridor and low reserve" system may not work so well.

That system relied on the RBA accurately forecasting government inflows and outflows into the system (think taxes and welfare payments) and offsetting them by adding or draining the cash back into the system through repos and reverse repos.

You lend them securities and they give you cash that you then pay interest on or vice versa.

The corridor meant banks could always borrow or lend unlimited funds with the RBA at 0.25% above or below target cash, but hardly ever did.

With Ample Reserves, banks can go to the RBA and offer unlimited securities to repo in return for cash (OMOs) at a pre-set margin to the official cash rate.

The price and frequency of these operations are yet to be determined but look like at least weekly and something like the target cash rate plus five basis points (currently 4.40%).

The RBA will release more details later in the year after market consultations.

So, what does this mean for investors?

The good news for leveraged portfolios is that there is now an "ample" supply of central bank liquidity at a reasonable price.

For investors, the good news is that overnight cash should eventually drift back towards target cash levels rather than sit at the ES level.

This would mean closer to 4.35% than 4.25% at current cash targets.

The bad news for investors, however, is that bank bills are less likely to drift too far above cash again.

Also, for relative value funds, government bond baskets (where bonds trade to futures) are less likely to get too cheap again.

Overall, it is a new era for the RBA.

It is not only temporarily moving out of the asbestos-ridden 65 Martin Place while expensive and long overdue renovations are undertaken, but it now has a new way of ensuring system liquidity is always rock solid.

Author: Tim Hext, Pendal portfolio manager and head of government bond strategies

Funds operated by this manager:

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient's personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

Market Commentary - March

Glenmore Asset Management

April 2024

Funds operated by this manager:

Glenmore Australian Equities Fund

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Why reframing fixed income is key to portfolio stability

Yarra Capital Management

March 2024

Funds operated by this manager:

Exchange Traded Funds

Airlie Funds Management

March 2024

Exchange Traded Funds (ETFs) are a simple way for investors to gain access to a wide range of asset classes. They are open-ended funds whose units trade on a securities exchange (Exchange), just like an ordinary listed security. They enable investors to gain access to a portfolio of securities in one easy transaction - either online or through a stockbroker.

Passive ETFs have existed since 1993 when State Street launched the SPDR S&P 500 ETF in the US. Passive ETFs typically track an index (such as the ASX200 index) and the portfolio is updated regularly (generally quarterly) to reflect changes in the reference index.

Active ETFs, where an investment manager is actively managing a portfolio of securities, have existed globally for some time. However, there have been few choices available to investors as investment managers have been reluctant to publish their portfolios daily. In Australia, Active ETF issuance started to evolve in early 2015 when issuers and regulators agreed on a portfolio disclosure regime that balanced the needs of investors who want to know what they are investing in with the protection of the investment manager's intellectual property (its portfolio holdings and active portfolio decisions).

What are the similarities?

STRUCTURE

In Australia, both Passive and Active ETFs are generally registered managed investment schemes, a type of 'unit trust', that trades on the Exchange in the same way that a share in a company trades on an Exchange. Like any share or unit traded on an Exchange, investors can buy or sell units in the ETF from each other through the Exchange.

TRANSPARENCY

Investors have transparency as to the value of the underlying fund and the composition of its portfolio through regular disclosure provided on the Exchange and the ETF issuer's website. The value of the ETF's underlying investments is generally provided in the form of the net asset value (NAV) per unit and an indicative intraday net asset value (iNAV) per unit, which generally updates throughout the ASX trading day. The level of portfolio disclosure will generally depend on whether the ETF is a Passive ETF or an Active ETF and, in the case of the latter, adhering to regulatory guidance on portfolio holding disclosure. Passive ETFs will either provide an iNAV per unit and/or full portfolio disclosure on a daily basis. Active ETFs that employ an internal market making model will generally provide daily net asset value and iNAV per unit, monthly fund updates and a full portfolio comprising names and weights of the investments on a quarterly basis.

LIQUIDITY

In seeking to ensure there is efficient trading in the secondary market of ETF units and with the objective of having the trading price track the underlying NAV, ETF issuers put in place additional liquidity arrangements. As ETFs are open-ended funds and can issue and redeem units, they are able to facilitate these liquidity arrangements.

Passive ETF issuers largely outsource the provision of liquidity to third-party market makers or authorised participants such as institutional brokers. Market makers trade an inventory of units on the Exchange and are able to apply or redeem with the ETF issuer to settle their net trading position. These market makers form their own view of the NAV of the ETF and provide bids and offers in the market around that value, within the bounds of their own balance sheet risk appetite for providing this liquidity.

Active ETF issuers either follow the same market making model as Passive ETFs or opt to be internal market makers where they seek to provide sufficient liquidity for the ETF. This means that the ETF might, at any time, be providing bids and offers in the market around the issuer's assessed value of the units at that time.

TAXATION

Being unit trusts, both Passive and Active ETFs allow a full passthrough of income on a pro-rata basis such as dividends, franking credits, capital gains and discounted capital gains income and net income is taxed in the hands of the end investor.
 

What are the differences?

TYPES OF INVESTMENTS

With an Active ETF, a portfolio manager will undertake stock research to determine which underlying securities or stocks to hold and in what percentages. They will then actively manage weightings of the stocks depending on stock valuations, industry trends and views on macroeconomics. They can also hold cash to manage the overall risk of the portfolio and to take advantage of opportunities when markets move.

A Passive ETF tracks an index. This can be over a broad-based stock market index, a sector index, custom-built indices or indices comprising fixed income, credit, commodities and currency. They can either fully replicate an index by buying all the securities that make up the index or they can be optimised by buying the securities in an index that provides the most representative sample of the index based on correlations, exposure and risk.

Passive ETFs can either attempt to track their target indices by holding all, or a representative sample, of the underlying securities that make up the index or instead of physically holding each of the securities they can hold synthetic exposure to securities by using derivatives such as swaps to execute their investment strategy.
 

How many ETFs are available on the ASX?

As at the end of January 2024, there were 325 Active and Passive ETFs available on the ASX with over $178 billion^* in market capitalisation.

How do I access ETFs?

You can access both Passive and Active ETFs on the ASX via your online share trading account or through your stockbroker. You will need to know the ASX code that relates to the ETF.

*Source: ASX Investment Product Monthly Update - January 2024.

Funds operated by this manager:

Airlie Australian Share Fund

Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 trading as Airlie Funds Management ('Airlie') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation.  This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to an Airlie financial product or service may be obtained by calling +61 2 9235 4760 or by visiting www.airliefundsmanagement.com.au.

Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of an Airlie financial product or service may differ materially from those reflected or contemplated in such forward-looking statements.

This material may include data, research and other information from third party sources. Airlie makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Airlie. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Airlie will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material.

Any third party trademarks contained herein are the property of their respective owners and Airlie claims no ownership in, nor any affiliation with, such trademarks.   Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks.  This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Airlie.

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