ETPs to takeover from unit trusts

Wednesday 14th April 2021 Penny Pryor

Increasingly, fund managers are looking to exchange traded products (ETPs) as their preferred distribution channel, according to the latest Rainmaker ETP Report for the December quarter.

The report found that in the December quarter of 2020, the proportion of managed funds rose from 9 per cent of the total ETP market to 20 per cent.

It showed that while unit trusts still have the largest share of total funds under management, flows into ETPs are rising strongly while flows into unlisted unit trusts are falling.

In the 12 months to December 2020 flows into ETPs were $33.2 billion while flows out of unlisted unit trusts were $3 billion.

Rainmaker ETP report


“My prediction is that in three to five years ETPs will be larger than the unlisted unit trust business. This would have a major impact on the managed funds industry in this country, and on platforms,” Rainmaker head of investment research, John Dyall, said when releasing the report.

Rainmaker says the big increase in managed funds share of ETP in the December quarter was the result of Magellan converting three of its core global equities products into one fund with two different unit classes – both listed.

Magellan converted its open-ended unlisted Magellan Global Fund, its open-ended ETP Magellan Global Equity Fund and the closed ended listed trust Magellan Global Trust into the Magellan Global Fund. The Magellan Global Fund now has two offerings the Magellan Global Fund Open Class (ASX:MGOC) and Magellan Global Fund Closed Class (ASX:MGF).

Rainmaker predicts there to be continuing bleeding of assets from unlisted unit trust to ETPS and there will also be more hybrid structures of unlisted unit trusts and ETPs.

There are clear benefits for both fund managers and investors in having more listed fund options. They are easier and more immediate for investors to access, which is obviously translating into increased flows.

“This is clearly an incentive for managers looking to grow their businesses to launch their strategies as ETPs if their customers decide this is the way they want to invest,” the report says.

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