Listed investment products - a new phase for investors

In five years, the number of investment products on the Australian Securities Exchange (ASX) has grown from 153, to now number over 500. We spoke to senior manager, distribution and product development at the ASX, Rory Cunningham, and ASX ETP product and business development manager, Charmaine Breadon about developments in this space.

Investment products available through the ASX include exchange traded products (ETPs), which includes exchange traded funds, listed investment companies and trusts (LICs / LITs), and unlisted managed funds (mFunds). There is over $70 billion in funds under management in these kinds of products on the ASX and their numbers are expected to continue to increase as self-directed investors look for more ways to diversify their portfolios. Cunningham says there are three themes driving both the increase in products, and funds under management.

"More advisers are connecting to the ASX via a broker and using ASX's infrastructure," he says.

More wraps, managed accounts and technology platforms are also connecting to the ASX to access products that are available.

"At the end-investor side, self managed super funds are driving a lot of the growth in investment products for ASX."

More than half of the funds under management in these products belong to SMSFs and one of the goals of the ASX is to increase the access investors have to all asset classes via ASX.

"We want investors to have choice and full transparency around the investments that they choose," he says.

Breadon explains that the ASX Australian Investor Study, conducted every two years, consistently shows that a very high proportion of investors realise they are not diversified. The 2017 study highlighted that less than half (40%) of Australian investors say that they are not diversified at all. Not only do many investors not have any global exposure, but they are also often limited to the top five or top ten Australian stocks by market capitalisation.

"Investors can easily obtain greater diversification by investing in these investment products on ASX" she says.

Those are the obvious benefits for investors - i.e. better and cheaper access to a wider range of products, but what about the benefits to the issuers of these products?

The same transparency is an advantage to issuers because they are able to promote themselves through the market. The benefit to issuers of listing their product on the ASX then comes down to access to investors.

It should be noted, particularly given the stories of conflicted advice coming out of the banking royal commission, that the ASX has observed an increase in the number of independent financial advisers using the ASX for investment products.

"We don't see it as replacing any part of the market. If you go through a wrap platform or even a managed account, they are in some respects customers of the ASX," Cunningham says.

The ASX offers the independent investor, who wants to avoid an additional layer of fees, a cheaper means to invest, says Breadon.

But investors seeking guidance from advisers, and a really good level of administration help come tax time, can also access the products on the ASX via their adviser.

Addressing the increasing complexity of some of the listed products now becoming available, both Cunningham and Breadon say that the ASX's robust admission criteria helps to ensure that the ASX is comfortable with, for example, the particular index being used for an exchange traded fund.

And don't expect the quantity, or array, of products to slow up anytime soon. This is much more than a phase and there is no limit on the number of products as long as they meet the admission criteria.

"On the product side, there is definitely innovation happening in this space. We're seeing more exchanged traded managed funds, sometimes referred to as active ETFs," Breadon says.

"We're in the early stages of that and we continue to have conversations with fund managers about the admission opportunities available to them through the ASX."