iShares expects SMSF interest in new series

BlackRock is anticipating strong activity from SMSF trustees for its new proposition, the iShares Core suite of exchange-traded funds (ETF), which comprises two newly launched ETFs.

The iShares Core MSCI World All Cap ETF and MSCI World All Cap (A$ Hedged) ETF were listed on the Australian Securities Exchange on 28 April.

These new funds, together with the iShares Core S&P/ASX 200 ETF, Composite Bond ETF and Global Corporate Bond (A$ Hedged), make up Core.

The Core offer aims to provide a foundation for the most efficient exposure possible at a low cost, without compromising on quality.

The portfolio contains over 7000 local and international securities.

Fees range from 0.15 per cent a year to 0.26 per cent a year.

“We’re hoping for a lot of interest from SMSFs for Core, not least because it simplifies the approach of robust portfolio outcomes for them,” iShares Australia head Jon Howie said last week ahead of the launch.

“Issuers who are maybe bringing exposures to market which are serving needs of investors who don’t fully understand the risks they may be taking on when chasing certain outcomes, that is, yield, as running the largest ETF business in the industry, I really worry about that.

“I think as an industry we’ve done an enormous amount of work to build trust with investors and pandering to some of their needs with products that on the face of it look very attractive, but maybe contain some difficult-to-understand risks is [not good for the industry].”

Howie highlighted the paradox of choice in the market, despite the Australian ETF industry entering “act two”.

“As an adviser or as an end investor, an SMSF trustee for example, you’ll now be able to go onto our website, look at Core for five simple exposures and sample model portfolios,” he said.

“It really simplifies the choice and you can always add additional exposure if you want to, but this is about setting a really strong foundation around high-quality, low-cost, simple-to-use exposures.

“As [the Australian ETF industry] develops, we see huge adoption in the adviser space and huge adoption continuing in SMSFs and for many of those investors what they’re looking to do is rather than be tactical with their allocations, which is what many investors start to use ETFs for, they’re looking for long-term buy-and-hold, and that is largely what Core is about.

“IShares has been low cost forever, but what we’re trying to do now is create a very low-cost small suite of products that investors can use to build an entire portfolio to serve their long-term buy-and-hold needs.

“So it’s largely about making sure they have the most efficient exposure possible. It’s also about quality and simplicity.”

He said he believed there was a place for sophisticated products and opportunities for investors to generate outcomes that could not be achieved in a traditional ETF structure or were more difficult to do in an ETF structure.

“My point is that the ETF structure is probably not the right place to try to do it,” he warned.

“If you’re going to do very complicated strategies, lots of non-linear payoffs, options strategies, levered strategies, inverse strategies, et cetera, we need to be careful that we maintain the trust that investors have placed in ETFs as a vehicle and [communicate] that these strategies may be more difficult to understand.”

SMSF and individual investors, and the advisers and platforms they invested through, would be a key driver of ETF industry growth, he added.

“Passive funds are becoming a starting point for many discussions on portfolio design and the iShares Core series gives advisers the building blocks they need to create cost-effective portfolios for their clients,” he said.

The Australian launch of iShares Core follows the successful launch of similar Core series in the United States in 2012 and Europe in mid-2014.

Globally, as of 20 April 2016, iShares Core strategies represented US$247 billion of assets under management (AUM).

At 31 March, Australian ETF market AUM reached $20.65 billion, having grown 33 per cent annually over the past five years.

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