SMSF-centric ETFs gain appeal: VanEck

VanEck’s two new exchange-traded funds (ETF) are one-of-a-kind for the SMSF market and there are signs of early interest in the offerings.

The VanEck Vectors FTSE Global Infrastructure (Hedged) ETF, launched on 3 May, tracks the FTSE Developed Core Infrastructure 50/50 Index hedged into Australian dollars, giving investors exposure to a portfolio of infrastructure sub-sectors.

The VanEck Vectors S&P/ASX Franked Dividend ETF, launched on 2 May, only includes companies that have paid out 100 per cent franked dividends in the past two years and have sustainable dividend policies.

“Interestingly, we’re getting mixed feedback from advisers and brokers who have SMSF clients, but [mutually] they believe that these two products are very SMSF-centric because they’re more equity-income and defensive [oriented],” VanEck Australia managing director Arian Neiron told selfmanagedsuper.

“We definitely believe this opportunity is for SMSFs versus other products in the ETF space, and these two ETFs extend on our innovation, ethos and value proposition.”

Neiron revealed VanEck had been experiencing high demand for infrastructure.

“One of the key things SMSFs are looking for is diversifying away from Australia, so they want a global opportunity,” he said.

“Within our infrastructure universe, Australia is very limited and there’s only a handful of infrastructure securities, so it’s more a case of finding the right index to give the right exposure to the right geographical diversification and the right investment case for portfolios.

“We think one of the key reasons investors haven’t been using infrastructure is because of choice and we wanted to be the first ETF issuer to offer that to clients. It’s the first ETF of its kind – one ETF gets you exposure to global infrastructure securities and it’s also currency hedged.

“This is the first building block of the infrastructure play and then you can build upon that as we see more demand, and as the markets do evolve, more infrastructure assets come from government balance sheets to private balance sheets onto exchanges.”

Commenting on the VanEck Vectors S&P/ASX Franked Dividend ETF, he said the Australian dividend pool was too heavily concentrated on financials.

“That’s why most SMSFs and retirees have been moving up the risk curve to equities,” he said.

“We looked [deeper into] what a retiree wants: stability of income, they’re looking at their lifestyle, they’re looking at inflation, they continue to be concerned about deflation, so equities are generally going to be a core part of that income-producing asset to accommodate those lifestyle needs and franking credits are unique to Australia and that does give you an income boost.

“No fund in the country, listed or unlisted, focuses purely on targeting 100 per cent franking credits and assures investors that that’s what they’re receiving every distribution.”

While there was a range of ETFs that were equity-income focused and had different mechanisms, such as being dividend-weighted, VanEck has chosen to offer a vanilla index that focuses purely on 100 per cent franking credits.

“What we’ve found is securities that pay dividends and 100 per cent franking credits consecutively over the years exhibit lower volatility than the S&P/ASX 200,” Neiron said.
“Out of the 200, there are 86 stocks that pay 100 per cent franking credits.

“More and more, what ETFs can do is accommodate the options to have true-to-label diversification and adapt it based on your risk profile.”

VanEck was rebranded from Market Vectors at the end of April with the ETF line now known as VanEck Vectors.

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