Without a doubt, one of the biggest announcements of 2018 in ETFs has been Australian provider Betashares’ announcement of their partnership with US based fund manager behemoth Legg Mason. Whilst perhaps not a well recognised brand name in Australia, Legg Mason are one of the biggest fund managers in the world, managing close to US $800 billion. To put their size into perspective, a 2017 report showed Legg Mason ranked as the 30th largest fund manager in the world, well ahead of Australian household names like Macquarie, AMP, BT & Colonial First State.
We believe the significance of this announcement is not just the size of the manager, but the appreciation by these large asset managers of Exchange Traded Products being an important vehicle in Australia to distribute their products. Launches of actively managed ETFs (which we wrote about here) have been reasonably slow to date, with 22 now available on the ASX and most fund managers still choosing to distribute their products through more traditional means such as investment platforms or to wholesale investors only. There’s over 7,000 managed funds available in Australia, we expect to see a significant shift, to offering these managed funds as exchange traded products over the coming years, and the entrance of large players such as Legg Mason will only help to drive this growth.
Whilst Legg Mason is a US based manager, they do have operations all over the world, including in Australia. The first two Exchange Traded Managed Funds to be launched as part of the partnership are Australian based funds, both with a focus on income yield. We take a look at the two new funds below.
EINC offers investors access to an actively managed portfolio of income oriented Australian shares. Whilst the fund does not track a specific benchmark, it aims to provide an after tax income yield above the S&P/ASX 200 index. Management fees for EINC are 0.85% per annum.
The fund is managed by investment manager, Martin Currie (a company not a person) and mirrors the unlisted “Legg Mason Martin Currie Equity Income Fund”. The broader fund currently has been active since 2011 and has around $180m under management. The fund has a 5 year total performance of 10.71% pa, compared to 9.07% for the ASX 200 accumulation index.
For those interested in understanding broadly how EINC is invested, its top 10 holdings include just two of the big four banks and no big miners, as a result investors are getting access to broader exposure than the big banks and miners which make up a large proportion of the ASX 200 index. As expected for a fund that focuses on high dividend yield, financials are still quite highly represented, at 35% exposure to banks and other financials, which is roughly in line with the broader index. There’s approximately 15% exposure to both consumer discretionary and consumer staples, higher than 5% and 7% as represented by the index. Utilities also have higher than index exposure of 10%, compared to 2%, and as expected the low dividend paying miners are under-represented.
With the SMSF and self funded retiree market such a dominant force in Australia, there’s always demand for high yield focused funds, as a result EINC joins a crowded space of yield focused Australian ETFs and LICs. You can find more, including historic dividend yield on the ETF Watch Fund database.
RINC offers investors access to a portfolio of listed Australian ‘real’ assets such as A-REITs, utility and infrastructure securities. Whilst the does not track a specific benchmark, it aims to provide an after tax income yield above the S&P/ASX 200 index. Management fees for RINC are 0.85% per annum.
Like EINC, RINC is based on an unlisted managed fund, the Legg Mason Martin Currie Real Income Fund. Lauched in 2010, the fund has $625m under management. The 5 year total return amounts to 14.75% pa. The fund is made up of around 58% REITs, 20% utilites and electricity grids, 10% gas, 6% toll ways and 6% airports, ports and railways. The fund forecasts a 6% franked up income yield.
Whilst not as widely covered as broad based high yield funds, infrastructure type ETFs and LICs are reasonably represented on the ASX. There’s five infrastructure focused ETFs, and five property focused ETFs, with a mix of index and active options. RINC provides a point of difference with its diversified nature across ‘real’ assets, as a result may appeal to investors seeking a broad actively managed exposure to this sector.
In their market announcement, Betashares talked about their partnership with Legg Mason being a long term strategic one. With over 80 funds on offer globally from Legg Mason, we expect to see more products coming to market carrying the Betashares Legg Mason brand. When they launch we’ll be the first to let our readers know.