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InvestSMART brings Intelligent Investing to the ASX with INIF

ETF Watch - Jun 21, 2018

In what is becoming an increasingly popular trend, another Active ETF has recently launched, with InvesSMART launching their Australian Equity Income Fund (INIF), raising $30m prior to listing, and now offering their Value Investing style with a single ASX trade. Below we have a look at INIF.

What’s the InvestSMART story?

InvestSMART is a listed company, listed on the ASX under the ticker INV. It’s a company that has reinvented itself many times over the years. InvestSMART started life in the 1990s, offering investors rebates on what were at the time high commission investment products generally sold by Financial Planners.

The company was sold to Fairfax in the 2000s, and bought back by the founders in the 2010s. By this point the Future of Financial Advice reforms had banned most commissions, so InvestSMART was in need of a new business model. At this point they purchased popular share tip subscription services, Intelligent Investor and Eureka Report. InvestSMART later evolved to establish a funds management business, with growth in this business now their core company objective, and how we get to the launch of their Equity Income Fund on the ASX.

What’s the history behind the Equity Income Fund?

The InvestSMART Australian Equity Income Fund has its roots set in the Intelligent Investor back story. Intelligent Investor was launched in the late 1990s, offering a subscription newsletter which included stock recommendations. The name “Intelligent Investor” gives their approach to stock selection away, with it being the title of Benjamin Graham’s 1949 book about value investing, a book that value investing messiah Warren Buffett famously called “the best book about investing ever written”.

Intelligent Investor have long developed and reported on hypothetical portfolios, with their ‘income portfolio’ tracing back to 2001. This allowed members who did not want the hassle of making their own buy and sell decisions based on the research the ability to simply buy and sell based on the recommendations being made on the portfolio. The Income Portfolio was industrialised in 2015, when InvestSMART launched it as a Separately Managed Account (SMA) allowing investors the ability to let InvestSMART do all the trading on their behalf. INIF is an extension of this, and will invest in line with the Intelligent Investor Equity Income SMA, within a convenient to trade ETF structure. The Intelligent Investor research team manages the investment decisions of the fund.

According to InvestSMART, the strategy boasts total performance of 12.50% pa since inception, compared to 8% for the core index. Since the strategy was made available to investors as a SMA in 2015, performance has been 11.60% pa, compared to 8.10% for the benchmark.

How is INIF invested?

As mentioned above, the Intelligent Investor investing ethos is value investing, so investors can expect the INIF portfolio to be made up of companies that meet much of the key criteria a value investor looks for. INIF also has a yield objective and aims to:

…generate income without forsaking capital growth, by investing in cash rich businesses with the expectation that they will produce strong cash flows to support dividends in the future.

It aims to hold 10-35 companies, can hold up to 50% in cash and pays dividends semi-annually.

Unlike many funds with a yield focus, there are no banks in the top 5 holdings, with financials making up 22% of holdings compared to 32% for the S&P ASX 200 index. The top 5 holdings include NZ online classifieds company Trade Me, ASX Limited, Flight Centre, Seek and BHP Billiton. A top 5 that looks materially different to the benchmark.

Why an Active ETF?

We took a look at Active ETFs, also known as Exchange Traded Managed Funds some time back. Since then a number of new products have been launched and we think what we have seen is only the beginning.

We asked Ron Hodge, CEO and Managing Director of InvestSmart why they chose to list as an Active ETF rather than a Listed Investment Company or traditional managed fund:

"InvestSMART’s goal in launching INIF was to give investors access to a strongly performing portfolio in a simple, cost-effective way. Therefore we felt the Active ETF structure was the most appropriate way to achieve this.

Active ETFs offer an exchange traded open ended fund structure with unlimited daily inflows and outflows which trade very closely to their underlying NAV making them popular with self-directed investors. Unlike Listed Investment Companies (LIC’s) and Listed Investment Trusts (LIT’s) which are close ended funds, ETFs also offer transparency as they are required to regularly publish the entire contents of their portfolio."

What else is available in this space?

There’s no shortage of income yield focused ETFs or LICs out there. With so many Self Managed Super Funds seeking high yield and Australian share access, it is an obvious choice for fund managers to go after. However, the closest fund in investing style is likely to be a fund not focused on yield, but on value investing. Forager Australian Share Fund (FOR) was launched by then Intelligent Investor analyst Steve Johnson in the late 2000s. At the time of the InvestSMART acquisition it was spun off as its own entity and in 2016 became a Listed Investment Trust (LIT). The two companies now have no association, however as both have their roots in the Intelligent Investor service and the value mindset associated, we’d expect to see some cross over in their portfolios.

Other information about INIF

INIF is now available to purchase on the ASX. As INIF is an Exchange Traded Managed Fund, it can always be purchased at close to Net Asset Value, so investors do not need to consider the large swings in price to NAV as they would for a LIC. INIF has management fees of 0.97% pa and no performance fees.

This post was prepared with publicly available information available from InvestSMART. ETF Watch did not receive any payment from InvestSMART for this post, nor endorses the merits on the fund. We recommend investors seek professional financial advice before investing.

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