The NZX-owned SmartShares is about to venture for the first time into the unlisted product space in a joint venture with mega US-based index-style manager Dimensional Fund Advisors (DFA).

Under the yet-to-be-inked deal, which marks a significant deviation from its traditional exchange-traded fund (ETF) business, SmartShares will provide back-office services such as custody, administration and trustee duties, while DFA will apply its index-trading process to the NZX50.

It is understood the move was prompted by an alliance of financial advisers looking to shift their clients' NZ share investments, most of which is currently managed by the SmartShares FONZ ETF (which tracks the NZX50 equities benchmark), into a DFA model.

According to industry sources, over $30 million will shift from the FONZ to the new unlisted DFA/SmartShares New Zealand shares product once the deal is completed.
The latest NZX data reports the FONZ has a market capitalisation of just over $121 million.

Advertisement

The DFA unlisted NZ equities fund may be simply a one-off experience for SmartShares, which earlier this year announced it was planning the release of several more listed products, including a global shares, bond and sector-specific ETFs.

However, the unlisted DFA fund, expected to launch in February assuming sign-off from all parties, will likely be the first product launched by SmartShares since the SmartOZZY ETF in 2006.

The first new SmartShares ETF, probably a property-based sector product, should be on the market before June 2014.

According to the latest SmartShares annual report, as at March 31 this year the group managed about $340 million across its five ETF products.

While it was one of the earliest adopters of the listed index-tracking products, releasing the SmartTENZ in 1996, SmartShares has yet to see the huge uplift in ETF usage recently experienced in many offshore markets, including Australia.

DFA, meanwhile, pushed into NZ retail investor consciousness in February this year, tying up with the Fidelity KiwiSaver scheme (now owned by Grosvenor) to release a range of 'asset class' investment options.

To date, the DFA 'asset class' KiwiSaver funds have attracted about 1,250 members and over $10 million.