Inside Money: NZX mounts rear-guard action with global ETF deal

The NZX has almost doubled its exchange-traded fund (ETF) offering with the launch of a new range of international products.

As flagged earlier this month the NZX has almost doubled its exchange-traded fund (ETF) offering with the launch of a new range of international products.

The nine ETFs released this week are rebadged versions of Vanguard global shares funds, expanding NZX Smartshares beyond the confines of Australasia for the first time.

Vanguard is the world-leader in passive investing and, after Blackrock's iShares, is the second-largest ETF producer - despite its founder, Jack Bogle, expressing doubts about the whole idea.

The Vanguard deal is an interesting one for the NZX and, on top of a likely generous allocation from its recently-acquired funds management firm, SuperLife, external ETF-lovers may be tempted.

A large part of the appeal of ETFs is price, with newly-appointed NZX head of funds management, Aaron Jenkins, touting the Vanguard range as "low cost". Although the NZX release doesn't quantify that statement, the prospectus for the new ETFs show the US 500 Trust (which tracks the top 500 US shares) annual management fee at 0.30 per cent with the remaining eight products costing 0.45 per cent each year.

And this is cheap by NZ standards - the above prices are about half that of the NZX's 10 existing Australasian ETFs, for example.

However, there's still a big gap with the US versions of the Vanguard ETFs. For example, the Vanguard S&P 500 ETF (essentially the same as the NZX US 500 Trust) has an annual management fee of just 0.05 per cent, while the Emerging Markets product comes in at a mere 0.15 per cent.

Of course, the NZX needs to add in its own margin, as well as pay for the portfolio investment entity (PIE) structure it has wrapped around the new ETFs.

But there are other fees too: an application fee of $30 for all amounts under $20,000 or 0.2 per cent for fund purchases above $20,000, and; tacked-on annual operating expenses ranging from 0.05 per cent to 0.17 per cent.

The NZX is taking a big punt local investors will eventually latch on to the global ETF phenomenon, which passed a new milestone this year.

According to research firm ETFGI, the amount of money in ETFs surpassed hedge funds for the first time during the March quarter. The ETFGI research puts global ETF (and similar exchange-traded products - or ETPs) funds under management at US$2.971 at the end of June, compared to US$2.969 trillion in hedge funds - a US$2 billion differential.

"This is a significant achievement for the global ETF/ETP industry, which just celebrated its 25th anniversary on March 9th while the hedge fund industry has existed for 66 years," the ETFGI release says.

The NZX has some catching up to do.