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ETFs threatening index fund flows

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By Owen Holdaway
  •  
2 minute read

Unlisted index funds are likely to lose flows to the exchange-traded fund (ETF) market, according to ETF issuer Market Vectors.

Speaking to InvestorDaily, Market Vectors Australia managing director Arian Neiron said listed versions of indexes are preferable to their listed alternatives.

Index funds tend to be less transparent than ETFs because the investor cannot always see the value of the holdings on a daily basis, said Mr Neiron.

In addition, index funds tend to be set up more like a mutual fund, in contrast to an ETF which is traded like any security on an exchange, he said.

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Despite this, the Australian ETF market is still relatively small at $7.63 billion, but it is also growing fast, with a compound growth rate of around 30 per cent per annum since 2004, according to a June 2013 BetaShares ETF report. 

Market Vectors also believes there is a tax benefit in having an ETF over a managed fund.

“[Unlisted funds] have got this problem called ‘last man standing’, where the last unit holder or the last investor left in the fund will bear the capital tax issues,” Mr Neiron said.

“[But with an ETF], the opposite actually happens – the retail client does not bear [the tax]... they just buy and sell it like they do with any security on the ASX,” Mr Neiron said.

Market Vectors, however, concedes this is a “structural story” that will “not happen overnight”.

“There are different index variations and every single investment firm has different variations on index manufacturing... but if it is a like for like, and we are comparing apples [listed] for apples [unlisted], we believe that an ETF format is the most efficient way to do so,” Mr Neiron said.

 

ETFs threatening index fund flows

Unlisted index funds are likely to lose flows to the exchange-traded fund (ETF) market, according to ETF issuer Market Vectors.

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