Woah! With a title like that, you just KNOW there’s going to be some serious investing knowledge to be had.

A couple of weeks ago, on a glorious wintery Wellington morning, I strode down the waterfront to head to the NZX & S&P Dow Jones Indexes ETF Masterclass. This was an event hosted by the NZX, which featured incredibly knowledgeable speakers. They talked about the state of ETFs, how they compare against their benchmarks by country, the outlook for the global bond market, and how taxes affect ETFs.

I was very kindly invited to this by Dean Anderson from Smartshares (cheers mate!) and obviously, I jumped at the chance to get my knowledge up and meet people from the industry.

It was really cool to meet a lot of the Sharesies crew, who were there for a similar reason to me, to learn more about the outrageously complex world of investing. Most of the rest of the attendees were financial advisors and similar smart money people.

Dean kicked the day off with a little intro speech and a cool exercise where he polled the audience on various questions using an app. Interestingly, Wellington was the surest the All Blacks would win the series against the Lions (and no, I’m not still salty about that one referee),

He also talked about how Smartshares ETFs have a market maker. A market maker means you will always be able to buy and sell units of their ETFs. This means that whenever you want to sell Smartshares funds, you will be able to.
For all of you asking me about how liquid their ETFs are, there’s your answer!

The ETF industry is HUGE

First to speak was John Davies from S&P Dow Jones Indices. He talked to us about the growth and ridiculous scale of the global ETF market. At the end of April 2017, there are over 6,000 ETFs available worldwide that have a total amount invested in them of over $3,800 billion! Staggering stuff! If you can name it, there’s an ETF available somewhere in the world that will track it; small stocks, large stocks, international, emerging markets, gold, silver etc.

The good thing for us chilled out normal investors, is that we can happily ignore 99% of the ETFs available. The majority of money is invested in S&P 500 ETFs (like the one available on Smartshares).

John reiterated the benefits of ETFs to the regular investor; they are low cost and provide great diversification. They are also very transparent; you know exactly what your ETF is investing in because they have to publish the holdings every day.

John also made an interesting point, he said while millennials are showing an inclination towards robo-advice services right now, he thinks as we grow up we are more likely to want traditional financial advice. I’m not sure that’s true, although I could see myself paying for financial advice if my finances become really complicated.  

What do you think? Do you see yourself paying for professional financial advice when you are older?

Active funds aren’t beating their benchmarks

Next up was a chat from Priscilla Luk from SPIVA. SPIVA  compares how actively managed funds do against their benchmarks (their benchmark is typically an index of stocks within that country).

The results weren’t pretty. Across the world, only a very small percentage of active funds are beating their benchmarks. In the United States, only 12% of active funds beat the S&P500 over the past five years. In Australia, only 30% beat the ASX200 over the last 5 years.

Unfortunately, she didn’t provide any NZ specific data, but the global trend makes the situation pretty obvious.

Another interesting idea she presented was that winning streaks don’t last – high performing funds over a short period of time are very unlikely to continue being high performing over a long period of time.

Here’s a great quote from ma boi Warren B, which I think sums up the passive vs. active debate nicely;

“When trillions of dollars are managed by Wall-streeters charging high fees, it will be the managers that make the profits, not the clients. Both large and small investors should stick with low cost index funds”

Pictured: places where active managers struggle to beat their benchmarks. I.e. EVERYWHERE

All about tax

Next, we had someone from PWC, one of the world’s biggest accounting firms, to tell us all about tax. Tax is a very important consideration when investing. It’s often overlooked as it’s boring and difficult to understand (guilty!). I feel like the more I learn about tax the less I know.

Here are a few key things I learned about tax from this presentation. For NZX listed ETFs that are either NZ or Australian equities, dividends are taxable, but capital gains are not.
The difference between a dividend and a capital gain is this; capital gains are what you get from the share growing in value. They’re not treated as income. Dividends are what you earn from owning the share (it’s a bit of the company’s profits paid out to you) so it’s considered income.

When investing in NZX listed funds that track Global investments, it’s a bit more complicated. FIF (foreign investment fund) rules apply. Generally speaking, if you have an investment in foreign funds worth over $50k, you can be liable to pay tax on the FDR income, which is 5% of the average balance of the fund. The whole FDR thing is kinda complicated but it’s basically the law that decides how much tax should be paid on foreign ETF investments.

There are definitely other key benefits to investing in NZ listed ETFs; the ETF deals with all tax calculations and payments, which means you usually don’t need to file a tax return. Easy!

If you want to know more about tax on ETFs, definitely give the IRD website a read. Dean from Smartshares has also provided a useful document which explains more about tax on Smartshares funds. You can read that here

That’s about all the tax I can deal with right now (and I’m sure more than you want to deal with) but look for more from me about tax in the future. It’s gonna be exciting.


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