We do get a lot more queries during times of volativity. Lots of people do what we call panic selling, and that is that emotional reaction to oh my god, it might lose more money, so I should sell it now and cut my losses. Yes, you're cutting your losses, but you're also crystallizing those losses. Key we Savor in New Zealand has really grown this area of interest in a diversified fund so that has brought a new complexity in New Zealand. We have far less in index tracking funds than Australia does, and that's far less again than America. Say so, I think that's a little bit of that sophistication journey.

We do get a lot more queries during times of volativity. Lots of people do what we call panic selling, and that is that emotional reaction to oh my god, it might lose more money, so I should sell it now and cut my losses. Yes, you're cutting your losses, but you're also crystallizing those losses. Key we Savor in New Zealand has really grown this area of interest in a diversified fund so that has brought a new complexity in New Zealand. We have far less in index tracking funds than Australia does, and that's far less again than America. Say so, I think that's a little bit of that sophistication journey.

Kirakoto, Welcome to Shared Lunch. I'm Garth Bray. Active investing picking what to buy, sell and the hold, and the passive approach tracking the market, buying the momentum. They both have their fans and their flaws. We are talking to fund managers about both approaches and today I'm with Anna Scott, the CEO of Smart to talk about that passes perspective. We've also been speaking to an active fund manager, so I consider this as the second half of that match. But before you get into any of that. Here's some important information you should always consider before investing.

Kirakoto, Welcome to Shared Lunch. I'm Garth Bray. Active investing picking what to buy, sell and the hold, and the passive approach tracking the market, buying the momentum. They both have their fans and their flaws. We are talking to fund managers about both approaches and today I'm with Anna Scott, the CEO of Smart to talk about that passes perspective. We've also been speaking to an active fund manager, so I consider this as the second half of that match. But before you get into any of that. Here's some important information you should always consider before investing.

Investing involves the risk you might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and here is current at the time of recording.

Investing involves the risk you might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and here is current at the time of recording.

Hello Anna, good morning. You are running a series of passive funds, aren't you. Yes, so you're probably the best person to ask what is your definition of what passive investing really means?

Hello Anna, good morning. You are running a series of passive funds, aren't you. Yes, so you're probably the best person to ask what is your definition of what passive investing really means?

Very good question, because I get asked this quite a lot, and I think we try and sometimes get caught up in that passive versus active debate. And I'm a big believer in actually and you need a bit of both for that. But yes, we do have a passive series of funds. So when you think about what does a fund do, the first thing you start with is what's the objective of the fund? Now you can go and read the pds to get that, but objectives and the words that come with that talk about if you're going to be passive, they will talk about match or replicate or mirror. So their job is to track an index. If you're in an active fund, it might say something like beat or outperform. So the first thing is what's your objective of your fund? And so a passive fund or an index tracking fund is one that does exactly that, it tracks an index. Then the next thing is, well, what is the index that that fund is meant to track or beat? So what is the benchmark? And when you get into that, that isn't something that is determined necessarily by us as a fund manager. There are a bunch of companies who are index providers out in the market. So you might have heard of SMP or MSCI, Bloomberg, Fltsy do them and they create an index that reflects a market. And most of the time those are market tracking funds. That's the most common area, which means that you're not in a diversified fund, but you've particularly chosen a market.

Very good question, because I get asked this quite a lot, and I think we try and sometimes get caught up in that passive versus active debate. And I'm a big believer in actually and you need a bit of both for that. But yes, we do have a passive series of funds. So when you think about what does a fund do, the first thing you start with is what's the objective of the fund? Now you can go and read the pds to get that, but objectives and the words that come with that talk about if you're going to be passive, they will talk about match or replicate or mirror. So their job is to track an index. If you're in an active fund, it might say something like beat or outperform. So the first thing is what's your objective of your fund? And so a passive fund or an index tracking fund is one that does exactly that, it tracks an index. Then the next thing is, well, what is the index that that fund is meant to track or beat? So what is the benchmark? And when you get into that, that isn't something that is determined necessarily by us as a fund manager. There are a bunch of companies who are index providers out in the market. So you might have heard of SMP or MSCI, Bloomberg, Fltsy do them and they create an index that reflects a market. And most of the time those are market tracking funds. That's the most common area, which means that you're not in a diversified fund, but you've particularly chosen a market.

It sounds like a beguilingly simple idea. It's one that's been around for a long time, or is this more of a recent rise that we've seen.

It sounds like a beguilingly simple idea. It's one that's been around for a long time, or is this more of a recent rise that we've seen.

It's been around for a long time, But I think that perhaps in the evolution or the sophistication of time, ETFs have really brought those to the four because they're listed on markets around the world. They're listed in those market tracking component parts, rather than probably at the beginning of funds when they were unlisted or a managed fund. Lots of times those were hedge funds or a diversified fund with an active manager. So now we're getting into the component parts. I like to think of it actually as everyone's sophistication level. It's a little bit like the coffee drinker's journey. So at the beginning, and particularly in New Zealand, if you go back, say five ten years, you had two choices for coffee. It was black or it was white. Maybe we then got onto the decaf and now people have choices where they might have their double shot trim flat latte, or you might have oat milk, or you really want your beans to have been come from Brazil. So we've got a lot more choice. And I think that's the same as the investing public. There's more choice there.

It's been around for a long time, But I think that perhaps in the evolution or the sophistication of time, ETFs have really brought those to the four because they're listed on markets around the world. They're listed in those market tracking component parts, rather than probably at the beginning of funds when they were unlisted or a managed fund. Lots of times those were hedge funds or a diversified fund with an active manager. So now we're getting into the component parts. I like to think of it actually as everyone's sophistication level. It's a little bit like the coffee drinker's journey. So at the beginning, and particularly in New Zealand, if you go back, say five ten years, you had two choices for coffee. It was black or it was white. Maybe we then got onto the decaf and now people have choices where they might have their double shot trim flat latte, or you might have oat milk, or you really want your beans to have been come from Brazil. So we've got a lot more choice. And I think that's the same as the investing public. There's more choice there.

I'm not sure where high class poor over fits into that analogy, but I get what you're talking about that there's an increasing kind of sophistication to the products and so on. I mean, we know that the chezy's client base and audience really are into those. What brought those about, when did they first sort of emerge and what have they enabled.

I'm not sure where high class poor over fits into that analogy, but I get what you're talking about that there's an increasing kind of sophistication to the products and so on. I mean, we know that the chezy's client base and audience really are into those. What brought those about, when did they first sort of emerge and what have they enabled.

So at the very beginning, you could only trade if you had a broker, and that was a physical person, right who traded on the exchange. That's become far more electronic. We've seen the growth of online trading platforms and we've seen that follow the global trend to where real everyday people retail we call them in the investing market. Retail customers want to get involved and diversify their own assets. Because you think about the evolution of New Zealand. You might have known about property, right we start and we grow up on that the physical property that we live in or maybe we rent out. Now we're diversifying. So we talked about cash, and people knew about term deposits, and then they knew about bonds and now equities and it's an extension of that. So rather than go to the share market and decide I'm going to select these two stocks myself because I think they're going to be winners on the long term, actually I can buy a basket of those stocks. So the most common example that we give is the US five hundred, because there's a lot of interest in that as the biggest economy and biggest market in the world. So when we create an index tracking fund for the US five hundred, we are giving the opportunity to track that market. So our job is to mirror, to replicate, to give you the same returns that that market would give you. But there's five hundred stocks in that index. That's why it's called the US five hundred. And when you do that, how do you know which ones of those are going to be the best performing or not. So a lot of people like the idea that you are actually just getting the returns of that market. So an index provider puts them together with the waitings. They specify what those waitings are and the proportion of those stocks within that, and then our job as the fund manager is to buy each of those five hundred stocks in the waiting to match that that the index provider specifies. So our job is to hold all five hundred in the same waiting to give that investor the same return as if they were doing that themselves, and the same return as that whole market.

So at the very beginning, you could only trade if you had a broker, and that was a physical person, right who traded on the exchange. That's become far more electronic. We've seen the growth of online trading platforms and we've seen that follow the global trend to where real everyday people retail we call them in the investing market. Retail customers want to get involved and diversify their own assets. Because you think about the evolution of New Zealand. You might have known about property, right we start and we grow up on that the physical property that we live in or maybe we rent out. Now we're diversifying. So we talked about cash, and people knew about term deposits, and then they knew about bonds and now equities and it's an extension of that. So rather than go to the share market and decide I'm going to select these two stocks myself because I think they're going to be winners on the long term, actually I can buy a basket of those stocks. So the most common example that we give is the US five hundred, because there's a lot of interest in that as the biggest economy and biggest market in the world. So when we create an index tracking fund for the US five hundred, we are giving the opportunity to track that market. So our job is to mirror, to replicate, to give you the same returns that that market would give you. But there's five hundred stocks in that index. That's why it's called the US five hundred. And when you do that, how do you know which ones of those are going to be the best performing or not. So a lot of people like the idea that you are actually just getting the returns of that market. So an index provider puts them together with the waitings. They specify what those waitings are and the proportion of those stocks within that, and then our job as the fund manager is to buy each of those five hundred stocks in the waiting to match that that the index provider specifies. So our job is to hold all five hundred in the same waiting to give that investor the same return as if they were doing that themselves, and the same return as that whole market.

So if you're doing that in the S and P five hundred, then like a third of that shareholding that you've got to reflect that index is going to be the Big seven, and then if there are movements there, you're going to have to try and match those. Not so much in real time, but you're catching up here. Yeah.

So if you're doing that in the S and P five hundred, then like a third of that shareholding that you've got to reflect that index is going to be the Big seven, and then if there are movements there, you're going to have to try and match those. Not so much in real time, but you're catching up here. Yeah.

Our job is the index provider will on a schedule, most of them are quarterly, will specify that they will rewait or rebalance the index, and so our job is to match that. So every quarter you'll hear that talk in the market about oh it's the rebalance week, and a lot of movement and trading will go on in index tracking fund managers because our job is to make sure that when the index provider specifies that there's been changes in market capitalization and value in the market and they've reweighted all those companies, our job is to make sure that our holding matches that.

Our job is the index provider will on a schedule, most of them are quarterly, will specify that they will rewait or rebalance the index, and so our job is to match that. So every quarter you'll hear that talk in the market about oh it's the rebalance week, and a lot of movement and trading will go on in index tracking fund managers because our job is to make sure that when the index provider specifies that there's been changes in market capitalization and value in the market and they've reweighted all those companies, our job is to make sure that our holding matches that.

Waiting Again, it sounds a bit like football, like you know, the English Premier League. You get sort of relegation or promotion. You're either on the top of the table or you've dropped off for whatever reason. Your performance as a company doesn't entitle you to be in that bracket. As you say, that happens like quarterly. Usually I know that there was a rebalance. I think for a couple of the New Zealand indexes end of last week or so on, YEP. So you had, let's take a company, for example, Ryman dropped out of the top ten yep and A two jumped in there. But there would have been a lot of change happened before that decision, and there's potentially a bit of value that's gone missing. Is this the bit that you have to just accept You don't get if you are in a passive fund that you're going to be catching up.

Waiting Again, it sounds a bit like football, like you know, the English Premier League. You get sort of relegation or promotion. You're either on the top of the table or you've dropped off for whatever reason. Your performance as a company doesn't entitle you to be in that bracket. As you say, that happens like quarterly. Usually I know that there was a rebalance. I think for a couple of the New Zealand indexes end of last week or so on, YEP. So you had, let's take a company, for example, Ryman dropped out of the top ten yep and A two jumped in there. But there would have been a lot of change happened before that decision, and there's potentially a bit of value that's gone missing. Is this the bit that you have to just accept You don't get if you are in a passive fund that you're going to be catching up.

So it comes back to what's your goals? Right in index tracking funds, So in that debate about should you be with a passive manager or an active manager, index tracking funds are tracking a market, so you can decide which slice of that market you can be US five hundred, the ASX two hundred, emerging markets, Asia, Pacific, robotics and automation. They're all slices of a market, and you're choosing the market that you wish to be tracking the performance on. And most of the time that's a long term play because if you want to get the value of the instex ten, say, over your investment horizon, then you're wanting that whole market return over that horizon, whether there's a little bit of lost value and one quarterly rebalanced cycle because someone dropped out and someone Elstrup came in, and you need to pay the cost of it in the fund fee. Right, you're not paying additional to that, but the fund cost of doing that trading in the long term, that's not really part of the objective of the fund. Forget what I mean. You know, if you're if you're investing for twenty years until retirement, then when you're choosing a fund manager, you're really saying, well, do I think that the US five hundred over twenty years is going to perform better or worse than an active fund manager with specific portfolio managers and people making stock selections. And that's why there's a lot of trend or data that talks about long term investing horizons the market will be to person, twenty years is a long time for the same portfolio managers to sit there and manage that fund in the same way and beat the market every single year. And that's where you get that kind of passive because it's about market growth and long term market growth versus individual people stock picking. But that's a long term play. If you're investing for a two year time horizon, you might choose a particularly well performing fund with some massive managers or folio managers who you think are really focused on that, and you're not going to be worried about whether the New Zealand twenty is going to be up or down in two years time.

So it comes back to what's your goals? Right in index tracking funds, So in that debate about should you be with a passive manager or an active manager, index tracking funds are tracking a market, so you can decide which slice of that market you can be US five hundred, the ASX two hundred, emerging markets, Asia, Pacific, robotics and automation. They're all slices of a market, and you're choosing the market that you wish to be tracking the performance on. And most of the time that's a long term play because if you want to get the value of the instex ten, say, over your investment horizon, then you're wanting that whole market return over that horizon, whether there's a little bit of lost value and one quarterly rebalanced cycle because someone dropped out and someone Elstrup came in, and you need to pay the cost of it in the fund fee. Right, you're not paying additional to that, but the fund cost of doing that trading in the long term, that's not really part of the objective of the fund. Forget what I mean. You know, if you're if you're investing for twenty years until retirement, then when you're choosing a fund manager, you're really saying, well, do I think that the US five hundred over twenty years is going to perform better or worse than an active fund manager with specific portfolio managers and people making stock selections. And that's why there's a lot of trend or data that talks about long term investing horizons the market will be to person, twenty years is a long time for the same portfolio managers to sit there and manage that fund in the same way and beat the market every single year. And that's where you get that kind of passive because it's about market growth and long term market growth versus individual people stock picking. But that's a long term play. If you're investing for a two year time horizon, you might choose a particularly well performing fund with some massive managers or folio managers who you think are really focused on that, and you're not going to be worried about whether the New Zealand twenty is going to be up or down in two years time.

We're in an error of volatility. Does that give a preference one way or the other. Does it say, hey, now's a good time to be looking at the noise and trying to screen that out and go passive, or is it, hey, you actually need to think about active management to try and take advantage of that to deal with stuff coming in much more quickly, news coming in much more quickly. Change is happening much more quickly.

We're in an error of volatility. Does that give a preference one way or the other. Does it say, hey, now's a good time to be looking at the noise and trying to screen that out and go passive, or is it, hey, you actually need to think about active management to try and take advantage of that to deal with stuff coming in much more quickly, news coming in much more quickly. Change is happening much more quickly.

So I believe in a bit of both. What about in times of volatiley again, how long you're investing for? What is your goal with that investment? So if I was in Key with Saver and I think I want to buy a house in the next year, well that means that my risk tolerance ride is lower right now because I don't want to be able to want to take my money out at a downturn in the economy, So it's about the diversification of where you're invested. And we see, particularly in charesis when we look at the top six ETFs that people are trading there, we can see that people are actually building a portfolio. So in that top six we have the US five hundred, the NZD X fifty, the ASX twenty. Actually we have Asia Pacific emerging markets. So actually we can see that people are spreading their investment around the globe and around different markets to try and smooth out that volatility.

So I believe in a bit of both. What about in times of volatiley again, how long you're investing for? What is your goal with that investment? So if I was in Key with Saver and I think I want to buy a house in the next year, well that means that my risk tolerance ride is lower right now because I don't want to be able to want to take my money out at a downturn in the economy, So it's about the diversification of where you're invested. And we see, particularly in charesis when we look at the top six ETFs that people are trading there, we can see that people are actually building a portfolio. So in that top six we have the US five hundred, the NZD X fifty, the ASX twenty. Actually we have Asia Pacific emerging markets. So actually we can see that people are spreading their investment around the globe and around different markets to try and smooth out that volatility.

Is that the respectants to the flux that you're seeing is that a lot of people are just going, Hey, I'm just going to tune the noise out and I'm going to go for the ride and work out that twenty years from now to be fine. Or do you a mean to you? As fund managers actually hearing from people panicking and saying what do I do? Yeah?

Is that the respectants to the flux that you're seeing is that a lot of people are just going, Hey, I'm just going to tune the noise out and I'm going to go for the ride and work out that twenty years from now to be fine. Or do you a mean to you? As fund managers actually hearing from people panicking and saying what do I do? Yeah?

Volatility is always really concerning because money is a personal thing, right, so it's emotional when you look at your balance and it's down. So we do get a lot more queries during times of volatilty because the point of being in a market tracking fund is you're going to track the performance of the market. So when the US market drops off four percent overnight, then your value of your fund holding is also going to do that. The point is what are you invested for and should that matter? Lots of people do what we call panic selling, and that is that emotional reaction to oh my god, it might lose more money, so I should sell it now and cut my losses. Yes, you're cutting your losses, but you're also crystallizing those losses. So if you don't need the money today, you should hold on because if you look at the historical trend on a long term basis, markets largely go and grow. But that's not to say, right, we always say that previous performance is no indication of future. Do you really have to be clear about again what you invested for. It's not the old adage of it. It's not the timing the market and will you buy and sell, it's actually time in the market. It's that accumulation, it's the compounding investment. Those are the things over the long term if you're saving for retirement that really help out.

Volatility is always really concerning because money is a personal thing, right, so it's emotional when you look at your balance and it's down. So we do get a lot more queries during times of volatilty because the point of being in a market tracking fund is you're going to track the performance of the market. So when the US market drops off four percent overnight, then your value of your fund holding is also going to do that. The point is what are you invested for and should that matter? Lots of people do what we call panic selling, and that is that emotional reaction to oh my god, it might lose more money, so I should sell it now and cut my losses. Yes, you're cutting your losses, but you're also crystallizing those losses. So if you don't need the money today, you should hold on because if you look at the historical trend on a long term basis, markets largely go and grow. But that's not to say, right, we always say that previous performance is no indication of future. Do you really have to be clear about again what you invested for. It's not the old adage of it. It's not the timing the market and will you buy and sell, it's actually time in the market. It's that accumulation, it's the compounding investment. Those are the things over the long term if you're saving for retirement that really help out.

Sure, And I guess a part of that is the cost of all of that activity and what it's costing you to take part that's often a football that it's thrown around. I suppose between the passive and active side, Right, is that a passive approach you can afford to do it a little bit more cheaply.

Sure, And I guess a part of that is the cost of all of that activity and what it's costing you to take part that's often a football that it's thrown around. I suppose between the passive and active side, Right, is that a passive approach you can afford to do it a little bit more cheaply.

Yeah, So we talk about the cost yep so the three p's of fund management and when you look into a fund to kind of the philosophy of the funds. We talked about the objective, the process that they run. So in an index tracking, that is the tracking and the people who do that. People become far more important in an active fund because you are actually selecting stocks and in within that fund you have different objectives as well. Right, you're trying to outperform or beat, but it's a particular market you're trying to outperform. But when we look at the costs over all of those, both of us, in terms of all those types of funds, are paying an index provider for an index. Some of those indexes are more expensive and more esoteric than others, but you've got that cost both sets trading. So you're going to rebalance, or you're going to choose stocks that you no longer like and think have value, or depending on the feature of your fund, you might be volatility trading fund or looking for cheapness versus long term value. But you're going to make different selections and choices, so you're both going to trade on that. Where it comes into the underlying cost and where you traditionally see that an index tracking fund would have a cheaper management fee is the cost of research and the cost of people. Because if you are an active fund manager and so you are pouring over stocks and selecting those based on your own philosophy, then that is a labor intensive job. You need more research analysts in that team. You need to pay for more research to get into what those companies' analytics are. And you have a market professional who is a conviction led stock picker, right, and that's not everyone's cup of tea. There's a lot of nights that you don't sleep with that when you've got a position on. So that is inherently a more expensive fund to run for research and expertise and number of people that you need in your team versus a pure index tracking fund isn't going to need that research because the job is to get the index provider's information and weight your portfolio in line with that.

Yeah, So we talk about the cost yep so the three p's of fund management and when you look into a fund to kind of the philosophy of the funds. We talked about the objective, the process that they run. So in an index tracking, that is the tracking and the people who do that. People become far more important in an active fund because you are actually selecting stocks and in within that fund you have different objectives as well. Right, you're trying to outperform or beat, but it's a particular market you're trying to outperform. But when we look at the costs over all of those, both of us, in terms of all those types of funds, are paying an index provider for an index. Some of those indexes are more expensive and more esoteric than others, but you've got that cost both sets trading. So you're going to rebalance, or you're going to choose stocks that you no longer like and think have value, or depending on the feature of your fund, you might be volatility trading fund or looking for cheapness versus long term value. But you're going to make different selections and choices, so you're both going to trade on that. Where it comes into the underlying cost and where you traditionally see that an index tracking fund would have a cheaper management fee is the cost of research and the cost of people. Because if you are an active fund manager and so you are pouring over stocks and selecting those based on your own philosophy, then that is a labor intensive job. You need more research analysts in that team. You need to pay for more research to get into what those companies' analytics are. And you have a market professional who is a conviction led stock picker, right, and that's not everyone's cup of tea. There's a lot of nights that you don't sleep with that when you've got a position on. So that is inherently a more expensive fund to run for research and expertise and number of people that you need in your team versus a pure index tracking fund isn't going to need that research because the job is to get the index provider's information and weight your portfolio in line with that.

I think someone we spoke to recently said it's the difference between professional football and more social league football. Is that an unfair comparison.

I think someone we spoke to recently said it's the difference between professional football and more social league football. Is that an unfair comparison.

There's probably a little unfair, but I think they just so if we come back to the philosophy, they're very different philosophies. You have a different job function in each of those and if you're in a restaurant, say that's a difference between being the sou chef or in charge of the vegetable plating versus the overall headshift who's putting together a whole menu. They're different jobs. And one thing I think that we think about when we think about active and passive is and this is why I continue to talk about index tracking, because if there's an index in a market, then that's what you're doing. In a passive fund, that's your job right to replicate. In mirror key, we Savor in New Zealand has really grown this area of interest in a diversified fund. So that has brought in new complexity. When you get into a diversified fund, anybody, regardless of whether you're using index tracking, building blocks or stock selection, you're making a active choice on how you build that diversified fund. And so that's where the line. I think that blurs between passive and active. So yes, it's smart. Do we have a bunch of index tracking etips, Absolutely we do. Do We also, under the super Life brand that we're going to change to Smart, have diversified fund We have those two. You need extra acid alloication expertise to go into that.

There's probably a little unfair, but I think they just so if we come back to the philosophy, they're very different philosophies. You have a different job function in each of those and if you're in a restaurant, say that's a difference between being the sou chef or in charge of the vegetable plating versus the overall headshift who's putting together a whole menu. They're different jobs. And one thing I think that we think about when we think about active and passive is and this is why I continue to talk about index tracking, because if there's an index in a market, then that's what you're doing. In a passive fund, that's your job right to replicate. In mirror key, we Savor in New Zealand has really grown this area of interest in a diversified fund. So that has brought in new complexity. When you get into a diversified fund, anybody, regardless of whether you're using index tracking, building blocks or stock selection, you're making a active choice on how you build that diversified fund. And so that's where the line. I think that blurs between passive and active. So yes, it's smart. Do we have a bunch of index tracking etips, Absolutely we do. Do We also, under the super Life brand that we're going to change to Smart, have diversified fund We have those two. You need extra acid alloication expertise to go into that.

So give you a little bit more color, give you a little bit more cost as well, from the sound of it too.

So give you a little bit more color, give you a little bit more cost as well, from the sound of it too.

Absolutely, but that's where you get the extra expertise. So we talk about how risk tolerant are you. You might be conservative or balanced or growth. With that becomes a pretty global standard way of thinking how you spread your assets for that. So a balance portfolio pretty traditionally is sixty percent in equities which are called growth assets forty percent and bonds or fixed income or defensive stable assets. That's the worldwide acknowledged. You can chat YOUPT that and will tell you what your standard asset allocation is.

Absolutely, but that's where you get the extra expertise. So we talk about how risk tolerant are you. You might be conservative or balanced or growth. With that becomes a pretty global standard way of thinking how you spread your assets for that. So a balance portfolio pretty traditionally is sixty percent in equities which are called growth assets forty percent and bonds or fixed income or defensive stable assets. That's the worldwide acknowledged. You can chat YOUPT that and will tell you what your standard asset allocation is.

Right.

Right.

So from there, right, we've started at the top. We've got some growth, some stability. That's the balance. But underneath that you've got asset categories. You've got New Zealand equities, Australian equities, International, the Europe. You've got fixed income which comes into your stable. You've also got cash, and increasingly you've got alternative assets, so you have to look at those in that. You've got commodities. We've talked about gold before as a great diversifier. You've got property that's become listed. Property become really popular and far more standard in terms of that. So you've got asset categories. Then what you do as a fund manager and say, right, well, if those are the core ingredients, what's my strategic acid allocation? So when I break down the sixty forty, how do I make that up? And in that zone, we're all making a decision about where our target waiting is in any of those asset categories and what our range is. So you set that'll be in the SIPO and that's what you're set with. But then within that you have tactical plays. So even though you might be labeled a passive fund manager, when you're buying a diversified fund that's growth or balanced, we're all making conscious choices around acid allocation. So here it's smart when we choose our diversified fund, we will build that up with index tracking building blocks because we think that those are tracking the market and are a good lower cost alternative. So that's how we build it, but we still need to put that together and know how our acid allocation looks. If you're an active fund manager, you've got the same acid allocation that you're working on, but at the lower level of fund, you might choose instead of having index tracking funds, you might choose to build it up via active stock selection. So you're picking individual names, individual companies to build.

So from there, right, we've started at the top. We've got some growth, some stability. That's the balance. But underneath that you've got asset categories. You've got New Zealand equities, Australian equities, International, the Europe. You've got fixed income which comes into your stable. You've also got cash, and increasingly you've got alternative assets, so you have to look at those in that. You've got commodities. We've talked about gold before as a great diversifier. You've got property that's become listed. Property become really popular and far more standard in terms of that. So you've got asset categories. Then what you do as a fund manager and say, right, well, if those are the core ingredients, what's my strategic acid allocation? So when I break down the sixty forty, how do I make that up? And in that zone, we're all making a decision about where our target waiting is in any of those asset categories and what our range is. So you set that'll be in the SIPO and that's what you're set with. But then within that you have tactical plays. So even though you might be labeled a passive fund manager, when you're buying a diversified fund that's growth or balanced, we're all making conscious choices around acid allocation. So here it's smart when we choose our diversified fund, we will build that up with index tracking building blocks because we think that those are tracking the market and are a good lower cost alternative. So that's how we build it, but we still need to put that together and know how our acid allocation looks. If you're an active fund manager, you've got the same acid allocation that you're working on, but at the lower level of fund, you might choose instead of having index tracking funds, you might choose to build it up via active stock selection. So you're picking individual names, individual companies to build.

Which is a little bit more intensive but potentially gives you exposure to greater greater gain but greater losses.

Which is a little bit more intensive but potentially gives you exposure to greater greater gain but greater losses.

Well yeah, and so there's a whole lot more onus there on doing the research, finding the right companies and doing that. The tricky thing for investors, I think with a diversified fund is there's no easy benchmark or index, So there's no global New Zealand based investor balanced risk profile, there's no index for that. So it's really hard to compare the performance of our diversified funds. And that's why it comes into league tables and why people constantly talk in that space around as your fund performing in the top quart eye or not, and where does it rank versus its peers. But when you dig into all of our sipos, we're all going to be slightly different in our acid allocation that we've employed and the width of our ranges and where we can tactically tilt given market conditions. So we might hold more in cash right now less than international equities, and we can do that because that's within an acid allocation guideline rather than very specifically having to track to. There's no global common standard of what a diversified fund should look like.

Well yeah, and so there's a whole lot more onus there on doing the research, finding the right companies and doing that. The tricky thing for investors, I think with a diversified fund is there's no easy benchmark or index, So there's no global New Zealand based investor balanced risk profile, there's no index for that. So it's really hard to compare the performance of our diversified funds. And that's why it comes into league tables and why people constantly talk in that space around as your fund performing in the top quart eye or not, and where does it rank versus its peers. But when you dig into all of our sipos, we're all going to be slightly different in our acid allocation that we've employed and the width of our ranges and where we can tactically tilt given market conditions. So we might hold more in cash right now less than international equities, and we can do that because that's within an acid allocation guideline rather than very specifically having to track to. There's no global common standard of what a diversified fund should look like.

So does that mean that some of the umpires were used to for this game? The spever or MJW, the people that produce tables that rate the performance of various funds, are kind of only part of the picture. They're not going to give you a really solid answer thereon where to look to put your mind.

So does that mean that some of the umpires were used to for this game? The spever or MJW, the people that produce tables that rate the performance of various funds, are kind of only part of the picture. They're not going to give you a really solid answer thereon where to look to put your mind.

So they can tell you because you will over time, you know, and you look at the one year, the three year, the five year, the ten year returns, which tell you how much consistency there is, and that group of professionals who are managing that fund philosophy that they're employing. So those are really useful tools, but you're comparing things most of the time with the same name on them. When you dig into the detail, you might find that someone's target waiting is fifty five percent for international equities, but someone else's might be seventy five. They're still going to be within a range. But that's already where you can see differences, and that's the manager's call about where where you weight the asset allocations, the asset categories, and how you employ your view of the world and the economics and that.

So they can tell you because you will over time, you know, and you look at the one year, the three year, the five year, the ten year returns, which tell you how much consistency there is, and that group of professionals who are managing that fund philosophy that they're employing. So those are really useful tools, but you're comparing things most of the time with the same name on them. When you dig into the detail, you might find that someone's target waiting is fifty five percent for international equities, but someone else's might be seventy five. They're still going to be within a range. But that's already where you can see differences, and that's the manager's call about where where you weight the asset allocations, the asset categories, and how you employ your view of the world and the economics and that.

So that's some of the fine print. There's an investor you need to be reading before we can which one to.

So that's some of the fine print. There's an investor you need to be reading before we can which one to.

And sometimes that's hard, which is why I think we've gone with the league tables, which are an excellent tool. But if you want to choose any of the balanced funds on the street to then go in it will talk about it's trying to replicate the benchmark of global say, but you have to really dig in to find if they got the waitings in there. And most of the time you'll find that it's a composite index. So as I said, there's no kind of SMP. You pick it off the shelf and that's the standard. So you have to go into that and most of us will have put together our composite index with maybe the MASCI world. Some of New Zealand's the Index fifty because this is where we live and this is the economy that our investors are living within. There'll be some Australia because it's close in our geographic but you'll have a ninety day bank bill, say for the cash return that you're trying to beat, or a corporate bond index. So we're putting together a bunch of indexes to reflect what we're trying to achieve with that fund in a holistic, diversified portfolio for round investors.

And sometimes that's hard, which is why I think we've gone with the league tables, which are an excellent tool. But if you want to choose any of the balanced funds on the street to then go in it will talk about it's trying to replicate the benchmark of global say, but you have to really dig in to find if they got the waitings in there. And most of the time you'll find that it's a composite index. So as I said, there's no kind of SMP. You pick it off the shelf and that's the standard. So you have to go into that and most of us will have put together our composite index with maybe the MASCI world. Some of New Zealand's the Index fifty because this is where we live and this is the economy that our investors are living within. There'll be some Australia because it's close in our geographic but you'll have a ninety day bank bill, say for the cash return that you're trying to beat, or a corporate bond index. So we're putting together a bunch of indexes to reflect what we're trying to achieve with that fund in a holistic, diversified portfolio for round investors.

We were talking a bit about themes previously and how different ETFs express different themes and how passive can still catch some of those themes. Are there any untapped themes out there or are there any really strong themes that you think are going to continue through this sit a period of volatility.

We were talking a bit about themes previously and how different ETFs express different themes and how passive can still catch some of those themes. Are there any untapped themes out there or are there any really strong themes that you think are going to continue through this sit a period of volatility.

It's a good question because as a product manufacturer, particularly of index tracking funds, you try and do that very much on an investor demand basis. So that's part of the res and why we partnered with I Shares by black Rock because that's a big global ETF manufacturer and they're exposed to a global investing public, so we can look to them to see what has been of real interest globally, where that investor bases come from or that level of interest, and how we do that in terms of the evolution of our fund size. Here is one of the things that we can do first is we can wrap one of I shares offshore funds, so we list that here on the inside X as a local pie so that people can get the benefit of the local twenty eight percent tax rather than worrying about an offshore holding. And we can start with just wrapping an I shares fund. When that gets to size, we may well unwrap that and go and look to hold the constituents ourselves because you get more tax efficiency its size, and it's a better way to deliver value to the end investor. But that's a great way for us to see what global trend's going on and what might be of interest.

It's a good question because as a product manufacturer, particularly of index tracking funds, you try and do that very much on an investor demand basis. So that's part of the res and why we partnered with I Shares by black Rock because that's a big global ETF manufacturer and they're exposed to a global investing public, so we can look to them to see what has been of real interest globally, where that investor bases come from or that level of interest, and how we do that in terms of the evolution of our fund size. Here is one of the things that we can do first is we can wrap one of I shares offshore funds, so we list that here on the inside X as a local pie so that people can get the benefit of the local twenty eight percent tax rather than worrying about an offshore holding. And we can start with just wrapping an I shares fund. When that gets to size, we may well unwrap that and go and look to hold the constituents ourselves because you get more tax efficiency its size, and it's a better way to deliver value to the end investor. But that's a great way for us to see what global trend's going on and what might be of interest.

Of funds under management and passive rather than active in the strict sense.

Of funds under management and passive rather than active in the strict sense.

So that's a really hard one to do in New Zealand because I think, as they talked about those diversified, which pocket do you put them in? So do you tag that by a fund manager? But that's not necessarily the key component. So we in New Zealand, he compared to We've did some research last year around Australia. We have far less in index tracking funds than Australia does, and that's far less again than America. Say so, I think that's a little bit of that sophistication journey. Lots of our New Zealand investing public are still buying their coffee black or white because that is how you get into the market, and it's a safe way because you're putting your diversification in the hands of a professional. But as that investing public gets more sophisticated and has more views, people are looking to unpack that and actually have the opportunity to pick the building blocks and the components themselves. And one of the easiest ways to do that on a component basis where you just want slices of market are ETFs and index tracking funds because a lot of your fund managers, so a professional active fund manager isn't going to offer those index tracking components because their job is to put them together in a package that outperforms the market. So you can see that level of interest, particularly from retail investors, and you can see in America quite often if in my previous background we worked at wealth management. You would see American investors coming over and their entire portfolio would be made up of index tracking ittifs, because that's how they thought in that market they got value for money and that they were able to express themes in there without worrying that they had packaged it all up for someone else in a fund. Australia's ahead of us. New Zealand's getting there, and I think it will be quite some time because lots of people will still want black a white coffee.

So that's a really hard one to do in New Zealand because I think, as they talked about those diversified, which pocket do you put them in? So do you tag that by a fund manager? But that's not necessarily the key component. So we in New Zealand, he compared to We've did some research last year around Australia. We have far less in index tracking funds than Australia does, and that's far less again than America. Say so, I think that's a little bit of that sophistication journey. Lots of our New Zealand investing public are still buying their coffee black or white because that is how you get into the market, and it's a safe way because you're putting your diversification in the hands of a professional. But as that investing public gets more sophisticated and has more views, people are looking to unpack that and actually have the opportunity to pick the building blocks and the components themselves. And one of the easiest ways to do that on a component basis where you just want slices of market are ETFs and index tracking funds because a lot of your fund managers, so a professional active fund manager isn't going to offer those index tracking components because their job is to put them together in a package that outperforms the market. So you can see that level of interest, particularly from retail investors, and you can see in America quite often if in my previous background we worked at wealth management. You would see American investors coming over and their entire portfolio would be made up of index tracking ittifs, because that's how they thought in that market they got value for money and that they were able to express themes in there without worrying that they had packaged it all up for someone else in a fund. Australia's ahead of us. New Zealand's getting there, and I think it will be quite some time because lots of people will still want black a white coffee.

So some people are still just sticking black and white.

So some people are still just sticking black and white.

Yeah, they are, and I think that's totally fine because you should do what's right for your level of expertise, your risk tolerance, your investment profile. But even in that where we have an active fund manager ourselves, and there is a lot of others in the street, they may well use an index tracking fund as well, so it's not just a retail play in a way to build a portfolio. ETFs and that's why you've seen them grow so much around the world because they've become a tool in the toolbox of huge fund managers, pension schemes, etc. Because that is a great way to get a slice of the market and to track that return.

Yeah, they are, and I think that's totally fine because you should do what's right for your level of expertise, your risk tolerance, your investment profile. But even in that where we have an active fund manager ourselves, and there is a lot of others in the street, they may well use an index tracking fund as well, so it's not just a retail play in a way to build a portfolio. ETFs and that's why you've seen them grow so much around the world because they've become a tool in the toolbox of huge fund managers, pension schemes, etc. Because that is a great way to get a slice of the market and to track that return.

Given that huge amount of growth and how there's this massive sort of momentum building up in the market, all that passive money, which as it flows into a market tends to reflect the bigger and bigger players. Does it sort of become a bit of a self fulfilling prophecy, Like the Magnificence even aren't just getting bigger in that index because of the performance and fundamentals of the company, it's simply because there's so much passive money flowing in. Is through a way to work out if that's happening.

Given that huge amount of growth and how there's this massive sort of momentum building up in the market, all that passive money, which as it flows into a market tends to reflect the bigger and bigger players. Does it sort of become a bit of a self fulfilling prophecy, Like the Magnificence even aren't just getting bigger in that index because of the performance and fundamentals of the company, it's simply because there's so much passive money flowing in. Is through a way to work out if that's happening.

For me personally. I think there's two aspects. One is, as an investing public, we're all buying shares in a company. That money doesn't go to directly to the company to invest The company has to stand on its own two feet in terms of the economics of it. So the Magnificence seven are they driven by retail demand and a look, it is informative and people are interested in that investment and they're going to follow and track those indices. So a lot of those passive fund managers, yes, that's going to have an impact, But the underlying fundamentals of how Amazon is going to do as a business or how Navidio is really comes down to what their core fundamentals of their business are. What is their supply chain, how big is their moat, Where are they selling product to, what priced? What's their margin? Who are the people running it, what's their long term strategy for the company. So the big company is going to stand on its own economics and fundamentals. It's going to drop in and out of an index, ay the top ten or the top twenty, based on the economics of it. Because the index provider has a methodology and it doesn't look at volume of trading flow. It looks at what the capitalization are, what's the waiting So they have very satisfiic sticated methods. What it does mean is that when those changes happen, they hurt or benefit that company more because there may be we'll be more trading activity off the back of that than if it had just been we increased our earnings guidance, or we had a poor year. So those kind of things I think it highlights and probably magnifies as the word I'm looking for in terms of how that change happens versus the people who have just actively chosen the stock, because if a company goes down in terms of market capitalization or it has a really bad earnings year, your active fund managers are still going to be in the analysis of the stock. They're going to have a conviction whether they think that was a blip or a long term Do they want to reduce their holding or stay the course, do they want to sell out completely? So those are all choices that happen in the investing market. Anyway. If you're in a passive fund or an index tracking, you're going to be driven by what the method is. And if it's downweighthed and now it's this much smaller part of that index, then everyone's going to hold a much smaller amount. So it does magnify that fascinating.

For me personally. I think there's two aspects. One is, as an investing public, we're all buying shares in a company. That money doesn't go to directly to the company to invest The company has to stand on its own two feet in terms of the economics of it. So the Magnificence seven are they driven by retail demand and a look, it is informative and people are interested in that investment and they're going to follow and track those indices. So a lot of those passive fund managers, yes, that's going to have an impact, But the underlying fundamentals of how Amazon is going to do as a business or how Navidio is really comes down to what their core fundamentals of their business are. What is their supply chain, how big is their moat, Where are they selling product to, what priced? What's their margin? Who are the people running it, what's their long term strategy for the company. So the big company is going to stand on its own economics and fundamentals. It's going to drop in and out of an index, ay the top ten or the top twenty, based on the economics of it. Because the index provider has a methodology and it doesn't look at volume of trading flow. It looks at what the capitalization are, what's the waiting So they have very satisfiic sticated methods. What it does mean is that when those changes happen, they hurt or benefit that company more because there may be we'll be more trading activity off the back of that than if it had just been we increased our earnings guidance, or we had a poor year. So those kind of things I think it highlights and probably magnifies as the word I'm looking for in terms of how that change happens versus the people who have just actively chosen the stock, because if a company goes down in terms of market capitalization or it has a really bad earnings year, your active fund managers are still going to be in the analysis of the stock. They're going to have a conviction whether they think that was a blip or a long term Do they want to reduce their holding or stay the course, do they want to sell out completely? So those are all choices that happen in the investing market. Anyway. If you're in a passive fund or an index tracking, you're going to be driven by what the method is. And if it's downweighthed and now it's this much smaller part of that index, then everyone's going to hold a much smaller amount. So it does magnify that fascinating.

I think I've learned a lot more about passive and how it's a little bit more active, perhaps than some of us thought.

I think I've learned a lot more about passive and how it's a little bit more active, perhaps than some of us thought.

When we put together those diversified funds. That's exactly what it is, and I think it's the delayering for me. When I talk to people, you know, you have to what is the objective of the fund? And that's the first part to check out, So do you know what the fund's job is that's the first thing. And when it's doing that job, how do you know if it's doing a good job or not. Well, that's what the benchmark's job is to do. It's to tell you whether that person is truly mirroring that chosen benchmark or it's outperforming it. So you've got to get down to those fundamentals to truly understand what the purpose of your fund is. And some of it's nice and clean and easy. As we said with the ETFs, it says it on the tin and that's our job. I am tracking the US five hundred, or I am in healthcare, or I am in listed property, super easy. But you're going to be in the building block component of those. If you're talking about index tracking funds, you can put them together yourself, or you can have someone in the investment professional community put them together for you. That's when you start layering and what your tactical and your state strategic as allocation is and what that view is of where you want to be positioned in terms of your risk profile and your volatility.

When we put together those diversified funds. That's exactly what it is, and I think it's the delayering for me. When I talk to people, you know, you have to what is the objective of the fund? And that's the first part to check out, So do you know what the fund's job is that's the first thing. And when it's doing that job, how do you know if it's doing a good job or not. Well, that's what the benchmark's job is to do. It's to tell you whether that person is truly mirroring that chosen benchmark or it's outperforming it. So you've got to get down to those fundamentals to truly understand what the purpose of your fund is. And some of it's nice and clean and easy. As we said with the ETFs, it says it on the tin and that's our job. I am tracking the US five hundred, or I am in healthcare, or I am in listed property, super easy. But you're going to be in the building block component of those. If you're talking about index tracking funds, you can put them together yourself, or you can have someone in the investment professional community put them together for you. That's when you start layering and what your tactical and your state strategic as allocation is and what that view is of where you want to be positioned in terms of your risk profile and your volatility.

Easy, thank you and nothing passive at all about you, and thank you if you're watching us on YouTube or listening on spotify, Apple Podcasts or iHeart or Hot off the Chasis app. Make sure you lock in for this episode and that other one on the active perspective, and all of the other insights that you'll find on Shared Lunch courd Metu. That's us for now,

Easy, thank you and nothing passive at all about you, and thank you if you're watching us on YouTube or listening on spotify, Apple Podcasts or iHeart or Hot off the Chasis app. Make sure you lock in for this episode and that other one on the active perspective, and all of the other insights that you'll find on Shared Lunch courd Metu. That's us for now,