Types Of Funds

NZX is a host to a wide variety of diverse funds that offer increasingly distinct investment opportunities. Each fund listed on NZX is unique with investment opportunity, as well as how each fund operates behind the scenes. NZX hosts a wide range of types of funds, namely exchange traded funds, closed end funds as well as bespoke funds listing opportunities such as the Fonterra Shareholder Fund. Each variation of fund type has advantages and is important to both the fund manager as well as investor to understand the impact of what method they choose will affect the outcome of the product

Exchange Traded Funds

An Exchange Traded Fund is a type of security that involves a basket of securities that track either an underlying index, sector or specific class of assets. ETFs have a variety of uses for investors such as spreading risk, tracking an index or being an entry point to the market for new investors.

There is no one type of ETF, in fact the very nature of ETFs are to be purposed for investors seeking out certain types of products

Popular types of ETFs include:

• Stock ETFs tracking indices
• Bond ETFs
• Sector indices tracking certain stocks within a sector
• Currency ETFs investing in foreign currencies
• Commodity ETFs which can either track an index related to the commodity or own the physical product

ETFs are set up on an exchange as an open ended fund. This allows the ETF to constantly issue new shares and cancel existing shares as investors deposit money into the ETF and withdraw. This allows investors great flexibility when it comes to their investment as they are not locked in for a fixed term.

Another advantage of ETFs is the liquidity that being on the exchange provides. This allows investors another avenue to investing in ETFs as well as another avenue for divesting their portfolio as they see fit. This comes in handy in market downturns, capital crunches or for any other need of instantly realising a portfolio.

There are currently two ETF providers on NZX and over 30 ETFs listed by the providers:

• Salt Funds Management
• Smart

Closed End Funds

Listed investment companies, sometimes referred to as closed end funds, are funds that raise capital through an initial public offering and trade exactly like a stock. The major difference between listed investment companies and ETFs is that listed investment companies are not able to issue or redeem shares at will. This means that the only way for investors to realise the gains or losses on an investment is through a market sale, and this holds true for investors as the only opportunity to purchase shares is either through an on market purchase, or if a further issue of shares is announced.

Another major difference to ETFs that track indices or sectors, Listed Investment Company managers are responsible for setting the funds investment purpose and selecting the investments that the portfolio will contain. This is referred to as active management and typically has a specific aim to out perform a certain index, or group of indices.

Fees vary widely between funds, much like the underlying assets, however there is typically a performance fee associated with beating the bench mark that the fund manager has chosen. Listed Investment Companies are selected by investors that are seeking a return above the index and are willing to pay for the added expertise.

Current closed end fund providers include:

• Fisher funds
• Templeton
• Australian foundation company
• Booster
• BMO global asset management
• Janus Henderson
• JPMorgan
• Franklin Templeton

Bespoke Funds

NZX has the ability to create new markets and new types of products to list on the market. These securities are typically to fit the type of asset class an investor would be engaging with. An example of a bespoke fund product is the Fonterra Shareholder's Fund which tracks the Fonterra Co-Operative Group stock. Due to Fonterra being farmer owned and operated, retailed investors are unable to invest directly into the co-operative, instead they are able to invest into the bespoke fund product.

Current bespoke funds listed on NZX:

• Fonterra Shareholders Fund

If you have any questions on funds, please find us on our contacts page