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Magellan makes its own ETF market

Global fund manager Magellan Financial Group has taken on the role of market maker for its active exchange-traded funds (ETF) to ensure investors are provided with a sufficient level of liquidity in the offering.

Magellan Financial Group listed funds key account manager Emma Kirk revealed the firm had to look to appoint a market maker when its active ETFs were launched three years ago.

Speaking at the recent Australian Securities Exchange (ASX) Investor Day in Sydney, Kirk said: “One of the things we did was we engaged the Australian Securities Exchange and the Australian Securities and Investments Commission (ASIC).

“As an active manager we don’t disclose our portfolio holdings every single day. We disclose them on a quarterly basis with a 60-day lag because of our intellectual property that we have associated with it.

“We work with ASIC and the ASX to internalise the market-making procedure for our active ETFs. So Magellan is the market maker for our active ETFs.”

The arrangement means an investor can contact Magellan if they cannot find a market maker for the manager’s ETFs and the investment house itself can then create an additional 100,000 units to allow a price to be established for any trades at the time.

“They’ll create 100,000 units. Same if you want to exit and you want to get out at this particular price, and it’s got to be at net asset value, you ring me and say you’d like to get out, I’ll go to the trading team and we’ll purchase those units back off of you and destroy them,” Kirk said.

Kirk was part of a panel discussion on various product structures, during which she also spoke about the Magellan Global Trust, a listed investment trust launched in October last year, which she said came off the back of investor demand for specific features.

“One of the first things they said they were looking for was regularity and certainty of income. Through that listed investment trust structure we’re able to provide income on a regular basis because the trust isn’t dependent on the realisation of profit, whereas a listed investment company is,” she said.

“That enabled us to pay a distribution three months after we listed this product. And we were able to set a target rate of 4 per cent per annum on the listed investment trust over the first two years.”

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