The application of technology has changed how exchange-traded fund (ETF) investment firms operate, allowing active managers to provide lower-cost index offerings that can be used as a core part of a portfolio, a United States-based company has stated.
Avantis Investors chief investment officer Eduardo Repetto said investors have been unwilling to pay high fees for the management of an ETF, but those costs have fallen and made actively managed ETFs comparable in price to passive strategies.
“No one complains when going to a great restaurant if the bill at the end is reasonable. What they don’t like to do is order a dish and don’t know if the dish is good or bad, but the bill is huge,” Repetto told smstrusteenews.
“In the same way, people have been very unhappy or uncomfortable with high expense ratios.
“We solve that issue by providing attractive expense ratios and doing it in a diversified way by using systems.
“Imagine writing a paper using a typewriter. We don’t do that anymore because it will take forever. We use Word or something like that and it’s the same with investing.
“We use the efficiencies of technology on data management to make our processes more efficient and pass those economies from this technology onto the investor and provide products that cover a lot of securities.
“Imagine analysing a portfolio with 3000 securities by hand. You can’t do that each day, but we can do that with data and technology and portfolio managers that understand fundamental analysis. This is way more efficient than the traditional way of doing things.”
He also noted the home bias of Australian investors was not unusual and it made sense in the local context.
“Most investors in the world have a home bias. If you go to Canada, they have a home bias. In the US, they have a home bias, and some level of home bias makes sense,” he said.
“What’s the right amount of home bias? That’s debatable because there is some risk tolerance [with a local market], but you get franking credits when you invest in Australian stocks.
“If I am in the United States and buy an Australian stock and you buy an Australian stock, you get better returns than me because you get the franking credits and I have nothing to do with those.
“If we buy the same security but you get better returns than me, you are better off overweighting that security and I’m better off overweighting my local market and underweighting that Australian security. So there is a rational argument as to why you can have a home bias.”