Transcription of Finance News Network interview with Magellan Financial Group Limited (ASX:MFG) CEO and Chief Investment Officer Hamish Douglass
Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from Magellan Financial Group Limited (ASX:MFG) is its CEO and Chief Investment Officer Hamish Douglass . Hamish, welcome to FNN.
Hamish Douglass: Thank you very much.
Lelde Smits: Magellan has brought a new and innovative product to market with the launch of the Magellan Global Equities Fund on ASX. What was behind the move?
Hamish Douglass: The driver behind the move was the big trend exchange traded products or ETPs around the world. This is now a $US2.8 trillion industry and it’s the fastest growing part of the global funds management industry. Most of our product has been unlisted fund and we’re really wanting to put our unlisted fund in a form factor that’s very easy and simple for underlying investors to transact. And, we’re bringing the Magellan Global Equities Fund as an ASX-quoted version of our global equities strategy.
Lelde Smits: Could you explain how the fund will work?
Hamish Douglass: The fund will actually work like any ASX listed security, and this will be very straight forward for investors. Each morning we will publish the net asset value by 9.30am and then during the day we will actually update the net asset value for any movements actually every 15 seconds or so. We will act as the market maker and therefore create a relative tight spread around the net asset value in order for people to transact units on the exchange. And, as I say, it’s going to be very simple. It’s going to be as easy as buying shares in Woolworths Limited (ASX:WOW) or BHP Billiton Limited (ASX:BHP) for underlying investors.
Lelde Smits: How is the fund different to a Listed Investment Company (LICs)?
Hamish Douglass: Well it is actually quite different to a Listed Investment Company. A Listed Investment Company is a closed end vehicle. And, as it is closed end it means it cannot access the liquidity of the underlying investments in the fund. The only liquidity comes from there being a buyer or a seller on the stock exchange. And therefore, particularly in times of stress, a Listed Investment Company could trade at a large discount to its underlying net asset value.
As this is an open ended fund that is listed on the exchange - open ended I mean that any shares the market maker buys throughout the day – It will actually redeem those units at the end of the day. And, if it sells units to investors during the day, it will actually issue new units at the end of the day. And the liquidity is the underlying liquidity of the underlying investments. And, our average investment size in the fund is over $US100 billion.
So we have a lot of liquidity and therefore we would expect a lot of liquidity and not trading at big discounts or premiums to the underlying asset value like a Listed Investment Company, but at around a tight spread around the asset value.
Lelde Smits: What are the benefits of this structure to an investor?
Hamish Douglass: It is really going to benefit an investor because we are taking the complexity out for underlying investors. In an unlisted fund like our Magellan Global Fund if somebody wants to subscribe for units they need to fill in all the paper work, anti-money-laundering paper work. The application form runs up to 16 pages long, they need to get certification papers of different materials.
In this fund there is no paper work at all. If you are a CHESS participant, which people are if they are going to trade on the stock exchange you don’t need any additional paper work you can just instruct your broker, or just go straight onto an E*trade or Commsec and buy the units with no paper work at all. So, we think this is going to be a far more simple solution than the typical unlisted fund.
Lelde Smits: Could you outline the objectives of the fund?
Hamish Douglass: The fund has two objectives. The first objective is to minimise the risk of a permanent capital loss. And, the second objective is to deliver investors a satisfactory absolute return through the investment cycle.
Lelde Smits: How many stocks does the fund hold and what are some typical companies that have been held?
Hamish Douglass: The fund’s mandate is a mandate of 20-40 securities. Typically we’re holding 25/26/27 investments. I mentioned our strategy is to invest in very high quality businesses. So, some of our large investments at the moment would be two of the large tech companies in the world, Microsoft Corporation (NASDAQ:MSFT) and eBay Inc (NASDAQ:EBAY). eBay of course owns PayPal as well, they are about to split that into two separate companies at the moment.
We’ve got a large investment in Nestle SA (VTX:NESN). Nestle is the world’s largest food manufacturing business. People would know their coffee business and their ice cream business but it is the world’s leading pet care business as well.
We’ve got large banks like Wells Fargo & Co (NYSE:WFC) which is the largest bank in the United States of America. We own Google Inc (NASDAQ:GOOG) and Visa Inc (NYSE:V) as well. Many of these are global household names, businesses that you can’t actually access through the Australian Stock Exchange.
Lelde Smits: Finally Hamish, how can potential investors invest?
Hamish Douglass: Potential investors can invest very simply like buying any share in the stock exchange. They could ring up their stock broker or financial advisor and they will be able to make an order for them on the stock exchange and tell them the price at which it is trading. Or, they could go directly to a Commsec or a Bell
Direct or an E*Trade and buy the units on the exchange directly.
Lelde Smits: Hamish Douglass, thank you for the update and congratulations on bringing the EQMF to ASX.
Hamish Douglass: A pleasure.