Dual access ETPs cost four times the rest of the market

Dual access Exchange Traded Products (ETPs), which are transacted both on stock exchanges and off-market through funds managers, can cost four times as much as the rest of the Australian ETP market, according to Rainmaker Information research.

The research from Rainmaker Information’s latest Exchange Traded Products Report reviewed products with at least 12 months of history to June 2024, to determine what the net flows looked like compared with the rest of the ETP market.

The results showed that the asset-weighted cost of ownership of dual access products was around four times that of the rest of the market,

“A lot of active managers with historically successful funds in the unit trust space are watching net flows very carefully,” said John Dyall, head of investment research at Rainmaker Information.

“They want to compete with the rest of ETP market, with its rapid funds growth, inexpensive index and smart beta products, but they are not willing to compete on price,” he said.

“In addition to that, as a group they lost 5% of total assets through net flows in the 12 months to June this year.”

“This compares with growth of around 26% for the rest of the market.”

Total cost of ownership over a year is made up of management costs and the expense of buying and selling (the spread).

The asset-weighted management cost of dual access products (not including performance fees) was 1.07% pa and the average spread was 0.43% for a total cost of 1.5%.

The rest of the ETP market had an asset-weighted management fee of 0.28% pa and a buy/sell spread of 0.08% for a total ownership cost of 0.36% pa.

“Our research shows that ETP investors are very cost sensitive,” Dyall said.

“One wonders why active managers are doing this.”

“Product providers will likely need to adjust their pricing strategies in order to attract new investment, otherwise they’ll be left behind. “

“For those that do adjust their pricing, it will also be a win for investors,” said Dyall.