Funds guru tells NZX to list ETF in New York

by Nick Smith

Thursday 8th April 2004

US Exchange Traded Funds (ETFs) guru David Fry says the New Zealand Stock Exchange must trade in the New York market if it is to attract US investment.

Mr Fry publishes the internet investment advice column, ETF Digest. On a working holiday in New Zealand and Australia, he met NZX members to talk about the market, including the NZX10 Fund.

The NZX10 Fund is one of four listed ETFs in New Zealand the others being the AMP Investments World Index, the Australian 20 Leaders Index Fund and the NZ Mid Index Fund but Mr Fry said staying in New Zealand was "holding the market back."

New Zealand was too small a market, whereas the New York-based trading programme, QQQ was the "ETF of the world, trading $US1 billion a day. Australia has an ETF and it trades in New York, New Zealand has an ETF but it doesn't it needs to [trade in New York]."

An ETF is a group of securities that trades like a single share, with each ETF unit a basket of shares made up in identical proportions to a market index.

ETFs have soared in popularity since mutual funds were embroiled in what was described in US media as a "maelstrom of scandal over illegal and unethical trading in their shares."

The beauty of ETFs, said Mr Fry, who started his online digest in 2001 and which has been used by Forbes.com, is its transparency and the comparative low fee structure.

The latter quality had not translated to the New Zealand market: "ETFs in New Zealand and other countries are not doing well because brokers cannot get with the deal and are fee-conflicted."

The structure was such that there was no incentive for the broker to find the best vehicle for a client "because that's not what pays the best fee.
You need to seek good commission structures and ethical fee structures," Mr Fry said.

Having spent three months in the country, he had noticed a few peculiarities about the New Zealand market, particularly the lack of a capital gains tax.

"If the US had no capital gains tax, they would be trading like crazy," he said. "Given that there is no capital gains tax, I would think equities would be more heavily traded than they are. But they seem to want to go the debt route and it makes no sense to me. In terms of listing, for some reason debt is popular. You would think it would be the other way round."

But he predicts that after the election in November, interest rates will rise and the US dollar will get stronger.

"Once that happens we're going to see a bloodbath, with speculators getting burnt and squeezed."

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