From the Experts: Emma Kirk on Global Investing | Magellan Financial Group

Bryce: [00:02:29] Welcome to get started investing in this podcast, we cover all the basics that you need to start your investing journey. Are you joining us for the first time or is this the very start of your investing journey? Well, before you dive into this episode with us, our fate is designed to go from the very beginning. So we strongly recommend that you scroll up and start episode one. However, if you are feeling brave and just want to dive in, don't let us stop. You hear it get started investing. We unpack all the jargon, the confusing bits here, your investing stories with the goal of making investing less intimidating. And we want to have a good time along the way. My name is Bryce and as always I'm joined by my Equity Mates Ren. How are you going? [00:03:06][37.0]

Bryce: [00:03:07] I'm very good Bryce very excited for this episode. We've just come off a three part series on global investing. Why? Why we think people should look beyond Australia, how you can invest globally. And now we've got someone from Australia's best global investment fund manager. That's that's a bit of a mouthful. But I think it applies to really put a, you know, tie this section off and really educate us about global investing and probably tell us a lot of things that we got wrong along the way. It is an [00:03:40][33.1]

Alec: [00:03:40] absolute pleasure to welcome Emma Kirk from Magellan. Emma, welcome. [00:03:43][2.8]

Emma: [00:03:43] Hi, guys. How are you? [00:03:44][1.0]

Alec: [00:03:46] Very well, thank you. Looking forward to this one. But before we jump in, if you haven't come across Emma before, Emma is a key account manager for listed funds at Magellan, an Australian fund manager with just shy or North Emma of a billion. One hundred billion now north of 100 billion. [00:04:04][18.3]

Alec: [00:04:07] north of one hundred billion in assets under management. We've with over twenty five years experience in the financial services industry and has worked at AMP, BT Financial Group and ANZ before coming to Magellan. And this is the second time we've had Emma on the show. So very much looking forward to getting into all things global with you, Emma. [00:04:26][18.8]

Emma: [00:04:26] I am very much looking forward to it. Thanks for having me back. [00:04:29][2.6]

Bryce: [00:04:29] So, Emma, before we get into our conversation about global investing, we'd like to start with you and your investing journey. But we do like to start with a bit of a game, and it's a true or false game where we throw out some common ideas about investing, maybe some myths that exist and get your thoughts on whether they're true or not. So let's start at the very beginning. True or false, your very first investment has been your most successful. [00:05:00][30.7]

Speaker 4: [00:05:01] True. [00:05:01][0.0]

Bryce: [00:05:01] Oh wow! [00:05:01][0.0]

Emma: [00:05:08] No, I, I started with a thousand dollars. I got an inheritance from my great aunt and got a thousand dollars at eighteen and I invested it in the Colonial First State imputation fund and our dollar cost averaging for the next decade. And as I earn more money I put my money in on a monthly basis and that added up to over six figures over that decade. So it was hugely successful. [00:05:34][26.1]

Speaker 4: [00:05:35] That is a very that's a very sensible way to start investing as well. Dollar cost averaging, finding a fund manager that you believe in, leaving it there, thinking long term, [00:05:48][12.2]

Speaker 4: [00:05:49] it's very, very boring. [00:05:50][1.4]

Alec: [00:05:52] No, no, there's nothing boring about six figures. [00:05:54][2.3]

Bryce: [00:05:55] That's nothing boring about the result. [00:05:56][1.4]

Alec: [00:05:58] So true or false, you had a strategy in place before you started investing. [00:06:03][5.1]

Emma: [00:06:05] True. I'm exceedingly fortunate that when I my parents were financial planners. I also read a great book back in the 1990s written by Nell Whittaker, which was Money Made Simple. And in that book he talked about how the dollar cost average. He had some great budgeting tips in there, which I actually still use today. So I had some really early education that helped me put in place a strategy. I was also saving up money for my mortgage. I put a graph on the wall [00:06:36][31.7]

Speaker 4: [00:06:37] and tracked my progress. [00:06:38][1.4]

Emma: [00:06:40] So I am very nerdy when it comes to this. But I had a strategy in place and I and I tried as hard as I could to stick to it. [00:06:46][6.3]

Bryce: [00:06:46] Yeah, I love that. I think Bryce might be preparing a graph on the wall at some point in the near future. [00:06:51][4.6]

Speaker 4: [00:06:53] I'd love to come and help you with that graph. [00:06:54][1.8]

Bryce: [00:06:58] So next time a true or false is investing as hard as you thought it would be? [00:07:02][4.8]

Emma: [00:07:03] Cos I found that by having a strategy in place and understanding those fundamental laws, I was able to to get ahead. The analogy that I use nowadays and I didn't realise it at the time. The analogy I use today is that investing is a bit like health and wellness. I don't know about you in lockdown to date, a bit more exercise, as much not be around as much, but. Investing is very much like health and wellness, so if you wanted to get a bit fitter and lose a bit of weight, there's really only two things you can do is eat less and move more. A lot of diets out there and a lot of jargon and lots of different ways you could do it. But those two fundamental rules apply. Cyberforce investing anyway. You're going to get ahead ahead in investing is to spend less and earn more. And they're the only two levers that you've got. And once you kind of unpack those, you'll see that it's actually very easy. You can swim through a lot of the noise that we in financial services tend to be so good at putting out there. But very much, if you think about it like health and wellness. So you look at diets out there and, you know, lots of myths. But I get back to the fundamentals and you can get there [00:08:14][71.1]

Alec: [00:08:14] to close out. And we often hear that investing is like gambling from particularly from people who aren't investing, which I find interesting. But true or false investing is like gambling. [00:08:28][13.3]

Emma: [00:08:28] I would say false. It true. Investing is not gambling. True investing is part of that earning more part of the equation and more through your personal exertion and efforts to earn income. Or you can get your assets working for you and they can earn more for you. And if you're sensible about that and have a long term focus, it is nothing like gambling. If you're at the other end of the spectrum where you are literally punting, then yes, it is. But in my view, it is full of those rules. Be sensible about it and it can be very successful. [00:09:03][34.9]

Bryce: [00:09:04] I'm glad you said that. If you had told us investing was like gambling, he probably would have had a few tough conversations in the Magellan throwing. [00:09:13][9.1]

Speaker 4: [00:09:15] So that looks like a good investment done. [00:09:17][2.6]

Bryce: [00:09:20] So we would love to hear a bit about your investing journey and some of the lessons you've learnt along the way, because, you know, as Bryce said, you've had over 25 years in the industry. You would have seen a lot of changes and, you know, you would have learnt a lot. If you think back to your younger self investing in colonial first state, what are some of the lessons that you've learnt along your journey that you wish you knew when you were getting started? [00:09:45][25.1]

Emma: [00:09:46] I think the thing that I would like to learn more about was more about myself, to be really honest, more about behavioural economics and the kind of the psychological drivers that make us human. We are very short term focussed in in how we think and how long we type we think it takes to get somewhere. And I think the sooner you can realise that it takes time, the easier your journey is going to be. I was always keen to get ahead in every aspect, whether it be the shares or property. And I think that I follow the strategies and I did really well at it. But just trying to hack yourself and stop yourself from actually going, oh, I want to go by that or I want to get a greater return, I'm going to go and invest in X, Y, Z, because it's going to be the next best thing. It's sometimes stopping yourself and understanding those triggers that what that might stray, of course. And so that's what I wish I'd let more of. And I probably would have invested more. I would have saved more and dollar cost averaging more because it would have compounded more over time. That's actually what I would have done more of. [00:10:53][66.9]

Alec: [00:10:53] Yeah, it is really hard to actually, particularly when you're excited at the start of your journey and wanting to chase those hundred baggers or ten baggers, even though it is hard to think about that 40 year investment plan. [00:11:06][12.8]

Emma: [00:11:07] It is. And there are you hear the stories of it and you'll only ever hear the stories of people that have got those 10 baggers and the why didn't you give me that tip? What was on that journey? But they quite real. And it's a bit it's a bit like punting on the horses. And let me tell you about what they win. They don't tell you about how [00:11:24][17.3]

Speaker 4: [00:11:24] much they lose. [00:11:24][0.4]

Alec: [00:11:26] So in your role at Magellan at the moment, you have a lot of contact with the retail investors. And I'm sure you hear the highs and the lows and everything in between. What do you think retail investors often get wrong about how financial markets actually work? [00:11:41][14.6]

Emma: [00:11:42] I think particularly in the last decade, a lot of investors just think that markets go up. [00:11:46][3.9]

Speaker 4: [00:11:47] What do you mean they do? It's just one direction and that thing. [00:11:52][4.5]

Emma: [00:11:53] I genuinely think that particularly those people that have only started in the last decade, the GFC was brutal. It was a really tough time for markets. It was a tough time for people in work. You know, not a lot of people realise that lots of great people lost their jobs. So not only were their investments down, but they were at work. And that they we seem to live in this world now where people don't think that that's ever going to happen again. And yes, I know we've got a lot of stimulus going on at the moment. And I know the governments that a lot from the last time we had a recession. But it's you know, it's not linear, it's not going to go in straight line up all the time. So that's the first thing. The second thing is that I think they need to get rich in a short space of time. Coming back to that. I know you've got a mate who's giving you a stock tip and you're like, great, I'm going to get on it. I'm going to basically give up next year. It's not going to happen. And the other thing that the third thing is that a lot of people focus on last year's best performer. So they go they look at their when they're picking a particular fund manager like, oh, who was last year's best performing fund manager or stock? And they invest in that. And like that boat has sailed that that saying that, you know, past performance isn't an indicator of future performance is absolutely correct. What somebody is done in the past doesn't tell you what they're going to do in the future. It gives you an indication, but it's not an exact science. And so I would look at those three things and say markets definitely can go down. It definitely takes time. And you maybe want to want to be looking for those unloved areas that you can invest in over the long term. So they might kind of three things like retail investors to remember. [00:13:34][101.6]

Bryce: [00:13:35] Yeah, a lot of a lot of good, good thoughts there. And, you know, Bryce and I have really only invested in a bull market. We we had the Covid crash of twenty twenty. But in some ways that gave us a false perception of what investing in a bear market was like because it was a month and it was done in a way we haven't lived through a protracted three year slow grind down. And I don't think Bryce has the stomach for it. To be honest, [00:14:01][26.0]

Alec: [00:14:03] I was in the market during GFC, but I just, [00:14:06][2.6]

Speaker 4: [00:14:06] you know, the GFC lows [00:14:09][2.8]

Alec: [00:14:09] in 12. I think you're 11 or 12, not even. Yeah. [00:14:13][3.3]

Speaker 4: [00:14:13] You go through a tech bubble and [00:14:16][3.4]

Emma: [00:14:17] a GFC, and I could tell you that neither neither if I was invested in a global tech fund. The late 1990s was actually the AMP Global Technology Fund and had exactly what I said to the year before that. Thirty five percent returns. Yeah, I mean it's negative and our dollar cost averaging. So it was good, but my God, you know, so that's that's probably one of the biggest lessons. [00:14:40][23.3]

Bryce: [00:14:42] So we're talking about a global financial crisis. Let's somehow turn that into a Segway, into global investing. So we've recently done a three part series on global investing. You know, for Bryce and I it's just it's just it's never been easier as a retail investor to invest outside of Australia, and that really excites us. Magellan has been investing outside of Australia for a lot longer than us. You know, Magellan is is a truly like a truly looking all around the world for opportunities. So let's start with why I guess why does Magellan invest globally? [00:15:19][37.1]

Emma: [00:15:20] So you probably heard these stats before, but I'm going to reiterate to them to the Australian market makes up two point two percent of global markets. We are small. And if you compare the make up of our market to that of global market, we are dominated by financial services, particularly banks and resource stocks. They make up 48 percent of our market. So you're very heavily skewed to those two areas. What we're lacking is exposure to technology stocks, to energy companies and consumer stocks. So Australia's only got eight per cent in those two key areas versus forty two percent in Australian soccer and global markets. I love going to the website Visual Capitals. They have a great graphic that shows you the top one hundred companies in the world. And if you have a look at the pie chart of it, there's one little stock in Australia and it's BHP. That's it. One company that makes the top one hundred companies in the world. And so we're small. And the question is, why is it important? Why do you need exposure to that global market? And it comes back to us talking about time. So we're in a world where things are, the pace of change is getting faster and faster. So if you think back to the early nineteen hundreds, things were changing then, too. So you had the things like motor vehicle coming into play, the electricity and things like that. And another one of the steps that I love looking back at is the time that it takes for different types of technology to reach 50 different uses. And if you go back through time, it took electricity forty six years to reach fifty million users to the telephone. Thirty seven years. But if you look in more recent times, it took only seven years. Smart phones for years, two years. And the step that I love is Pokémon. Go took 19 days [00:17:16][115.5]

Speaker 4: [00:17:19] and [00:17:19][0.0]

Emma: [00:17:20] so changed in disruption's. Not new technologies, not new, but the pace. In our current world, it's getting faster and faster. And years and years ago, you had time to think about whether that change was going to impact your portfolio or not. Forty six years electricity, I think it's going to be keepa, whereas now companies are made and destroyed in months and years versus decades. And so you want to make sure that you're participating in that growth, but also navigating through it, particularly if it's going to blow up quickly as well. It's not going to be a slow burn. So global markets give you that exposure to that that level of growth that's coming and this this wave of change and disruption. [00:18:03][42.9]

Alec: [00:18:03] Are there any countries or regions that are particularly exciting, Magellan, at the moment? I mean, you can't go past what you know, that what the US offers, but there are plenty of other amazing markets and opportunities elsewhere. Where's Magellan looking at the moment? [00:18:18][14.4]

Emma: [00:18:18] We are a truly global fund manager in the sense that we actually don't look at any specific country or region. What we look at is companies and where they make money. And we want those truly global companies that are making money around the world, those multinational companies that are set up to gain access to consumers in different markets. And they're going to give you a couple of examples of some of the stocks that we invest in and some of the crazy numbers that come with them. So we have investments in Netflix, has two hundred million subscribers, but it's across 190 countries. And they recently did a survey of millennials and said, what's your choice for watching TV? What's your first choice? Sixty one percent of them said Netflix. So in their mind, TV is Netflix. So that's massive. Google has eighty seven percent market share across two hundred and nineteen countries. Guess where their nearest competitor comes in? [00:19:17][58.2]

Bryce: [00:19:18] Oh, like five percent. [00:19:19][1.0]

Alec: [00:19:20] So name the competitor [00:19:22][1.6]

Speaker 4: [00:19:26] is the Internet. [00:19:27][1.3]

Emma: [00:19:28] Bing has five point five six percent market share and Yahoo has two point seven. So every time he comes up on my screen, I'm like diving, stop it. I couldn't do that because it's a Microsoft company and I love Microsoft, but I'm not going there. And then if you look at something like Visa Visa's got three billion cards on issue across 17 million merchants worldwide, you can't go anywhere or buy anything without them. And then I'm going to go to the not so sexy space Spice's consumer staples and quick, quick service restaurants. Nestle, two thousand brands across one hundred and eighty six countries. McDonald's is thirty nine thousand stores across one hundred ninety markets and Starbucks thirty two thousand stores across eighty three countries. So these companies are truly global. And this pandemic has given you a view that even if one market is shut down, you've got those other markets that are open and those people are consuming those goods on a daily basis. And that gives you a lot of protection. And that's why it's not just about one particular market or one particular country. It's about companies that wrap their arms around the world and derive revenues from around the world. [00:20:40][71.7]

Bryce: [00:20:41] Okay, so you've got us excited about the opportunity set globally, some of those companies that you can invest in once you step outside Australia. I guess the next question is, are we start to get into the how so what factors should beginner investors consider if they do want to invest overseas? [00:21:00][19.4]

Emma: [00:21:01] OK, so there's a number of ways that you can do. You can invest overseas so you can go and rightly so at the start of this, access to international markets has never been easy. So you can actually trade in international markets directly or you can actually buy into funds here on the Australian market that managed either passively or actively with a basket of global stocks. The only thing that I'd like your listeners to take into account is if you do it directly. There's a number of things that aren't so obvious when you first do it, and that is setting up an account to do that. So if it's with an online share trading account, a lot of them put out the zero percent commission or five dollar fees and things like that. And that's great. But you need to look under the hood. You need to have a look at what goes into this. So you're going to have currency conversion. You have to convert your Aussie dollars to the currency, which you want to trade is cost associated with that. You want to ensure that you're investing is in you're actually going to it's going to be domiciled in the right country. That's the first thing. So are you buying something domiciled here in Australia or is it over in the US or in Europe? If that's the case, what are some of the consequences of that? What are the tax consequences of that? [00:22:13][72.5]

Bryce: [00:22:14] Sorry, just if people aren't familiar with the term domiciled, do you want to just quickly explain that [00:22:19][4.4]

Emma: [00:22:20] it's actually you own it in that particular country. So the entity or the stock that you're owning is actually. Eagerly set up in that country. And so you want to make sure that you understand where you're purchasing your assets, how you own them, and particularly if you're going to be some of the some of the online trading funds set up in custodial accounts, which is where you've got somebody who owns it on your behalf. So you just want to make sure that the ownership structure is set. You are understanding how you're owning these things and then the ramifications from a tax point of view. So when you go to do your tax, you're going to be having to deal with the tax regime of the country that you're investing in. And that brings a level of complexity. So whilst it might at first blush look cheap and easy to do, there may be some heavy admin work that you have to do later on. This is buying into a fund on a stock exchange here in Australia, potentially at a low cost, and it's domiciled here in Australia. You get a tax summary that's in Australia and it deals with the tax office quite easy. So I just think that through that's probably the most important thing. [00:23:33][73.8]

Alec: [00:23:35] There's no doubt that investing overseas opens up a huge opportunity set and opportunity to invest in individual companies. But we're also seeing many more ETFs become available to give you access to international markets. So from your point of view, what role should passive index tracking ETFs and actively managed funds have in a portfolio when it comes to global investing? And does one make more sense than the other when you're thinking about investing overseas? [00:24:06][31.0]

Emma: [00:24:07] Definitely. I think both active and passive ETFs have a place in investor's investor's portfolio. So an exchange traded fund is a basket of stocks and you're buying a unit in that particular basket of stocks, passive obviously tracks and index. And that gives you exposure to a number of different indices around the world, whether that's the top two hundred stocks, top 500 stocks, they can be weighted in different ways. And so it gives you exposure also to different markets. Where I think you can have a look at both passive and active is that they can give you exposure where you can't buy into that particular market or you may not be able to buy that particular stock. So a good example of that is if you want to buy a Berkshire Hathaway stock, what's the share price of Berkshire Hathaway? [00:24:59][51.2]

Bryce: [00:25:00] I think 420000 used [00:25:02][2.1]

Emma: [00:25:04] to buy one share in Berkshire Hathaway. You have to have about four hundred and twenty grand. And so what you can do is you can buy an ETF that owns Berkshire Hathaway and that gives you a share in Berkshire Hathaway without having to come up with four hundred and twenty thousand. So that's the kind of the first thing is your exposure to those big companies or those markets. You might not necessarily have access to the difference between passive and active is that passive is going to track an index. So it's going to go up with an index, a Dow with an index and active manager is going to try and beat that index, both going up and also going down. And so I think it's important to have both in your portfolio because you're going to get all the up it comes with passive, but a really good active manager is going to come to the fore in a down market. They're going to navigate that downside hopefully better than a passive fund. And so you've got both in your kit bag. You've got a lot of protection on the downside that you get to have all the benefit of the upside at the same time. [00:26:03][59.6]

Bryce: [00:26:04] So, you know, Magellan is obviously one of the more famous and I guess best performing active managers in Australia. So we want to well, actually maybe in the world. So we want to pick your brain about how we can understand, you know, finding good active managers and the different options when it comes to active management. [00:26:25][20.6]

Bryce: [00:27:42] So as I mentioned before the break, we want to really pick your brain on navigating the world of active managers because there's so much choice out there when it comes to where we can put our money and who we can, I guess, trust to manage it on our behalf. It can it can often get confusing. So if we start general to begin with, you know, Bryce and I, we're looking at a sea of active managers and we're trying to figure out who we want to put our money with. What what are some things we can do to, I guess, separate the great managers from the perhaps not so great managers? [00:28:16][33.8]

Emma: [00:28:17] OK, so the first thing I'd say is that desktop research is your friend doing your research, go into their website, have a look at what they do and try to understand that process. The next thing is give them a call, have a chat to them, get them to explain what their processes and how they actually go and select stocks. I think that it's really important for you to be able to access a particular company to it. And it's got to make sense to you at Magellan, where we're a very straight 180, very vanilla fund manager, we physically on the stocks that we invest in, we have a rigorous investment process that we take our stocks through our investment committee before the portfolio manager can put it into the portfolio. And then we have a way of continuously updating and monitoring those particular stocks. Ask the question, bring them up and go. What's the process that you take a company through? What's your relationship with the companies that you invest in? Do you get to speak to the management of those companies? Do you have direct access to the management who are managing these companies on behalf of the shareholders of which you one? So you want to make sure that they've actually got that exposure and understanding. And it's not just about navigating the upside, it's about navigating the downside. So you want to make sure that they they've got a really good as any of that company, but also the competitors in that space. The last thing I'd say is you want to ensure that you're investing in fund managers that aren't highly correlated as in the same, some fund managers are really great in picking growth stocks. Some are really good at picking value stocks. And I think that it's important to have that both of those in your arsenal, a really good resource for that is Morningstar. Morningstar can give you access to have a look at different fund managers and look at the correlation between that, which is how much they move in concert together. And you do want exposure to fund managers are different and that have got different ways of thinking. A lot of people chat to us about Magellan versus Platinum, where different fund managers and we select stocks in a very different way. And that's great. It means that you can actually have different thinking and different portfolio managers working for you at different times. We're not going to win at the same time. But if you've got both in it in the kitbag, you're going to be happy all the time because somebody is going to be doing really well in whatever the market's doing. So that's really important. But do your research. That's the that's the main thing [00:30:44][146.1]

Alec: [00:30:45] I've been thinking about the Magellan High Conviction Fund. So Chris Weldon should be expecting a call from me shortly. [00:30:51][5.5]

Emma: [00:30:52] So definitely. And that's going to be really upfront with you. I am really happy to take any calls from anybody and so are our portfolio managers. This is a thing people think that this is a veil of secrecy and you can't get in and chat to these people. Yes, you can give us a call, but we it's your money. That's the thing that I think a lot of people don't realise is that I kind of think, well, I'm just some tiny investor and it's not the case. You know, I want to have a chat to you. I'm happy to tell you about what's going on in the portfolio doing. And, yeah, access is really key. [00:31:24][31.4]

Bryce: [00:31:24] You may have opened the floodgates there. The switchboard might light up [00:31:29][4.2]

Speaker 4: [00:31:29] one [00:31:29][0.0]

Emma: [00:31:30] hundred Magellan. Actually, no, I'm not kidding. Right. [00:31:32][2.8]

Speaker 4: [00:31:34] Gentlemen, what will you get me and what time it is? [00:31:40][5.6]

Alec: [00:31:40] No, we need one 800 Equity Mates. [00:31:45][5.1]

Speaker 4: [00:31:46] Yes, we do. We do. Yes. [00:31:47][1.7]

Alec: [00:31:50] Now, Emma, there are plenty of options to choose from is listed investment trusts, those listed investment companies, Elyse's and latte's active ETFs, unlisted funds, index tracking ETFs, plenty of options. How should we think about the differences between all of them now? I know we have spoken in isolation about some of these before, but let's put them all together. And if you can explain the differences, that would be awesome. [00:32:18][27.9]

Emma: [00:32:18] Excellent. So I'm going to group it into three areas. So the first thing I'd like you to think about is we talked about lezzies ality activates parts of it. It's great. Lots of jargon. [00:32:29][10.6]

Speaker 4: [00:32:31] It's going to be able to sleep. [00:32:32][0.9]

Emma: [00:32:34] What do you think about it? In three buckets? The first thing I want to think about is a company versus a trust. And the second thing we're going to look. That is open ended versus closed ended and the third thing is listed versus unlisted, so there the three key areas that I'd like you to think about. So the first is company versus trust. So little bit of going back to university. Anybody doing business, law or trust law, you probably fell asleep in those lectures. But they're actually really important because you've got different legal structures here in Australia and there's actually only two that really matter. One is company, one is a trust. And so what I'd like to have a look at is the differences from a structural point of view as a company is a legal entity and it's governed by the Corporations Act. It has a board of directors and everybody it has to have an annual general meeting, which if you are an owner of a company that's as dumb as you can go to the AGM, I highly encourage you to do that. And it's got a number of shares on issue. And that number of shares on issue is fixed and it can only increase the number of shares on issue by raising capital and the number of shares has to equal the amount of capital. So that's the first thing. You've got a company as an entity and it's got a CEO, a board of directors versus a trust. A trust is another type of entity, but it's governed by trust law. And it's instead of having a board of directors and a CEO, it's got a trustee or a responsible entity. And it will generally be held in units as opposed to shares, but still divisible. So you can actually divide this particular entity up and the assets sit inside each of these entities. Company physically owns the assets, a trust it's being held in trust for you as a beneficiary. Trust doesn't have to have arms each year, but it has has a fiduciary duty. The trustee has a fiduciary duty to look after the assets at Sydney. So you've got two entities as such that hold these assets on behalf of people and the divisible into shares for company and units for unit trust. The biggest difference between the two of these is actually from a tax point of view. So what happens with a company is that a company will earn its income throughout the year and it will get taxed at a company tax rate. So the company tax rate used to be 30 percent and twenty eight. And the small businesses, it's come down, it's coming down and it can on an annual basis, actually distribute its profits out to the shareholders. It takes out the tax first. You get a franking credit attached to it, which you can then claim back through your tax, but essentially you're going to get your money coming through. The company can also retain profits on an annual basis. It can make a decision about what to pay out and what not to pay out a trust. On the other hand, it has to be a full pass through so the trust itself doesn't tax any of the profits that it makes. It actually passes it through to the underlying unit holders and it gets taxed at their marginal tax rate. It ends up being very similar between the two of them. It's just the process that the money flows through is a little bit different, but essentially very, very similar. Divisible into shares for company units, for unit trust tax passes through slightly differently. But the outcome is very similar and the way that they are governed is slightly different. So back to the the structures that we said on the stock exchange. So a listed investment company is exactly that. It's a company. Everything else is a trust. So listed investment trust activity, passive ETF and even unlisted funds or trusts. And so the only thing I'd like to think about there is really just the way that tax flows through and the governance, that's where they differ. So that's number one. [00:36:21][226.7]

Bryce: [00:36:23] I actually didn't know ETFs were trusts. So there you go. I'm already learning something. [00:36:28][4.3]

Emma: [00:36:29] And so that's that's kind of the first thing that the names of investment companies gives it away. Everything else is a trust. So the next thing is open ended versus closed ended. And this is where I like to use my fund analogy. So bear with me for this one. So open ended versus closed ended. So listed investment trusts and listed investment companies are closed ended vehicles, active passive ETFs and unlisted trusts, open ended. And let's start with open ended. Open ended funds are referred to as the never any of the terms. And the reason why I refer to them as a never ending pasta tin cans is an open ended fund continuously creates units as people join and it cancels those units as people leave. So you could have imagined that Pecola Tim Tams basically producing Tim Tams on a daily basis, which means that supply is effectively unlimited. And so how that plays out from a pricing dynamic. So let's say that you wanted to invest into an open ended fund. You put in your money, you put inside ten thousand dollars. We actually create ten thousand dollars with the units. Then we go and buy the underlying. So we go by Microsoft and Starbucks, et cetera, et cetera, and it knits itself out, so the fund actually gets bigger. It grows as people join on a daily basis. If you said Imma give me back my ten thousand dollars, I'll be like, great, Hezi. Ten thousand dollars back. I'm going to cancel those units and I'm going to sell Starbucks, McDonald's and Nestlé and sell those units. And so the fund actually shrinks in size. The unit price doesn't change because you've got that netting off of units being cancelled and assets being sold. The price isn't affected by that. So you've got no impact there. It's just the size of the fund grows and shrinks. How that plays out from a pricing dynamic is that activity of some passive ETFs trade on the stock market and they have got a share price, which is what they try to on the stock market. But they've also got a net asset value. The net asset value is the value of the fund divided by the number of units on issue. So it tells you what one Tim Tam is worth because supply is unlimited. If there's more demand we literally created to put them on the market. What that means is that the share price will trade very, very close to the net asset value. So someone puts in an order. We create the units that go on the market and therefore they trade very close, will always trade one to two cents with the within their net asset value. So that's open ended funds. Never any of Tintin's. Let's have a look at close ended funds and a closed end. Funds are referred to as a pizza. So they have got a fixed number of slices on issue. And when I say fixed, it means that we can't actually create any more. We can do through certain times, through capital raisings, but essentially it's fixed. And what that means is that people have to trade with each other. So let's say Aliki wanted to buy my pizza. Pizza. It's delicious. It's ham and pineapple. You want to buy it off of me. And I know that the ingredients sitting inside that that pizza, it's worth a dollar, but you only want to buy it off of me for ninety five cents because you don't like ham and pineapple. And I'm always [00:39:49][200.3]

Bryce: [00:39:50] looking for a bargain [00:39:50][0.4]

Speaker 4: [00:39:53] pizza, the double combo. But I like the pizzas. [00:39:58][5.1]

Emma: [00:39:58] The pizza is worth a dollar. Have a pineapple is gold. I want a dollar and five and so you and I will haggle over what this piece of pizza is worth. And when we meet in terms of what we think that value is, that's what the share price will be. Now, the piece of pizza is actually worth a dollar. But if you're prepared to pay more for it, a dollar and five, it's said to be trading at a premium. You pay less for it, say ninety five cents. It's trading at a discount. And that is purely because supply and demand is is fixed. You got a fixed number of units on issue. The laws of supply and demand determine the share price that you're going to pay in a closed end vehicle. The higher the demand, the higher the price, the lower the demand, the lower the price. And so that's the biggest thing with closed ended in open ended vehicles open and will always trade very close to its net asset value because supply is effectively unlimited, closed and it can trade at a premium or discount. So I encourage people to go and check the share price, but also check the net asset value. And it if he's alive on our website, update every one second. So you know what that piece of paper is worth. Don't pay more for it than you should. And if you're going to sell, don't sell it for less than what it's worth. And so that's the difference between open ended and closed end. And as I said, listed investment trusts, listed investment company, closed ended active ETF, passive ETF, unlisted unit trust or open ended. [00:41:22][83.6]

Bryce: [00:41:23] So that's the second key distinction. There is one more key distinction to go. I appreciate you stepping us through this. I think this is a lot clearer than Bryce and I could ever do so now. [00:41:34][11.0]

Alec: [00:41:34] Well, I'm thinking about a 10000 page. [00:41:36][1.6]

Bryce: [00:41:40] Well, Bryce had a real Bryce and a real Tim Tam thing when we're at uni as well. I mean, [00:41:45][4.8]

Alec: [00:41:45] I'm still [00:41:46][0.6]

Bryce: [00:41:46] talking in terms of what I like. No one else. [00:41:49][2.1]

Emma: [00:41:49] Oh, my. I can remember my statistics teacher at uni enlightening me to the fact that a packet of Tintin's only has eleven Tim Tams in it and she was crushed. She said while I was in it it even no you can't not split eleven yet to the end of the packet and you've got to break one in half. It's terrible. [00:42:07][17.4]

Alec: [00:42:07] Well, here's a fun fact that I was also shocked when I found out that the double coat Tim Tams actually have one less in than the norm. [00:42:16][8.4]

Speaker 4: [00:42:16] And it's not a job. I love it. I love it. I love it. Like when they reduce the package size of staff and you like it, it's more expensive to invest in those companies. Invest in true. Anyway, we digress. Sorry. OK, listed versus unlisted. And so ETFs. Exchange traded funds of. I've been around for quite some time, and what's been a new advent to it is the the active ATF coming up, the market so traditionally back alcohol, I feel old now back in unit trusts were only ever unlisted. So you could only ever buy them off market. You had to send in an application form, sending a check. Maybe a couple of weeks later you'd know how many units you got. You didn't have trust, price transparency. It was very, very slow. And so that's the way unit trusts used to work ETFs. Exchange traded funds came on and they were created by Jeff Buckley from Vanguard and he created passive ETFs and put them on the stock exchange over the US. And we've had them here in Australia for a while. Vanguard has been one of the stars of that. All they are is a a unit trust that trades on an exchange. Passive ETFs could easily do that because they replicate an index and you have full price [00:43:38][82.0]

Speaker 4: [00:43:41] price transparency [00:43:42][0.7]

Emma: [00:43:45] around the underlying stocks that they own. So you can easily price it. Active ETFs, which are exchange traded funds that have got a portfolio manager picking the stocks, couldn't do that because if we actually disclose all the underlying stocks, we're giving away our IP. And so in 2015, Magellan was the first one to bring an active exchange traded fund to market. And we worked with the regulators and the ASX to have a delay in the portfolio disclosure. And we worked out a way to actually put the net asset value life on the market so you could see what it's worth to have that price transparency, to make an informed decision about whether to buy or sell. But effectively, all we were doing was taking our unlisted unit trust and putting it on a stock exchange that you could buy it instantly and what it meant, as opposed to filling in paperwork and sending in a cheque. If you had a [00:44:36][51.2]

Alec: [00:44:36] paper work [00:44:37][0.4]

Speaker 4: [00:44:37] so much money, you [00:44:42][4.6]

Emma: [00:44:42] could push a button and buy it and an online share trading platform or through a stock broker. And when I when I say to people who said, what's the difference? I go, what is 30 minutes of your time with? Because that's the difference. The difference is you can spend 30 minutes filling in paperwork, send it in, and it will go to the registry and they'll create those units for you or you push a button, spend 20 bucks and buy exactly the same thing in an instant and same thing when you go to sell. So that is the difference. You are buying into the exact same thing. Now, the next evolution that they used to be separate unit trusts. So our unlisted trusts and listed trust with two separate unit trusts, whereas now the next evolution, we've actually put these together into one unit trust. It's called a single unit trust. And what it means is it's like a house with two doors. You can now come into our funds by the unlisted pathway and actually all the listed pathway and you can swap between the two inside the same unit trust. And so that is the next evolution of unit trusts and how you can access them from your point of view. From an investor's point of view, it shouldn't make any difference. You should choose whichever suits you, whether it is pushing a button and buying or with a filling in paperwork. The only thing I would say is if you were going to dollar cost average, if you were going to do a regular savings plan, sometimes the unlisted public can be more beneficial to you because you're not going to be paying brokerage every single time you put in that money. So for our unlisted funds, we you get a beep code to make to you and you can just be paying via Internet banking. So that's the only really the time you spend so much time with and also the cost of the brokerage if you are going to be doing a regular sightings. But other than that listed on unlisted other side, you're getting a basket of stocks in a portfolio that's professionally managed on your behalf. [00:46:33][111.2]

Alec: [00:46:34] And to also clarify, the fees are the same, the underlying fees that the managed charges, regardless of listed, are unlisted, correct? [00:46:41][6.6]

Emma: [00:46:41] Yes. So the underlying fees are exactly the same. The stocks are the same, everything is the same. It's just the pathway you come in. And one pathway is your effort in filling out paperwork, the other pathways. You're using someone else's technology and you're paying to use that technology, which is the online share trading platforms, take them. [00:47:00][18.5]

Bryce: [00:47:01] I think one other thing with unlisted funds, as well as not paying brokerage, every time you top up, if you're someone who behaviourally is going to sell and panic and check things constantly, are that paperwork can sometimes be a little bit of a check on your emotions. You know, it makes you pause and [00:47:21][20.4]

Emma: [00:47:21] think, definitely. I really I really loved my investment strategy, which was buy something, put it in the bottom drawer, dollar cost averaging and not look at it. [00:47:29][8.4]

Bryce: [00:47:30] Mm. Yeah. Now we've just done a big theoretical conversation and I think you know, we should give you credit for putting the time in and making that very clear because. It's a good bet, it was a good explanation of everything, if we move it like a practical example, to give people a taste of the different options, Magellan has a global fund that is unlisted, has an open class and a closed class. So maybe if you use a global fund as an example, how does that all fit together with all the different options you've just explained? [00:48:04][33.8]

Emma: [00:48:05] My goodness, we we we took something and that's never been done before and did it without a big Asfandyar Global Fund. So previously and it's really is just off the back of the evolution of technology. That is the only reason as to why we've got to where we are today. So originally the Magellan Global Fund started in two thousand and seven and it was an unlisted unit trust and it was the only way that you could access the funds. In 2015, we replicated that fund and came out with the Magellan Global Equities Fund that had the ticker code and that was the first active ETF on the market in Australia. But it was identical to the Global Fund. Exactly the same stocks, exactly the same fees. And it was literally the only difference with people on the market at the Magellan Global Fund as an unlisted fund. But they weren't the SunTrust. So you were going to two separate trusts with two different cost bases in 2017, we came out with a listed investment trust, so a closed ended vehicle that's on the exchange and that was called the Magellan Global Trust. And it had the ticker code MGG. So three of those vehicles that I just went through, we had three of them and people could access all of them, but they were all separate unit trusts. And last year we did something that's never been done in Australian history. We actually put all of those together into one mega unit trust. And so if you bear with me for two seconds, what we do [00:49:35][90.4]

Speaker 4: [00:49:36] is we took [00:49:38][2.0]

Emma: [00:49:39] the Magellan Global Fund, the unlisted managed fund and the listed equivalent. So the open ended activity, if we put them together into what's now called Magellan Global Open Costliness. So those two have come together. They are inside the one house and they've got a house with two doors. So you can come in for the application, Daylife, and you can also come in by the listed Doorly. And what happens is you're going to the same unit trust. You come in by the unlisted pathway. You still get given an SRN, a security holder reference number like you would in an IPO. If you come in via the listed pathway, you come in on your pin, you hold the ID number and you're sitting inside that one trust. And if you want to go from listed to unlisted or unlisted to listed, you can you can actually swap between those two worlds inside the open world. So that sits there also inside the same trust. But I'm going to talk about it a bit like a granny flat that sits beside the house. It's on the same parcel of land. But we've got the granny flat, which is the closed end of listed investment trust is called the Magellan Global Fund close class unit. And it is the pizza. It's got the fixed number of units on issue and it can only be bought and sold on the stock exchange to another human being. So units aren't continuously created. It is literally just people trading themselves. But the underlying assets of the stocks that we own and the fees are identical to the open costs. So if you can think of a plot of land with a house with two doors and a granny flat. So that is what the Magellan Global Fund is today. [00:51:17][98.4]

Alec: [00:51:18] There we go. We covered a lot of ground there, but thank you for making it. I think very clear. And yeah, I know that there's there is a lot to comprehend there and a lot of jargon for those that are trying to figure out what it all means and where they should be putting their money. But I think you laid it out pretty clearly, Emma. So thank you very much. [00:51:40][22.2]

Bryce: [00:51:41] Just but just before we move on, I think people might be wondering. So now I know I'm starting to understand the different options. Is there the best option? And I'm going to pre-empt it with an answer. Tell me if I'm wrong, deciding how are you going to invest based on the structure of the investment rather than the investment strategy? The philosophy to manage all of that stuff is kind of putting the cart before the horse. Is that right or is that wrong? [00:52:09][28.5]

Emma: [00:52:10] The first thing is you want to be investing in the right firstly, the right asset class that suits your risk profile, I think is the first thing Mix's you want to then pick the right fund manager because a number of fund managers have got different structures. So that's probably the first thing is make sure that you're picking the right manager. Then I would definitely have a look at the structure. If you was somebody that wants to get in and out at net asset value, go for an open course, go for something that's good to be creative. I see this is nothing worse that when you want to go and sell. And you can see what the net asset value is and it's trading at a discount. It hurts. It's really hard. So I would always if you are not comfortable with discounts that always go for, I can see it. If you are someone that likes a bargain, [00:52:54][44.0]

Speaker 4: [00:52:57] then [00:52:57][0.0]

Emma: [00:52:57] close class units, listed investment companies, unlisted investment trusts. If they're trading at a discount, then they that gives you an opportunity to buy something that's on sale. And if your time frame is long, which I know all of your listeners will have a long time frame after listening to you guys, then you can wear that. So I think that you can actually get some extra uptick in buying into closed ended funds that are trading at a discount. But you just need to be aware that when the time comes to sell, it still may be trading at a discount so that a lot of managers now where they are trading at a discount are doing things to actually close that discount. I do know that Bell Potter put out a research report on all the close ended vehicles in the market on a regular basis. And so that's a great document to have a look at, to go who's trading at a discount, who is trading at a premium and what's been the history around that. But once again, investor sentiment drives the value of those close to the vehicle. So I would say that close knit vehicles alike, the emotional ones on the market where you open ended, is very logical. So if you want logical or emotional, [00:54:03][65.9]

Bryce: [00:54:06] I like that distinction. [00:54:06][0.5]

Alec: [00:54:08] Nice one. MSO, I guess. Thank you for your time today. We very much appreciate you coming on and talking all things global as it's been a great sort of wrap up to the series that we've done. If anyone would like more information on what Magellan is doing, what is the best place to sell to head [00:54:23][15.5]

Speaker 4: [00:54:25] one 800 Magellan? I think you have a look [00:54:29][4.9]

Emma: [00:54:30] at Magellan Group dot com that I you is our website. There's some great educational videos on there. I've done some ones on what's the net asset value, what's the quiddity, things like that. There's some great videos on Global Investing by Hamish Douglass, Chris Weldon, Infrastructure, Joe Stack and also Ailee. I know a number of your listeners love Ailee, that Emma Fisher and Matt Williams can get to their website via our website as well. And we've got a magical series, which is our new low costs over Harry Allissa and also Dave Costello. So we've got some great educational videos on there for that. So you can ring one 800 Magellan and have a chat to me. [00:55:11][41.8]

Bryce: [00:55:13] I just can't wait to get the email from the evening that this episode is released by. I shouldn't have given that number out the stats. Yeah, but, Emma, we would like to finish our interviews with experts with the final three questions, so we'll get stuck into those. Now, the first one is, do you have any books that you consider must read? [00:55:42][29.0]

Emma: [00:55:43] Yes, I'm holding it up in front of the camera right now. I think so. The ones on your website, I love your book section on your website. The books on there are amazing learnt erm by Peter Lynch is a definite must. So it is written aimed at high school students to explain the stock market. Fun fact. Magellan is named after Peter Lynch's Fidelity Magellan Fund because he's the world's best ever investor and so led by Peter Lynch to the art investment ones. One is atomic habits. You've already got that on your website. I think if the only thing you do is overcome your own impulses to either not start doing something, so we start investing, get over your fear, get into it, understand your reactions to self. So Atomic Habits is really good to get you in the right space to just build up that discipline and understand your emotions. And the last one I'd say is misbehaving by Richard Fella. So Richard Zellar is basically the father of behavioural economics. Misbehaving is excellent. It just talks about the world of icons, which are basically people who would follow pure logic when it comes to making decisions. This is humans and unfortunately we're all humans. And so it dispels a number of myths and gets you to understand more about humans and how flawed we are. And if we can overcome that, you can hopefully be more successful at investing. [00:57:13][90.2]

Bryce: [00:57:14] And that's why on the second question is, what's the best company you've ever come across [00:57:19][5.0]

Emma: [00:57:20] Magellan Financial Group? [00:57:21][1.0]

Bryce: [00:57:25] We asked how you missed that, and I don't think his answer was Magellan. [00:57:27][2.3]

Emma: [00:57:28] No, no. That's because he's been investing long before he set up Magellan. I have to say, it is it is Magellan Financial Group. And I am exceedingly biased. I am going to put that out there. [00:57:40][11.7]

Speaker 4: [00:57:40] But I. [00:57:41][0.2]

Emma: [00:57:41] I I invested actually invested in Magellan's funds long before I ever worked at Magellan, and as you said, I've been in the industry for 25 years. And so when I was making my bit, my decisions about who to put my money with a long time ago was Magellan. But from a company point of view, it is everything. It is on the packet. It is a great company, full of great people who want to do the right thing by investors. And so I love working here. I love our fans. And even as a company, I love our company. So sorry. I believe. [00:58:13][31.4]

Bryce: [00:58:17] And then the final question, if you think back to those early days at eighteen dollar cost averaging into your first managed fund are what advice would you give to your younger self? [00:58:29][11.8]

Emma: [00:58:29] Invest more [00:58:30][0.5]

Speaker 4: [00:58:31] easy to [00:58:33][1.8]

Emma: [00:58:34] save more money. Like that's a thing that I don't think a lot of people understand is that you have got the power in your own hands to be financially independent. And it really just comes down to if you can save more money and put it away and invest it on a regular basis, it doesn't. Not much happens over the first decade and it's really boring. But compounding is amazing. And if you can stick at it and just save that money, you will be laughing in retirement [00:59:05][30.7]

Alec: [00:59:06] or some way to finish. Emma, thank you so much for your time today. It's always great chatting to yourself and everyone else at Magellan. And look, I'm pretty sure that a lot of the get started investing community would have taken a lot of value from that. So appreciate your time. And we look forward to chatting again. [00:59:22][16.5]

Emma: [00:59:23] Thanks so much, guys. Really appreciate you having me on again. Thanks. [00:59:23][0.0]

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