It’s out with the listed investment company and in with the exchange-traded fund for Australia’s best-known stock pickers. Yesterday GCQ Funds, a hedge fund run by former VGI Partners operator Doug Tynan, joined the rush for the ASX, launching its Global Equities Complex ETF.

The pitfalls of an old-style LIC is well-known. Fund managers around the country have grappled with how to close big discounts between where they trade and their assets – and the activist investors they bring – for years.

Despite those problems, there’s still plenty of demand from retail shareholders, and their financial planners, for access to hot funds.

GCQ’s Flagship Fund, for instance, returned 33.9 per cent in the 12 months to January 31, beating the benchmark MSCI World Index’s return of 28 per cent. It has outperformed on a two-year time frame and since its inception in July 2022.

Tynan was best known at VGI, now part of Regal Partners, for his bets against the then ASX-listed Slater & Gordon, now owned by Allegro Funds after a share price collapse, and Corporate Travel Management. At GCQ, he has bought up stakes in luxury goods giants Richemont and Hermes and invested heavily in dominant payment businesses such as Visa and Mastercard. It now manages more than $1 billion in assets.

Stephen Higgins, GCQ’s head of distribution, said the firm had seen an increase in queries from advisers and stockbrokers who wanted exposure to the companies in its portfolio but had a preference to invest on the ASX.

“Huge volumes of retail capital have flowed into ETFs in the last few years, attracted by the ease of trading on the ASX,” he said. “Because of this trend an active ETF for the strategy always figured in our longer-term thinking.”

They are the latest in a long line of local fund managers being drawn to active ETFs, which are easier to access, particularly for self-managed super funds. Magellan Financial’s Airlie Funds Management launched its Australian Share Fund Active ETF in 2018. Investors Mutual, Munro Partners and Perpetual Asset Management have followed since that time.

Morningstar’s Steven Le said ETFs were popular with financial planners because of their “ease of access, efficiency [and] pricing transparency”.

“While recent studies and articles highlight the benefits of ETFs over unlisted managed funds, citing factors such as liquidity, more accessible investment minimums, tax benefits, there are notable risks associated with investing in ETFs that investors should keep in mind,” he said.

“The price of an ETF can be affected by market volatility, which may cause it to differ from the underlying value of the assets in its portfolio during intraday periods.”

Higgins, however, said there were plenty of advisers telling GCQ that it was a better option for their clients to own a high-quality global strategy instead of investing directly. “Investing in a fund means they no longer have day-to-day responsibility for monitoring a portfolio of global companies, which is hard to do properly without a dedicated analyst team,” he said.

Firetrail Investments has also recently launched a similar product known as the Australian Small Companies Fund Active ETF.

Patrick Hodgens, Firetrail’s managing director, said inflows had been strong since the launch of the ETF in November. “The flows in the ETF has been fairly equivalent to the underlying unit trust, which has been around for longer and has a wider spread on many of the platforms,” he said.

Joanne Tran – is a markets reporter for The Australian Financial Review.

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