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Pinnacle puts zero-fee ETF experiment to bed

Less than a year after Pinnacle launched Australia's first zero-fee ETF, it has decided to wind up the fund after struggling to attract investors.

Pinnacle's listed the aShares Dynamic Cash Fund (Managed Fund) on the ASX in late August, 2019. It was managed by Omega Global Investors.

Listed under the ticker Z3RO, it was the first ETF in Australia to charge no performance or management fees, and came at the heels of Fidelity's zero-fee ETF push in the United States.

"We are not looking to break even on this product, its [other costs] will be funded from our own balance sheet," Pinnacle said in an interview with Financial Standard last year.

"What we are aiming for is that once the investors have a pleasant experience with us, they become more comfortable in investing with us."

There were recoverable expenses though, which were capped at 15bps p.a. and Pinnacle said these were expected to be lower than 5bps a year once the fund was at scale.

However, the ETF did not scale up, hitting $4 million at May end.

Z3RO completed its final distribution today, after taking a decision to terminate the ETF in late May.

Another ETF, Global Dynamic Income Fund (SAVE) which targeted cash +4% monthly dividend income was also wound up.

While its zero-fee ETF experiment did not work out, Pinnacle Investment Management (PNI) has had a great year with Hyperion, Plato and ResCap's funds performing well amid volatility. It is also making inroads into global distribution with about $4 billion now raised from overseas clients.

A research note from Ord Minnett this week reiterated a buy on PNI.

"Strong mark to market with this update which we expect to extend across consensus at the result, with FY21 forecasts far too low. We see long-term value in the business given its formidable distribution team and ability to pick and partner with growing affiliates," Ord Minnett head of institutional research Nicholas McGarrigle said in a July 27 note.

Zenith Investment Partners head of real assets and listed strategies said no ETFs anywhere in the world are truly zero fees but there is room for fee compression in non-core ETF offerings in Australia.

"I think people realise that it's less about zero fees and more about the value proposition. They need to be fit for purpose and not just cheap," Higgins said.

"Does it mean we will never see them? No it doesn't but you have to remember none of them [such as Fidelity's] are zero fee after you take into account, for example, the platform they sit upon."

"It's difficult to construct a completely zero-fee product. It is something you are likely to see in countries with large populations, not in Australia."

"That said there is room for fee compression in non-core areas of the [local ETF] market, outside of core areas."

Read more: Ord MinnettPinnacle Investment Management
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