New opportunities
Through different City contacts Alex and I were separately introduced to the Vermeer global equity team. They had built a standalone global equity business and were looking for the next stage in its development.
I had first met Tim Gregory, the lead manager, in the 1980s, and James Rowsell had been a rival of mine in stockbroking in the 1980s and 1990s.
James was running James Capel and Citigroup, while I was at Phillips & Drew and BZW. They also bring Charlie Fricker, who is part of the next generation of fund managers.
Being largely of the same City generation and having many friends in common, it is not all that surprising that our investment styles are wholly compatible.
The Vermeer global fund bears a striking resemblance to the funds Alex and I ran at Artemis, holding many of the same shares.
I will chair the investment committee of the five of us – a larger and more experienced team than we could have hoped for and one that is full of common sense and good humour.
Active ETFs
What is also exciting about this move is the chance to run an active exchange-traded fund. This is a modern structure that much of the investment world is only just getting its head around.
I have been an admirer of investment trusts for many years, but I can see how active ETFs might be considered a successor.
A hybrid between open-end and closed-end funds, active ETFs hire the same team that a trust board might hire.
They buy the same portfolio of stocks and have the same title, custodian and listing. The funds have a modest TER (ours is 0.69 per cent), do not have a board (or their costs), cannot gear (perhaps a positive) and do not have a discount.
The ETF structure allows fund size to vary via an authorised participant creating and destroying shares, funding that from arbitraging against the fund’s stock holdings.
Liquidity provision is most secure when the underlying portfolio is in liquid stocks.
I would argue that these factors make an active ETF in liquid global equities superior to a global equity unit trust on cost and superior to a global investment trust on discount risks.
At the least, trust boards might need to consider an active ETF as a roll-over vehicle in a wind-up ahead of a unit trust.
Of course, the active ETF structure has not been tested through a crash.
Boards of some traditional investment trusts have chosen to buy back shares to reduce discounts, and in a crash they could suspend buy-backs.
