Aviva goes for tactical ETF trades during volatility

The multi-manager team at Aviva Investors has invested in exchange traded funds three times since taking over the reins of the firm’s multi-manager funds last August.

Portfolio managers Peter Fitzgerald and Ian Aylward invested in the iShares FTSE 100 ETF initially during the extreme market volatility in August. They also invested in the ETF during the fall in the index over nine days in November.

The team uses ETFs only for short-term tactical trades, where they feel allocation to actively managed funds is unsuitable.

Investing in actively managed funds then quickly moving cash out of the funds not only has a negative impact on the remaining investors in those funds, it also potentially sours relationships between the multi-manager and the underlying managers. Trading costs are another reason to avoid actively managed funds for short-term plays, as these costs would have an impact on the multi-manager’s returns.

For multi-managers, ETFs provide an obvious home for short-term money but the Aviva team does not see them as the solution to its longer-term passive investment needs. It prefers tracker funds in these circumstances because they tend to be chea-per, with lower total expense ratios.

Senior portfolio manager Peter Fitzgerald says: “Why would you buy ETFs for anything other than tactical asset allocation? They provide the benefits of passive investment but over the long term, we prefer tracker Oeics.”

In general, Fitzgerald prefers to invest in open-ended rather than closed-ended funds, even though he has the ability to hold investment trusts.

He says: “I would rather invest in open-ended funds and focus on finding good managers than worrying about discounts to NAV on investment trusts.