Selecting a strategy should be like buying something on Amazon, she said.
Mr Jokovic noticed fund managers taking interest in the exchange-traded space about 18 months ago, including the fixed income managers. “You will see some big global brands listing their product on Chi-X over the coming months,” he predicted.
When Ms Ross was first approached by Magellan’s co-founder and chairman, Hamish Douglass, with the idea behind MFG Core, she had to consider: “how can we put something together that is not just a child of our active funds?”, meaning a product that was not just an inferior version of what the $100 billion manager already did.
The types of businesses we want to invest in are these technology winners that have those clear structural advantages.
Vihari Ross, Magellan
“What this is really seeking to do is use that philosophy, harvest that DNA to come up with something that really combines what we’re known for, which is finding great companies, detailed rigorous research, but also delivering it at a low cost,” Ms Ross said.
“This is not about mining historic data for factors that we can then apply looking forward. We’re just looking to understand each of our companies today, and on a forward-looking basis, and really bringing that knowledge together.”
She was not critical of passive products, except for the fact that by definition, investors get good stocks and bad ones. By being totally neutral on what goes in, ETF providers can keep costs ultra-low.
“Being exposed to the winners and not losers is actually really important to achieving strong returns over time,” Ms Ross said.
Magellan’s research team has about 30 analysts across sectors such as restaurants, software and beverages.
“As Hamish always says, opportunity comes to the prepared mind. If we know a business, we have a really good grasp of what we think it’s worth, we understand its growth drivers, when markets move we’re prepared to make a decision.”
But not all companies are worth investing in, she says.
As for imminent S&P 500 entrant Tesla, she is unconvinced. The business had neither a sustainable competitive advantage nor an apparent 10- to 20-year edge. Tesla is certainly innovative, “but you need to combine that with a sustainable competitive advantage”. She would rather own Waymo via Google.
Tesla made history by being granted S&P 500 entry with a roughly 1.5 per cent index weighting. This will happen on December 21. (Tesla also qualified for the S&P 100 in the coming rebalance).
“The types of businesses we want to invest in are these technology winners that have those clear structural advantages,” if not resilient businesses (Starbucks), or leaders in known industries (Home Depot, Costco), Ms Ross said.
Broadly, she is motivated to find great companies trading at a reasonable valuation to own for the next five years. Magellan shares closed at $55.48 on Tuesday, up more than 1 per cent.
Chi-X, which trades about $1 billion to $1.5 billion of equities on a normal day, sees itself as a technology disrupter, Mr Jokovic said.
He was reluctant to criticise his larger competitor. “Outages happen, it’s not about the fact that it happened, it’s how you deal with them,” the CEO said. “We too could have an outage.”
But technology is simply the core of most innovation, and Chi-X’s philosophy was the same, he said.
“There are great investment professionals and great investors sitting in Australia and it’s not just about the domestic market, right? Magellan shows we can do it just as well as anyone,” he added.