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Investing

August 3, 2021

Listed and Unlisted Investments: What’s the difference and why does it matter?

The structure of an investment – whether it’s listed or unlisted – is often not considered or by many Kiwis when deciding which asset to invest in. However, you might be surprised to learn that weaving this consideration into your initial decision making process can result in significant cost-savings over the long term.

The difference between listed and unlisted investments

Listed investments are those available for regular trading via a share market, such as the New Zealand Stock Exchange (NZX) or New York Stock Exchange (NYSE). Unlisted investments are those which are not. This in itself is the main difference between listed and unlisted investments – whether they can be traded on a stock exchange or not.

Types of listed investments include bonds, shares, exchange traded funds, and options. Whereas unlisted investments include private equity, property investing, property syndicates and unlisted funds. Companies that have chosen to make their shares available on a share market are called publicly listed and all other companies are called privately held.

Trading frequency and volatility

Listed investments are regularly and continuously traded (when the “market” is open). This availability to trade and the volumes traded is called liquidity.

On the other hand, unlisted investments are not traded regularly or in a restricted way and therefore generally have lower liquidity. That said, there are listed shares and bonds that rarely trade sometimes for days, and there are unlisted funds that have daily valuation and transactions.

Listed and unlisted investments also differ in their volatility, i.e. how much the value of an asset goes up and down. Because a listed investment is more regularly traded, the volatility is more observable. For example you can see the change in share price minute to minute when looking on a stock exchange, but that does not mean it is more or less risky.

Whereas, the visibility of unlisted investment valuation changes is less obvious, but they can still change significantly, going up and down,

For example a commercial property fund manager might report on the volatility of this fund at the end of each quarter, but this doesn’t necessarily show the volatility of the assets throughout the quarter. The underlying commercial property assets aren’t revalued daily, weekly or monthly during the quarter.

What about costs?

An important factor that differs between unlisted and listed investments is the cost to run each structure.

Listing and share registry fees

As unlisted investments don’t incur the added cost of listing on stock exchanges and share registry fees, they’re able to operate at a lower cost in comparison to listed investments. These costs are usually absorbed by the listed investment manager (e.g. an ETF manager) and added to their management fee.

Tax inefficiencies

There is a cost that comes along with listed investments not always being as tax efficient as some unlisted investments.

For example, NZ ETFs are classified as listed PIE funds, meaning each distribution from the fund is automatically taxed at 28% – the highest rate. Therefore, any investor with a lower PIR pays too much tax, which they can’t request back from the IRD until the following May via a tax return (assuming they have other taxable income they can offset against).

With unlisted index funds, this is just one of many tax inefficiencies you can avoid. For more on the tax inefficiencies associated with listed ETFs, check out our blog.

Transaction fees

When buying some listed investments, such as an ETF or direct shares, through a broker or investment platform there can be transaction fees each time you buy and sell shares or units in a fund. This is on top of a management fee (for funds, generally). For regularly contributing long-term investors, this can be costly in the long-term.

Comparing types of listed and unlisted investments

Now that you’ve grasped the difference between listed and unlisted investments, let’s take a look at how specific investment types differ in being listed or unlisted.

Direct shares

Direct shares is where a person owns a share of individually listed companies which are available to trade continuously on share markets. So, as mentioned direct shares are listed investments.

Investors must pay fees when buying and selling direct shares through a broker or investment platform, which can add up over time.

Exchange Traded Funds

Exchange Traded Funds (ETFs) are listed investments available for regular and continuous trading on share markets.

ETFs are bought and sold from other investors like direct shares and therefore have both a bid/ask spread and a brokerage cost. Due to ETFs being a listed investment, additional costs are added for the fund manager, such as the cost to list on a stock exchange and share registry fees. These added fees can add to high fund management fees.

Index Funds

Index Funds are unlisted investments as they are not available on share markets, however, the companies within the funds are listed on share markets.

Instead of buying or selling units in a fund from other investors, you buy units directly from the fund managers. Compared to direct shares and ETFs, index funds can offer low fees as a result of being unlisted and having lower underlying costs (share registries and fees paid to the stock exchange for listing).

Additionally, index funds can be more efficient, in their ability to claim international tax credits, pay less tax on distributions and avoid dividend drag.

Kernel’s funds are unlisted investments – here’s why

Kernel’s index funds are designed for long term investors who are making regular contributions to their investment portfolios. For this reason, our funds have lower transaction costs (you can buy and sell units without paying brokerage fees), better tax efficiency and underlying costs when comparing to ETF equivalents.


Christine Jensen

Marketing Manager

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Indices provided by: S&P Dow Jones Indices