Part of Netwealth's portfolio construction webinar series - Vinnie Wadhera from BetaShares presented to an audience on 14th September 2016 about Exchange Traded Funds (ETFs) and strategies on how ETFs can be used in a portfolio.
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3. Disclaimer
This webinar and information has been prepared and issued by Netwealth
Investments Limited (Netwealth), ABN 85 090 569 109, AFSL 230975. It contains
factual information and general financial product advice only and has been
prepared without taking into account the objectives, financial situation or needs
of any individual. The information provided is not intended to be a substitute for
professional financial product advice and you should determine its
appropriateness having regard to you or your client’s particular circumstances.
The relevant disclosure document should be obtained from Netwealth and
considered before deciding whether to acquire, dispose of, or to continue to hold,
an investment in any Netwealth product.
While all care has been taken in the preparation of this document (using sources
believed to be reliable and accurate), no person, including Netwealth, or any
other member of the Netwealth group of companies, accepts responsibility for
any loss suffered by any person arising from reliance on this information.
5. Join the ETF revolution
How exchange traded funds are changing the way we invest
6. Disclaimer
The information contained in this document is general information only and does not constitute personal
financial advice. It does not take into account any person’s financial objectives, situation or needs. It has
been prepared with all reasonable care by BetaShares Capital Limited (ABN 78 139 566 868, Australian
Financial Services Licence No. 341181) (“BetaShares”). The information is provided for information
purposes only and should not be construed as an offer or solicitation. BetaShares assumes no
responsibilities for errors, inaccuracies or omissions in this document. Performance and statistical
results noted are unaudited. Past performance is not indicative of future performance. Investments in
BetaShares Funds are subject to investment risk and investors may not get back the full amount
originally invested. Any person wishing to invest in BetaShares Funds should obtain a copy of the
relevant PDS from www.betashares.com.au and obtain financial advice in light of their individual
circumstances.
6
7. 1. About BetaShares
2. What are ETFs / growth story
3. Applications of ETFs in Portfolios
– Index/price
– Strategy or outcomes based
Contents
7Confidential – may not be distributed without the consent of BetaShares Capital
8. About BetaShares
• A leading manager of fund products that are traded on the Australian Securities
Exchange
• Objective is to expand the universe of investment possibilities open to investors
• Provide Funds that empower investors to implement investment strategies with
ease
• Products designed with the interests of Australian investors in mind
• A member of the Mirae Asset Global Investment Group, one of the largest asset
management firms in Asia.
• Mirae currently manage approx. US$90b
8Confidential – may not be distributed without the consent of BetaShares Capital
9. BetaShares: Where are we now?
• Consistently #1 exchange traded fund
manager in Australia for value traded
• #2 issuer for inflows during 2016 with
40% share of market inflows to April
‘16
• ~$2.9B AUM
• One of the largest dedicated teams in
Australia
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16
9Confidential – may not be distributed without the consent of BetaShares Capital
10. 1. About BetaShares
2. What are ETFs / growth story
3. Applications of ETFs in Portfolios
– Index/price
– Strategy or outcomes based
Contents
10Confidential – may not be distributed without the consent of BetaShares Capital
11. Evolution: Cheaper, Faster, Better
11Confidential – may not be distributed without the consent of BetaShares Capital
12. What are Exchange Traded Funds?
• An exchange traded fund is an investment fund that is traded on the stock exchange.
• Investors can buy or sell units in the ETF in the same way as buying conventional
shares
• Investors money in the ETF is pooled and used to by a basket of assets, based on
the funds overriding strategy.
• The value of the units closely tracks the underlying value of the investments in the
fund and is updated throughout the day.
• ETFs can employ a range of active and passive strategies
LOW COST HIGH TAX
EFFICIENCY
TRANSPARENTACCESS LIQUID DIVERSIFICATION
12Confidential – may not be distributed without the consent of BetaShares Capital
13. Global Growth of the ETF Industry
$428
$598
$851
$772
$1,156
$1,483 $1,525
$1,944
$2,396
$2,797
$2,959
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Global ETF Industry AUM(1)
(US$b)
ETF Products (#) 525 884 1,542 2,211 2,683 3,526 4,221
05 – 15
CAGR 21%
5,0244,221 5,431 5,449
Source: Blackrock
13Confidential – may not be distributed without the consent of BetaShares Capital
14. Australian ETF Market Cap: July 04 – June 16
$0
$5,000
$10,000
$15,000
$20,000
$25,000
Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15
Market Cap
(A$m)
04 – 16YTD
CAGR 31%
7 9 8 5 19 30 37 57 82 81 17592
Jun-16
139ETF Products (#)
Source: BetaShares
14Confidential – may not be distributed without the consent of BetaShares Capital
15. Confidential – may not be distributed without the consent of BetaShares Capital 15
SMSFs have been early (and heavy) adopters of ETFs
16. Confidential – may not be distributed without the consent of BetaShares C ap ital 16
ETFs offer lots of investment choice!
Domestic Equity
Broad
Small Cap
Large Cap
Financials
Resources
REIT
Other sectors
Cash & Fixed Income Commodities
High Interest
Cash
Corporate Bond
Government Bond
Semi-Government
Inflation Linked
Gold (A$ Hedged)
Gold (Unhedged)
Silver
Platinum &
Palladium
Crude Oil
Agriculture
Copper
Diversified
Basket
Domestic Equity International Strategy
US Dollar
British Pound
Euro Broad World &
Region
Country Specific
Emerging Markets
Global Sector
High Dividend
Equity Income*
Value
Bear Series*
Geared*
Risk Managed*
*Managed funds
17. ‘On Screen’ liquidity
‘On screen’
liquidity ~$3.3m
Underlying liquidity
(ADTV 3 months)
ALZ AU EQUITY $2,922,873
AWE AU EQUITY $3,539,238
BOQ AU EQUITY $14,880,230
BPT AU EQUITY $7,415,991
BEN AU EQUITY $16,690,150
CAB AU EQUITY $1,479,753
ALQ AU EQUITY $11,644,450
DJS AU EQUITY $9,536,007
DOW AU EQUITY $11,361,770
EWC AU EQUITY $1,086,306
ENV AU EQUITY $3,480,533
FKP AU EQUITY $1,357,197
FWD AU EQUITY $1,603,167
FLT AU EQUITY $29,591,250
GUD AU EQUITY $1,750,309
GWA AU EQUITY $2,136,288
HIL AU EQUITY $770,488
CRH AU EQUITY $401,495
IRE AU EQUITY $3,959,745
KCN AU EQUITY $4,315,712
MAH AU EQUITY $482,520
MRM AU EQUITY $2,179,253
MTS AU EQUITY $24,818,560
MND AU EQUITY $9,646,594
NUF AU EQUITY $3,258,588
ARI AU EQUITY $12,978,750
PRY AU EQUITY $9,239,243
RHC AU EQUITY $15,971,930
RSG AU EQUITY $4,996,496
ROC AU EQUITY $477,220
SGM AU EQUITY $8,760,581
SMX AU EQUITY $1,525,218
TAP AU EQUITY $186,120
TSE AU EQUITY $3,590,952
UGL AU EQUITY $7,827,746
ERA AU EQUITY $836,766
GNC AU EQUITY $12,182,660
BWP AU EQUITY $3,816,066
CPA AU EQUITY $15,629,900
CGF AU EQUITY $12,745,810
AAD AU EQUITY $2,430,743
SYD AU EQUITY $30,209,250
APA AU EQUITY $19,956,770
CQR AU EQUITY $5,396,971
AWC AU EQUITY $14,230,520
MCR AU EQUITY $172,474
ABP AU EQUITY $1,787,431
TPM AU EQUITY $4,696,518
UXC AU EQUITY $618,564
WOR AU EQUITY $24,820,550
ASL AU EQUITY $6,804,122
IIN AU EQUITY $6,420,844
COF AU EQUITY $109,453
FBU AU EQUITY $10,790,130
IVC AU EQUITY $4,265,928
IFL AU EQUITY $4,933,232
JBH AU EQUITY $16,255,410
“Actual”
liquidity
~$4.3B
ETFs and Liquidity
Source: Bloomberg, Comsec – 2 October 2013
17Confidential – may not be distributed without the consent of BetaShares Capital
18. 1. About BetaShares
2. What are ETFs / growth story
3. Applications of ETFs in Portfolios
– Asset class exposure
– Strategy or outcomes based
Contents
18Confidential – may not be distributed without the consent of BetaShares Capital
19. 1. Asset Class Exposure
• Use ETFs as way to get low-cost, liquid exposure to asset classes (e.g. cash,
gold, currencies, commodities and alternatives)
2. Index Exposure
• With one trade get exposure to all the components of an index (e.g. Nasdaq
100, S&P/ASX 200, MSCI World Index)
3. Strategy Exposure
• Eg High Income, Short, Geared
Applications of ETFs in investment portfolios
19Confidential – may not be distributed without the consent of BetaShares Capital
21. Confidential – may not be distributed without the consent of BetaShares Capital 21
Asset Class Exposures : Cash
Interest Rate Comparison
BetaShares High
Interest Cash ETF
(AAA)
Avg. 1 year term
deposit(1)
Avg. 1 month term
deposit(1)
Wrap – Cash
Savings Account(2)
Avg. Online
Savings Account
Rate(1)
RBA Cash Rate/
11AM Accounts
Avg. Online Broker
Cash Account(3)
2.03% (net) 2.34% 1.76% 1.57% 1.53% 1.25% 0.58%
Interest Rate Comparison – As at 11 August 2016
Rate earned on AAA’s bank account deposits. Includes AAA’s management costs. Rate is variable. Current rate available at www.betashares.com.au
(1) Average rate offered by major Australian banks (2) Average of current rate offered by three major providers(3) Average of rate offered by Comsec and E*Trade
Source: Bank websites, wrap websites
ASX: AAA
22. Confidential – may not be distributed without the consent of BetaShares Capital 22
Asset Class Exposures: Currency ETFs
ASX: USD
ASX: EEU
ASX: POU
23. Asset Class Exposures : Gold and Crude Oil
Crude Oil ETF (ASX Ticker: OOO) Gold Bullion ETF – Currency Hedged (ASX Ticker: QAU)
23Confidential – may not be distributed without the consent of BetaShares Capital
24. Confidential – may not be distributed without the consent of BetaShares Capital 24
Gold has been historically correlated with the A$
Gold Spot Price (US$) v $US per $A: January 2006- June 2016
Source: Bloomberg. Past performance is not an indication of future performance
25. Confidential – may not be distributed without the consent of BetaShares Capital
Index Exposures
26. Core Exposures : FTSE RAFI Australia 200 Index
• RAFI = Research Affiliates Fundamental
Indexation
• Factors best reflect a company’s ‘economic
footprint’ and are not price related
• Factors are equally weighted
• Average of five years of historical data used
for all measures except book value
• Methodology is transparent, repeatable and
based on measures which have historically
proved to be successful in delivering
attractive performance outcomes compared
to market-cap weighted indices
Cash
FlowSales
Book
Value Dividends
RAFI
Fundamental
Factors
ASX: QOZ
26Confidential – may not be distributed without the consent of BetaShares Capital
27. Confidential – may not be distributed without the consent of BetaShares Capital 27
FTSE RAFI Australia 200 Index has
outperformed S&P/ASX 200 Index since inception
FTSE RAFI Australia 200 Index v S&P/ASX 200 Index: May 1992 – June 2016 (Growth of $100)
Graph shows performance of underlying index relative to S&P/ASX 200 index, not ETF performance and does not take into account ETF management costs. You cannot invest directly in an index. Returns for periods
longer than one year are annualised. Past performance is not an indicator of future performance of index or ETF. The FTSE RAFI Australia 200 Index was launched on 10/8/2009. Index returns prior to launch are
simulated based on Research Affiliates’ patented non-capitalisation weighted indexing system, method and computer program product. Actual investment results may differ from simulated results. Source: Bloomberg,
FTSE
Value add since inception:
2.0% p.a
TOTAL
RETURN
FTSE RAFI AUSTRALIA 200 S&P/ASX 200
3M
3.5% 3.9%
6M 1.0% 1.1%
1 YR -2.1% 0.6%
3 YR (p.a) 7.2% 7.7%
5 YR (p.a) 8.4% 7.4%
10 YR (p.a) 6.7% 4.9%
20 YR (p.a)
11.1% 8.9%
Incept (p.a) 11.2% 9.2%
Volatility (p.a)
12.9% 13.2%
Risk - adujsted
return
0.867 0.696
Ending value of
100 $
$ 1,287.92 $ 825.44
50
250
450
650
850
1,050
1,250
1,450
1,650
May-92 May-94 May-96 May-98 May-00 May-02 May-04 May-06 May-08 May-10 May-12 May-14 May-16
FTSE RAFI Australia 200 TR Index (index BetaShares FTSE RAFI Australia 200 ETF
seeks to track)
S&P/ ASX 200 TR Index
ASX: QOZ
28. Confidential – may not be distributed without the consent of BetaShares Capital 28
FTSE RAFI Australia 200 Index has outperformed
S&P/ASX 200 Index most years since inception
FTSE RAFI Australia 200 Index v S&P/ASX 200 Index Total Returns by Calendar Year
Table shows performance of underlying index relative to S&P/ASX 200 index, not ETF performance and does not take into account ETF management costs. You cannot
invest directly in an index. Past performance is not an indicator of future performance of index or ETF. The FTSE RAFI Australia 200 Index was launched on 10/8/2009.
Index returns prior to launch are simulated based on Research Affiliates' patented non-capitalisation weighted indexing system, method and computer program product.
Actual investment results may differ from simulated results. Source: Bloomberg, FTSE
Total Return FTSE RAFI 200 S&P/ASX 200 Difference
2015 0.4% 2.6% -2.1%
2014 5.6% 5.6% 0.0%
2013 25.5% 20.2% 5.3%
2012 21.9% 20.3% 1.7%
2011 -9.4% -10.5% 1.1%
2010 0.6% 1.6% -1.0%
2009 48.6% 37.0% 11.5%
2008 -36.9% -38.4% 1.5%
2007 20.1% 16.1% 4.0%
2006 21.8% 24.2% -2.4%
2005 23.1% 22.8% 0.3%
2004 26.5% 28.0% -1.5%
2003 14.4% 14.6% -0.2%
2002 -3.0% -8.8% 5.8%
2001 17.4% 10.4% 7.0%
2000 7.8% 6.4% 1.4%
1999 19.1% 18.7% 0.4%
1998 20.0% 9.8% 10.2%
1997 13.2% 12.7% 0.5%
1996 16.4% 14.4% 2.0%
1995 20.4% 21.1% -0.7%
1994 -7.9% -8.8% 0.8%
1993 48.7% 40.0% 8.6%
29. Confidential – may not be distributed without the consent of BetaShares Capital 29
Holdings comparison – FTSE RAFI Australia 200
June 2016
Source: Research Affiliates, FTSE, Bloomberg
30. ASX: NDQ
Core Exposures : NASDAQ 100 Index
30Confidential – may not be distributed without the consent of BetaShares Capital
31. Confidential – may not be distributed without the consent of BetaShares Capital 31
Nasdaq 100 – Historical P/E Ratio
0
10
20
30
40
50
60
70
80
90
100
1/01/1985
1/09/1985
1/05/1986
1/01/1987
1/09/1987
1/05/1988
1/01/1989
1/09/1989
1/05/1990
1/01/1991
1/09/1991
1/05/1992
1/01/1993
1/09/1993
1/05/1994
1/01/1995
1/09/1995
1/05/1996
1/01/1997
1/09/1997
1/05/1998
1/01/1999
1/09/1999
1/05/2000
1/01/2001
1/09/2001
1/05/2002
1/01/2003
1/09/2003
1/05/2004
1/01/2005
1/09/2005
1/05/2006
1/01/2007
1/09/2007
1/05/2008
1/01/2009
1/09/2009
1/05/2010
1/01/2011
1/09/2011
1/05/2012
1/01/2013
1/09/2013
1/05/2014
1/01/2015
1/09/2015
Price to Earnings Ratio (P/E) - NDX Index - 1 January 1985 - 29 January 2016
P/E Average
Average P/E = 29.3
Current P/E = 19.15
35% discount to average
Source: Bloomberg, Thomson Reuters
Past performance is not an indicator of future performance
32. BetaShares Global Sector Series
BetaShares Global Sector Series is currently the
most extensive family of global sector products
available on ASX
32Confidential – may not be distributed without the consent of BetaShares Capital
33. Confidential – may not be distributed without the consent of BetaShares Capital 33
BetaShares Global Energy Companies ETF (ASX: FUEL)
34. BetaShares Global Healthcare ETF (ASX: DRUG)
34Confidential – may not be distributed without the consent of BetaShares Capital
35. Strategy or outcome based
strategies
Confidential – may not be distributed without the consent of BetaShares Capital
36. Strategy & Outcome Based ETFs
Growth in ETF industry has led to development of funds that follow a set of
rules to provide a particular outcome, such as:
• Ability to “Short” the market
• Enhanced dividend Income
• Managed Volatility
• Options to gear or leverage
36Confidential – may not be distributed without the consent of BetaShares Capital
37. The Case for HVST
BetaShares Australian Dividend Harvester Fund (managed fund) (HVST) has been
specifically designed to meet the investment challenges of SMSFs and retirees, offering
the potential for:
ASX: HVST
Tailor-Made for SMSFs & Retirees
Tax-effective income Reducing volatility risk
37Confidential – may not be distributed without the consent of BetaShares Capital
38. Confidential – may not be distributed without the consent of BetaShares Capital 38
The Dividend Harvester Strategy
ASX 50
UNIVERSE
39. Confidential – may not be distributed without the consent of BetaShares Capital 39
The Dividend Harvester Strategy
Stocks paying
dividends this
period
40. Confidential – may not be distributed without the consent of BetaShares Capital 40
The Dividend Harvester Strategy
Dividend
paying stocks
by highest
grossing yield
41. Confidential – may not be distributed without the consent of BetaShares Capital 41
The Dividend Harvester Strategy
14 Stock
Portfolio
42. Confidential – may not be distributed without the consent of BetaShares Capital 42
HVST: Income and Volatility
BetaShares Australian Dividend Harvester Fund v S&P/ASX 50: Income and volatility to 31 July 2016
*S&P/ASX 50 based on 12 month trailing data
Source: BetaShares, Bloomberg
11.5%
4.8%
3.4%
1.7%
14.9%
6.5%
0%
2%
4%
6%
8%
10%
12%
14%
16%
HVST S&P/ASX 50*
Cash Yield Franking
Fund Inception Date (29 Oct 2014) HVST S&P/ASX 50* Difference
12 Month Net Yield* 11.5% 4.8% 6.7%
12 Month Gross Yield (Est.)* 14.9% 6.5% 8.4%
12 Month Annual Volatility* 8.7% 18.6% 53.3%
43. Confidential – may not be distributed without the consent of BetaShares Capital 43
HVST performance since inception
BetaShares Australian Dividend Harvester (HVST) v S&P/ASX 50 Index: Since Inception to 31 July 2016
Past performance is not an indicator of future performance. Source: Bloomberg, BetaShares
Sell Off
“U Shape”
“Outperform”
Sideways
“Underperform”
Sideways
Increasing Vol
“In line”
Sell off
High Vol
“Outperform”
Sideways
Increasing Vol
“In line”
Sell Off/
Sideways
“Outperform”
Rally
“Underperform”
HVST
Strategy
S&P ASX50
Index
Annual
Return (%) 3.3% 3.5%
Volatility
(%, p.a.) 8.8% 17.3%
80
85
90
95
100
105
110
115
29-Oct-14 29-Jan-15 29-Apr-15 29-Jul-15 29-Oct-15 29-Jan-16 29-Apr-16 29-Jul-16
HVST
S&P/ASX50 TR Index
44. S&P/ASX 200 Index (1992-2013): Cumulative equity return and volatility
Source: Milliman Financial Risk Management LLC, 31/12/1991-31/12/2013. The chart above is historical and for illustrative purposes only. It does
not represent actual performance of any investment. Past performance is no guarantee of future results.
Selected periods when increased market volatility was associated with market declines
Volatility is frequently associated with
sharply falling markets
ASX: HVST
44Confidential – may not be distributed without the consent of BetaShares Capital
45. GEARED EXCHANGE TRADED
FUND
MARGIN LOANS LISTED WARRANTS
GEARING LEVELS 50-65% - set by Fund Customisable by investor Set by issuer – typically between 50-90%
ACCESS Bought and sold like a share Requires loan agreement, credit checks Requires client agreement form
DOWNSIDE RISK Limited to capital invested Unlimited – recourse to client Limited to capital invested
DIVERSIFICATION High – broadly diversified share
portfolio
Varies depending on underlying exposure Varies depending on underlying exposure
MARGIN CALLS No margin calls for investors Yes – investors can experience margin calls No margin calls for investors
BORROWING COST Access to wholesale funding rates Retail funding rates Retail funding rates
POTENTIAL FOR INTEREST
DEDUCTIONS
Yes – interest costs reduce taxable
distributions to investors
Yes Yes
INVESTOR ABILITY TO PRE-PAY
INTEREST
No Yes Yes – included in purchase price
ISSUER CREDIT RISK No No Exposed to full counterparty risk of issuer
SUPER FUND/ SMSF ELIGIBLE Yes Generally not Yes
Confidential – may not be distributed without the consent of BetaShares Capital 45
Comparison of ASX-traded ways to obtain
geared exposure
46. 1. Asset Class Exposure
• Use ETFs as way to get low-cost, liquid exposure to asset classes (e.g. cash,
gold, commodities and alternatives)
2. Index Exposure
• With one trade get exposure to all the components of an index (e.g. Nasdaq
100, S&P/ASX 200, MSCI World Index)
3. Strategy Exposure
• Eg High Income, Short, Geared
Summary: Applications of ETFs in investment
portfolios
46Confidential – may not be distributed without the consent of BetaShares Capital
47. Australian Equities Global Equities Equity Income
Managed Risk/ Defensive
Equity Cash
QOZ
QFN
QRE
NDQ
UMAX
QUS
FUEL
FOOD
BNKS
HEUR
HJPN
MNRS
DRUG
HVST
YMAX
AUST
WRLD
AAA
Short Geared Currency Commodities Active
BEAR
BBOZ
BBUS
GEAR
GGUS
USD
POU
EEU
QAU
OOO
QCB
GLIN
RENT
DMKT
BetaShares Product Range
47Confidential – may not be distributed without the consent of BetaShares Capital
48. Questions?
Subscribe to our blog for economic
insight and ETF trading ideas –
www.betasharesblog.com.au
48Confidential – may not be distributed without the consent of BetaShares Capital
49.
50. Disclaimer
This webinar and information has been prepared and issued by Netwealth
Investments Limited (Netwealth), ABN 85 090 569 109, AFSL 230975. It contains
factual information and general financial product advice only and has been
prepared without taking into account the objectives, financial situation or needs
of any individual. The information provided is not intended to be a substitute for
professional financial product advice and you should determine its
appropriateness having regard to you or your client’s particular circumstances.
The relevant disclosure document should be obtained from Netwealth and
considered before deciding whether to acquire, dispose of, or to continue to hold,
an investment in any Netwealth product.
While all care has been taken in the preparation of this document (using sources
believed to be reliable and accurate), no person, including Netwealth, or any
other member of the Netwealth group of companies, accepts responsibility for
any loss suffered by any person arising from reliance on this information.