The evolution of ETFs

The evolution of ETFs Disclaimer The information contained in this document is general information only and does not constitute personal financial a...
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The evolution of ETFs

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 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 is not a recommendation to make any investment or adopt any investment strategy. BetaShares assumes no responsibility for reliance on this information. 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 and tax advice in light of their individual circumstances.

Confidential – may not be distributed without the consent of BetaShares Capital

About Me David Bassanese Chief Economist, BetaShares Formerly with: • AFR • Macquarie Bank • OECD • Treasury

Author of “The Australian ETF Guide” Confidential – may not be distributed without the consent of BetaShares Capital

About BetaShares Recap on ETFs – the nuts and bolts Some investment products for SMSFs to consider

Confidential – may not be distributed without the consent of BetaShares Capital

4

Contents About BetaShares Recap on ETFs – the nuts and bolts Some investment products for SMSFs to consider

Confidential – may not be distributed without the consent of BetaShares Capital

5

About BetaShares • A “Top-4” leading manager of ETFs • Funds under Management ~$3b • Australia’s broadest product range of exchange traded

products • Designed for Australian investors

Confidential – may not be distributed without the consent of BetaShares Capital

An award winning ETF provider BetaShares has received the following awards:

Money Management/Lonsec Fund Manager of the Year Awards 2016 • Best ETF Provider 2016

ETFI Asia Asset Management Awards 2016 • Best High Dividend ETF in Asia – BetaShares Australian Dividend Harvester Fund (managed fund) (HVST) • Best New ETF in Australia – BetaShares NASDAQ 100 ETF (NDQ)

• Best Currency ETF in Asia – BetaShares U.S. Dollar ETF (USD)

ETF Express Global Awards 2016 • Best Currency ETF Management Firm

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BetaShares Product Range

Australian Equities QOZ QFN QRE

Global Equities NDQ UMAX QUS FUEL FOOD HACK

BNKS HEUR HJPN MNRS DRUG

Equity Income

Managed Risk/ Defensive Equity

HVST YMAX

AUST WRLD

AAA

Cash

Short

Geared

Currency

Commodities

Active

BEAR BBOZ BBUS

GEAR GGUS

USD POU EEU

QAG QAU OOO QCB

GLIN RENT DMKT

Contents About BetaShares Recap on ETFs – the nuts and bolts Some investment products for SMSFs to consider

Confidential – may not be distributed without the consent of BetaShares Capital

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Growth of the Global ETP Industry Global ETP Industry AUM(1) (US$b) $3,500

$2,959

$3,000

$2,797 $2,396

$2,500

$1,944

$2,000 $1,500

$1,483

$1,525

2010

2011

$1,156 $1,000

$851

$772

$598 $500

$428

$0 2005

2006

2007

2008

2009

2012

2013

2014

2015

Source: BlackRock 1 Includes all exchange traded products (e.g. exchange-traded funds, exchange-traded commodities and exchange-traded notes)

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Growth of the Australian ETF Industry Australian ETP Market Cap: July 2004

August 2016 (A$m)

$25,000

$20,000

04 – 16YTD CAGR 31%

$15,000

$10,000

$5,000

$0 July 04

#ETPs

7

July 05

July 06

9

8

July 07

5

July 08

19

July 09

30

July 10

37

July 11

57

July 12

82

July 13

81

July 14

92

July 15

139

Aug July 16 16

184

CAGR: Compound Annual Growth Rate Source: ASX, BetaShares

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SMSFs have been early (and heavy) adopters of ETFs

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What is an exchange traded fund (ETF)? • investment fund • passively managed

• exchange traded • open ended

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What is an Exchange Traded Fund (ETF)? • investment fund – diversification & investor protection • passively managed

• exchange traded • open ended

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What is an Exchange Traded Fund (ETF)? • investment fund – diversification & investor protection • passively managed – low cost, transparent

• exchange traded • open ended

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What is an Exchange Traded Fund (ETF)? • investment fund – diversification & investor protection • passively managed – low cost, transparent

• exchange traded – liquidity, buy & sell like a share • open ended

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What is an Exchange Traded Fund (ETF)? • investment fund – diversification & investor protection • passively managed – low cost, transparent

• exchange traded – liquidity, buy & sell like a share • open ended – trades close to NAV, tax-efficient

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What is an exchange traded fund?

ETFs combine the trade-ability and liquidity of shares with the diversification and cost benefits of index funds

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Key ETF benefit: if

As at 30 June 2015.

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Variations

Investment Strategy Track an Index Open-ended Exchange Traded

Nondiscretionary/ Rules Based

Discretionary/ Active

exchange traded exchange traded exchange traded funds (ETFs) managed funds active funds

Exchange traded products “ETPs” Confidential – may not be distributed without the consent of BetaShares Capital

Contents About BetaShares Recap on ETFs – the nuts and bolts Some investment products for SMSFs to consider

Confidential – may not be distributed without the consent of BetaShares Capital

21

BetaShares Australian Dividend Harvester Fund (managed fund) (HVST)

An Investment Fund Tailor-Made for SMSFs & Retirees Confidential – may not be distributed without the consent of BetaShares Capital

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BetaShares Australian Dividend Harvester Fund (managed fund) (ASX: HVST) The Fund aims to: • provide franked income, paid monthly, at least double that of the market on an annual basis • reduce volatility and cushion downside market risk.

Specifically designed to meet the investment challenges of SMSFs and retirees

*Underlying Exposures and Sector Allocations will change regularly as a result of the investment strategy

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The Dividend Harvester Strategy

ASX 50 UNIVERSE

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The Dividend Harvester Strategy

Stocks paying dividends this period

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The Dividend Harvester Strategy

Dividend paying stocks by highest grossing yield

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The Dividend Harvester Strategy

14 Stock Portfolio

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The risk management overlay defending against market declines S&P/ASX 200 Index (1992-2013): Cumulative equity return and volatility

Selected periods when increased market volatility was associated with market declines

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.

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HVST Performance comparison: HVST v S&P/ASX 50: inception to 29 July 2016

Past performance is not an indicator of future performance. Source: BetaShares, Bloomberg

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HVST has outperformed the S&P/ASX 50 in the past year Performance comparison: HVST v S&P/ASX 50: 1 year to 29 July 2016 HVST

S&P/ASX 50

Difference

Net income

11.6%

4.8%

6.8%

Franking benefit (est)

3.7%

1.7%

2.0%

Gross income

15.4%

6.5%

8.8%

Price return

-6.3%

-6.2%

-0.1%

Net total return

5.3%

-1.4%

6.7%

Gross total return

9.0%

0.3%

8.7%

Past performance is not an indicator of future performance. Source: BetaShares, Bloomberg Confidential – may not be distributed without the consent of BetaShares Capital

HVST Some things to keep in mind Due to the “dividend run up effect” some of the higher income produced by HVST may come at the cost of capital return under performance. But, • • •

some evidence to suggest market inefficiency, i.e. prices don’t fully adjust downward for dividends about to be paid. may mitigated by risk management overlay during periods of market weakness. Further offset to the extent full/partial dividend re-investment used.

Risk management does not protect against • •

Stock specific or “concentration” risk Gap events

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BetaShares Global Sector Series

BetaShares Global Sector Series is currently the most extensive family of global sector products available on ASX Confidential – may not be distributed without the consent of BetaShares Capital

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Agriculture Companies: ASX - FOOD

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Over the next 15 years, the world will have 1.2 billion more mouths to feed Global Population Projections: 1950-2030 billion 9 Projections

8 7

6 5 4 3 2 1 0 1950

1960

1970

1980

Developed Countries

1990

2000

2010

2020

2030

Developing Countries

Source: UN Population Projections, 2016

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Rising living standards will also increase calorie consumption per capita Per-Capita Food Consumption (Beef, Veal & Poultry) by country: 2014

Kg per capita, 2014 90 Israel

80

United States 70

Brazil

60

Australia Uruguay Chile

50 South Africa 40

Mexico

Ukraine 30 20 10

Iran

Vietnam Philippines Pakistan

0 $0

China

New Zealand Malaysia

Canada Saudi Arabia

Russia Korea Japan

Turkey

Thailand Indonesia India $10,000

$20,000

$30,000

$40,000 $50,000 $60,000 GDP per capita, PPP basis 2014

Source: OECD-FAO Database

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Investing through agricultural companies provides useful long-run exposure to the food theme BetaShares Global Agriculture Companies ETF - Currency Hedged’s Underlying Index vs MSCI World & FAO Food Price Index: June 2006 – June 2016 Index = 100 30-June-2006 400 FOOD Index 350 300

MSCI World Index - local currency FAO Food Price Index

250 200 150 100 50 0 Jun-06

Jun-08

Jun-10

Jun-12

Jun-14

Jun-16

Source: Bloomberg. The Index which FOOD aims to track is the Nasdaq Global ex-Australia Global Agriculture Companies Hedged AUD Index. You cannot invest directly in an index. Performance excludes the impact of ETF fees and expenses. Past performance is not an indication of future performance of the Index or the ETF. Confidential – may not be distributed without the consent of BetaShares Capital

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Healthcare: ASX - DRUG

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Healthcare spend has increased significantly Total Health Care Spending (% of GDP), current prices: 1970-2015

% 18 16

USA UK

14

Japan

12

Germany Australia

10 8 6

4 2 0 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015

Source: OECD Health Statistics, June 2016

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Strong forecast growth in healthcare spending Total Health Care Spending (% of GDP) by Country Income Level: Projections to 2040

% 12

10

8

6

4

2

0 1995 Global

2013 High Income

Upper-middle

2040(f) Lower-middle

Low

Source: World Bank and Institute for Health Metrics.

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Performance of DRUG index historically strong v. MSCI World Index Equity Total Return Performance: February 2009 – June 2016 Index=100 31/01/07 500 450 400

DRUG Index MSCI-World (local currency)

350

300 250 200 150 100 50 0 Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Source: Bloomberg. The Index which DRUG aims to track is the Nasdaq Global ex-Australia Healthcare Hedged AUD Index. You cannot invest directly in an index. Performance excludes the impact of ETF fees and expenses. Past performance is not an indication of future performance of the Index or the ETF. Confidential – may not be distributed without the consent of BetaShares Capital

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Some things to consider • Market risk: Investment returns will be influenced by the fluctuations of the relevant market as a whole (share market or currency market)

• Sector risk • Concentration risk • Investors should seek professional financial advice before investing • Past performance is not an indication of future performance

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Questions? Keep in touch

BetaShares Client Service 1300 487 577 [email protected] Confidential – may not be distributed without the consent of BetaShares Capital