Investment Professionals

2021 trends for your clients’ portfolios

Jan 25, 2021

Investing may look a bit different in 2021 as the year starts with cautious optimism and global vaccine rollouts. The investment winners in the year of the pandemic were technology companies, but what lies ahead this year for your clients? Portfolios will be guided by five trends this year: economic drivers such as recovery from COVID-19 and low global interest rates, along with trends like the movement to value, thematic investing and short & leveraged investing. Download the full whitepaper Global economic recovery from COVID-19 We now have approved vaccines being rolled out in the US and UK, along with planned pipelines for the rest of the globe, but investors shouldn’t assume an instant return to normal. It takes time to vaccinate a population and many countries are still battling severe outbreaks. Governments globally have announced generous stimulus packages to revive business activity. The European Union approved a coronavirus stimulus package to raise 750 billion euros1 after being hard-hit by the pandemic, particularly Italy and Spain in the later stages but countries like the Czech Republic struggling in later waves2. Investors can access European recovery through an ETF like ETFS EURO STOXX 50® ETF (ASX Code: ESTX). Beyond this, many countries are considering or resuming broadscale projects to further economic growth, with infrastructure one option for this. For example, India, initially subject to the world’s toughest lockdowns to manage COVID-19, has forged ahead with its existing US$1.4 trillion infrastructure program3. Investors can access activity in India through an ETF like ETFS Reliance India Nifty 50 ETF (ASX Code: NDIA). Low interest rates globally Interest rates declined further in 2020 to support global economies dealing with the pandemic. It is likely cash rates will remain low through most of 2021 to support recovery with the potential of increases late in the year. Low interest rates are typically supportive of business development and growth activities however have also placed pressure on yield-focused investors. Many have been forced to consider asset classes outside of fixed income to support their needs and this trend is likely to continue across the year. Some will take a ‘riskier’ approach to their yield investments and look for dividend-bearing assets, including equities. Investments in “safe-haven” commodities including gold and silver have a low opportunity cost and offer stability so are likely to continue to be popular across the year. Precious metals also typically perform well in periods of low interest rates, with investors using these, particularly gold, rather than cash as a store of value and to protect against inflation4. Investors can access gold on the ASX through the ETFS Physical Gold (ASX Code: GOLD). Movement to value investments Investors tend to move away from growth investments like technology in periods of economic recovery or growth. As news of vaccines hit markets in late 2020, investors started to shift towards value investments such as banks or industrials. This is likely to continue across 2021. The Australian sharemarket is strongly skewed towards financials and resources, which include companies typically falling into value investments so investors may look towards broad Australian exposures, slightly tailored cross-market exposures like ETFS S&P/ASX 300 High Yield Plus ETF (ASX Code: ZYAU) or sector exposures to refocus on value investments. Thematic investing Investors have been increasingly interested in the themes of the future in recent years and being able to invest according to their views and values. This trend is likely to continue in 2021. Dynamics in the coming year, such as vaccine rollout or renewed focus on climate change are likely to see biotechnology and climate change related investments appeal in 2021. Investors interested in healthcare may take a thematic or sub-sector approach such as healthcare biotechnology through funds such as the ETFS S&P Biotech ETF (ASX Code: CURE). Investors focused on climate change may consider the growing range of ETFs capturing sustainability, or alternatively consider battery technology which is key to the viability of renewable energy. ETFS Battery Tech & Lithium ETF (ASX Code: ACDC) is the only Australian-listed ETF to offer exposure to the global battery technology supply chain. Short & leveraged investments Across the volatility of 2020, many self-directed sophisticated investors took a short-term approach to trading and embraced short & leveraged funds. The popularity in the previous year suggests we may see the range available in Australia continue to expand to support interest in investing based on high conviction views. Find out more about the short & leveraged products offered by ETF Securities here. 1. EU leaders finally approve coronavirus stimulus package (cnbc.com) 2. How COVID-19 upended life in Europe throughout 2020 | Euronews 3. Source: India 2030: exploring the Future; National Infrastructure Pipeline 4. Gold investment demand remains well supported in 2021 – report - MINING.COM

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Why consider India for your clients’ portfolios

Dec 15, 2020

India’s star is on the rise and if you are considering an emerging markets exposure for your clients’ portfolios, it may be time to revisit India. Global challenges may just be a temporary setback for India, which is forging ahead with growth plans and many nations, including Australia, are seeking to forge closer trade partnerships. Like the broader Asian region is typically attractive to investors in emerging markets, India also benefits from the growth case of a well-documented growing middle-class and economic prospects. Recovering from the global pandemic The COVID-19 pandemic has been significant globally, not just from a health perspective but also economically. India was initially hard-hit, implementing one of the harshest and most extensive lockdowns globally1. Cases appear to have peaked in India in September and there are now signs of economic recovery as seen in indicators such as industrial output and energy consumption2. The Indian government has returned its efforts to the future growth of the nation, with key emphasis on its existing plans for infrastructure. Three key growth drivers A large and diverse nation, both in population and in region, India’s future is dominated by three key growth drivers. Infrastructure investment The Indian government has committed to US$1.4tr infrastructure investment by 20253. There is also a strong focus on climate and renewables, with the Ministry of Petroleum & Natural Gas announcing in September 2020 that it aims to operate 50% of fuel stations using solar power within five years4. India has also partnered with Japan via the India-Japan Coordination Forum for Development of Northeast for projects in India’s Northeast states5. Infrastructure can be an important tool for economic growth as it offers short term benefits such as employment, and longer term benefits in the form of useful water management, ports and roads to improve access and lifestyle for a population as well as businesses. Reform and fiscal policies India has historically been complicated for business operations, but government reforms have assisted in opening the country to internal and foreign business investment. The Indian government has also recently passed updated labour codes to simplify laws and compliance processes as well as incorporating a social security fund for gig and platform workers6. These reforms are anticipated to support continued ease of doing business in India. The country is also expected to benefit from accommodative monetary policy supporting business investment, along with fiscal spending programs to assist in reducing poverty. Consumption India is expected to benefit from a growing middle-class across Asia and the accompanying economic rise in consumption. It is expected to see the percentage of households in poverty drop from 15% to 5% by 20307. This creates an opportunity across industries to target a growing audience of people able to afford more than just the basics and demand better quality goods and services. While international brands are targeting this space, India’s own listed companies have physical and cultural advantages in reaching this audience. How to incorporate India in your clients’ portfolios Financial advisers could consider India from a few perspectives. Regional diversification within the core international investments of a portfolio. A tilt towards thematic investments, in this case, the trend for the growth of the middle-class across Asia, within the satellite portion of a portfolio. A growth allocation within either core or satellite portions of a portfolio. Options for investing Direct investment in Indian companies (noting that the Indian market can be difficult to access) Direct investment in companies with business operations in India which are listed in Australia or internationally. Actively or passively managed funds that focus on Asia, themes relevant to Asia or India, or specifically focus on India. ETFS-NAM India Nifty 50 ETF (ASX code: NDIA) is the only fund in Australia that offers exposure to the Indian economy via its benchmark index, the NSE Nifty50 Index. NDIA includes exposure to the 50 largest and most liquid companies listed on the National Stock Exchange of India (NSE) and represents more than 60% of the market capitalisation of India. For more information on investing in India or ETFS-NAM India Nifty 50 ETF (ASX code: NDIA), please speak to ETF Securities. 1 https://qz.com/india/1828915/indias-coronavirus-lockdown-harsher-than-china-italy-pakistan/ 2 https://www.businesstoday.in/current/economy-politics/rbi-rate-cut-economic-recovery-covid-lockdown-crisis/story/422035.html 3 Source: India 2030: exploring the Future; National Infrastructure Pipeline 4 https://www.ibef.org/industry/infrastructure-sector-india.aspx 5 https://www.ibef.org/industry/infrastructure-sector-india.aspx 6 https://economictimes.indiatimes.com/news/economy/policy/labour-reforms-intend-to-put-india-among-top-10-nations-in-ease-of-doing-business/articleshow/78257939.cms?from=mdr 7 http://www3.weforum.org/docs/WEF_Future_of_Consumption_Fast-Growth_Consumers_markets_India_report_2019.pdf

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Valuing gold in a portfolio

Nov 03, 2020

The value of gold is more than its spot price but also how it works in a portfolio. As an asset with multiple drivers determining its price, gold can seem mysterious, but the data suggests its role in client portfolios is clear. Gold’s investment value Gold can’t be valued using traditional metrics related to coupon or dividend value. While some institutions have created their own models, it can be more valuable to consider the interaction of gold with other assets in a portfolio. Gold is included in portfolios for a myriad of reasons – diversification, growth, as a hedge against inflation, and for a volatility safe-haven. These reasons are backed by the data. The below chart shows the correlation between gold and other asset classes which demonstrates why it is able to perform differently and even offer positive performance in volatile periods. Allocating to gold in a portfolio Gold allocations traditionally spread from 2-10% of a portfolio depending on risk tolerance and market conditions. For many investors, taking a flexible approach may be the answer, dialling up or down allocations based on individual client portfolio needs and market activity. For example, some financial advice firms, like Stockspot, have used a slightly higher allocation of 12% in recent times. Using an ETF like ETFS Physical Gold (ASX Code: GOLD) may be a suitable option for many portfolios as it offers a low-cost, liquid and easy to use exposure without the need for physical storage. Contact us to find out more about GOLD and using it in your portfolio. Client Services Phone +61 2 8311 3488 Email: infoAU@etfsecurities.com.au

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Thematic investing for your clients’ portfolios

Nov 02, 2020

Investing in thematics is a newer concept but can expose your clients to some of the major socioeconomic, environmental and technological themes of our times. For many financial advisers, the question arises of how exactly to use such investments and allocate to them within a portfolio. What is thematic investing? Thematic portfolios follow a top-down approach to investing. They look at long-term macro trends, such as robotics and automation, and then use various screens and information sources to identify the companies or assets which support this trend through infrastructure or services. Themes should be: Universal rather than specific to just one company or region1. Sustainable over longer periods, in some cases 20 years or more. Based on known patterns and pressures2. Some examples of well documented themes include virtual connectivity, ecommerce, biotechnology, the growth of the middle-class in Asia and climate change. Access to thematic investments Typically, advisers might consider three different options for their clients. Direct shares in companies associated with a theme. Actively managed funds. Exchange traded funds (ETFs). Each carries different risks and benefits, along with varying fees, minimum investments, brokerage, tax implications and W-8 BEN forms in some instances. While still carrying investment risks such as market or liquidity risks, ETFs tend to be the lowest cost and most accessible option for investors given the potential for exposure to many companies and they usually cost less than actively managed options. How to allocate to thematic investments Thematic investments are versatile and can be used in a range of ways, such as: To complement the equities component in the core of a portfolio. As a tactical tilt in the satellite portion of a portfolio towards trends or for growth. As a diversification tool to broaden from typical assets in a portfolio core. The size of the allocation may vary depending on how the investor chooses to use it, ranging from 5-10% per investment depending on factors such as existing portfolio composition, risk tolerance, needs and goals. Thematic investments can help offer clients the chance to be an active participant in the major forces driving human progress. They can also be the opportunity for clients to incorporate their passions within their investments, or even to have the potential of holding the ‘next big thing’ in a more manageable format. The increasing availability of tailored thematic investments in the market means they are more accessible than ever for financial advisers to consider their suitability and fit for their clients’ needs, goals and portfolios. For more information on using thematic investments, please speak to ETF Securities. Client Services Phone +61 2 8311 3488 Email: infoAU@etfsecurities.com.au 1 https://www.stockbasket.com/investmans-playbook/thematic-investment-ideas 2 https://publications.csiro.au/rpr/ws/v1/download?pid=csiro:EP126135&dsid=DS2

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Webinar recording: Green is the new black

Sep 07, 2020

Sustainable and renewable energy has become a focus for a world increasingly conscious of the impact of fossil fuels. While the growth in renewable energy is exciting, have you ever thought about what it means for the broader supply chain? In this webinar, we discussed: The growth of renewable energy and the supply chain required to support it. The future of battery technology, and How to use ETFs to express your views and values. To watch the recording, please click here.

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5G investments for your clients

Aug 05, 2020

The story of 5G is more than just an added boost to your phone and home wifi, it could transform the way we live and do business. From this perspective, it may form part of your clients’ growth investments now and into the future. What is 5G? Fifth generation wireless (5G) is a technology infrastructure system allowing communications and data access on-the-go, much in the same way that previous generations including the currently used 4G offered. While 5G was coming anyway, the COVID pandemic may see some companies accelerate their plans to access 5G-enabled technology, particularly automation, both as a safeguard against future lockdowns or simply to allow them to continue basic operations in the current environment1. Verizon estimates that “by 2035, 5G will enable $12.3 trillion of global economic output and support 22 million jobs worldwide”2. How to incorporate 5G exposure into your clients’ portfolios? In a typical investment portfolio, clients are highly likely to have some exposure to 5G already, in the form of telecommunications companies or companies which manufacture phones and other IT systems. However, it may be valuable to consider the broader 5G supply chain for a more diversified exposure. It extends from underlying technology suppliers and producers, such as companies like Qualcomm or National Instruments creating specialised chips and semi-conductors used in devices to create access to 5G, to companies creating technology and software for industrial automation, robotics and artificial intelligence which will advance substantially from the use of 5G, like Ocado or Daifuku. Much of the supply chain is dominated by robotics, automation and AI companies which is where an ETF like ETFS ROBO Global Robotics and Automation ETF (ASX code: ROBO) can assist with exposure to the 5G transformation. For more information on investing in 5G and ETFS ROBO Global Robotics and Automation ETF (ASX: ROBO), please contact us. Client Services Trading Phone +61 2 8311 3488 Email: sales@etfsecurities.com.au Phone +61 2 8311 3483 Email: capitalmarkets@etfsecurities.com.au [1] https://insights.roboglobal.com/as-the-covid-19-storm-rages-on-3-waves-of-growth-are-on-the-horizon [2] https://www.verizon.com/about/our-company/5G/how-5g-can-power-industrial-internet-things

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