Investment Professionals

Global biotechnology in your clients’ portfolios

Jun 23, 2020

Biotechnology has hit the headlines during the COVID-19 pandemic as companies race for vaccines and treatments, but its growth prospects extend beyond this period. Australian investors may be well familiar with this industry, given the dominance of CSL, but may be missing exposure to the international market, in particular, the US, the global centre of biotechnology. Download the full article here What is biotechnology? Biotechnology is a sub-industry of the healthcare sector and specifically refers to technologies that use biological processes, capturing companies that focus on research, development, manufacturing and/or marketing of products based on biological and genetic information. The different types of biotechnology include biological drugs, vaccines, immunotherapy, gene therapy, orphan drugs and genetic engineering. The US is typically viewed as the centre of global biotechnology due to the size of its market and the world-renowned US Food & Drug Association (FDA) approval process. The US industry is valued at US$113.bn, approximately 14.2x the size of the Australian biotechnology industry[1]. Why use global biotechnology in your clients’ portfolios? A growth investment a. Biotechnology is predicted to be valued at more than US$729bn by 2025, compared to US$295bn today[2]. b. The industry will benefit from increased spending in healthcare. The US, for example, is expected to average 5.4% annual increases in national health spending through to 2028[3]. Diversification away from concentrated Australian industry a. Biotechnology can be a high-risk industry, as well as lucrative. Average development costs for developing a drug are estimated at more than US$2.1bn and processes can take 10 years or more for approvals – assuming the drugs are successful[4][5]. Biotechnology performance has also benefited from highly active mergers and acquisitions (M&A) activity, expected to continue in the future. a. M&A for biotechnology was valued at US$23bn in 2019 with predictions of increased activity for 2020[6]. How to invest in biotechnology? You can consider direct shares or managed options for your clients’ portfolios. Direct shares may be a riskier option due to the high failure rates of drug testing and long periods of development. Managed options such as ETFS S&P Biotech ETF (ASX code: CURE) may offer broader exposure across a number of companies. For more information about investing in biotechnology, click here or contact us using the details below. Investor Relations Institutional Trades Phone +61 2 8311 3488 Email: infoAU@etfsecurities.com.au Phone +61 2 8311 3483 Email: capitalmarkets@etfsecurities.com.au [1] https://www.ibisworld.com/au/industry/biotechnology/1901/ [2] https://www.gminsights.com/industry-analysis/biotechnology-market [3] https://www.healthleadersmedia.com/finance/national-health-spending-growth-projected-54-annually-through-2028 [4] Deloitte Centre for Health Solutions, Unlocking R&D Productivity, 2018. [5] https://www.phrma.org/en/Advocacy/Research-Development/Clinical-Trials [6] https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/life-sciences/life-sciences-pdfs/ey-firepower-report-2020-how-will-deals-done-now-deliver-what-the-health-ecosystem-needs-next-v2.pdf

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Clean energy in your clients’ portfolios

Jun 10, 2020

Battery technology investments could be the answer for clients with an interest in the environment and a desire to incorporate this within their portfolios. Renewable energy and electric cars are set to take over fossil fuels as a source of energy in coming decades, but to do so, battery technology and storage will be critical. Renewables and battery technology Renewable energy, namely solar and wind power, are intermittent power sources. To rely on these is to require reliable energy storage in the form of batteries. Likewise, electric cars are completely dependent on battery storage to operate. The South Australian Hornsdale Power Reserve is the largest example in the world of battery storage for renewable energy, making Australia one of the leaders (surprisingly, given our coal industry) in transformation. Wind and solar energy are forecast to supply around 48% of world electricity needs by 2050, with battery technology, gas peakers (turbines or engines that burn natural gas) and dynamic demand anticipated to drive market penetration of solar and wind by more than 80% according to BloombergNEF[1] . To accommodate this growth, utility scale battery energy storage capacity is expected to more than double by 2022, while the market for battery technology is anticipated to reach $90bn by 2025, growing more than 12%[2][3] . How to invest in battery technology? The value chain for battery technology ranges from mining companies, mining for metals like lithium, to manufacturers of battery storage and storage technology providers. All are potential beneficiaries of the anticipated growth in this industry. There are a range of ways to access battery technology in your clients’ portfolios. Direct shares in value chain component companies with the bulk of their revenue related to this area, such as mining companies like Pilbara Minerals or battery manufacturers. Direct shares in broader companies which still include exposure to battery technology, such as Panasonic. Managed funds, either active options or ETFs such as ETFS Battery Tech & Lithium ETF (ASX code: ACDC) which offer exposure across the industry. For more information about ETFS Battery Tech & Lithium ETF (ASX code: ACDC) or investing in battery technology for your clients, please contact us. Sales Trading Phone +61 2 8311 3488 Email: sales@etfsecurities.com.au Phone +61 2 8311 3483 Email: primarymarkets@etfsecurities.com.au This document is communicated by ETFS Management (AUS) Limited (Australian Financial Services Licence Number 466778) (“ETFS”). This document may not be reproduced, distributed or published [1] https://about.bnef.com/new-energy-outlook/ [2] www.forbes.com/sites/mergermarket/2020/02/18/the-future-of-battery-energy-storage-is-upon-us/#d5b173d4a185/ [3] www.mordorintelligence.com/industry-reports/global-battery-market-industry/

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Webinar Recording: Gold - A Precious Metal for Portfolios, 2020

Jun 02, 2020

Recorded on the 27th May 2020. This webinar focuses on the alternative asset that is gold. In this webinar, we discussed: Gold's strategic and tactical place in a portfolio Understanding gold's valuation factors: The short, medium and long-term price drivers Examining the recent rise of gold The future outlook To watch the webinar recording, please click here.

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Trading the greenback

May 18, 2020

Product in focus: ETFS Enhanced USD Cash ETF (ASX Code: ZUSD) Trading the greenback Many investors view cash as part of the defensive, and somewhat static portion of their portfolios, but in uncertain markets it might also be used as a trading tool to act on shorter term views and expectations of currency exchange rates. The US dollar is one such option that investors could consider, using an ETF like the ETFS Enhanced USD Cash ETF (ASX code: ZUSD). ZUSD aims to track the performance of an interest-bearing US dollar cash deposit by investing in US dollar bank deposits with maturities ranging from overnight to three months and earning a variable rate of interest. Using USD as a defensive position Cash typically forms part of a defensive allocation in a portfolio for liquidity and downside protection, with Australian investors typically using the Australian dollar. Much like equities and fixed income, diversifying cash can assist with risk management, particularly in volatile periods. For example, holding currencies other than the Australian dollar might buffer the cash allocation in periods where the Australian dollar is weak. The US dollar often holds appeal to Australian investors as a result of its strength compared to the Australian dollar. AUD/USD 14 May 2015-12 May 2020 The US dollar has traditionally been viewed as a safe-haven asset, with most global central banks keeping it as a reserve currency and many international transactions conducted in the US dollar. The value of the US dollar tends to be less volatile, particularly compared to emerging markets, backed by what is to the most part seen as political and economic stability[1]. Trade your conviction Investors can also use cash investments to make tactical decisions on how they expect a currency to perform. For example, investors who believe the US dollar is likely to appreciate, may increase their cash allocation to the US dollar while those who believe it is likely to depreciate may choose to reduce their allocation. An ETF like ZUSD is a simple and liquid way to trade your convictions on the US dollar, allowing you to move quickly based on your changing market views. It may also be more cost-effective and accessible for some investors when compared to setting up cash deposits internationally or using a currency exchange. Demand for the US dollar globally driven The US dollar is heavily used across the globe. There is more than $13 trillion in US dollar denominated assets held in banks outside the US[2], reflecting approximately 15% of world GDP[3]. Approximately 80% of global trade financed by the Bank for International Settlements (BIS) is in US dollars (BIS finances 35% of global trade)[4]. The US dollar has also been used by the US Federal Reserve (the Fed) to improve liquidity within the US and other countries by way of swap accords. An example of how this works is as follows: the Fed has an agreement with the Reserve Bank of Australia to exchange US$60 billion of US dollars for Australian dollars and reverses this transaction at a later point in time[5]. The Fed has permanent swap arrangements with the United Kingdom, Canada, Japan, European Central Bank and Switzerland but set up temporary relationships at the start of the COVID-19 pandemic with Australia, Brazil, Denmark, Mexico, New Zealand, Norway, Singapore, South Korea and Sweden[6]. This has been to support the large demand and tight supply of the US dollar outside the US and has resulted in an increase from US$60 million in the first half of March 2020 in swap activity to nearly US$400 billion at the start of April 2020[7]. Depending on how the COVID-19 pandemic continues to evolve, demand for the US dollar – either through swap activity or broader global activity – may put upward pressure on the greenback. Those who believe this is likely may choose to ‘go long’ on the US dollar by taking exposure to it either by buying US dollars or other means, such as ZUSD. Currency exchange and equity markets The exchange rate between the US and Australian dollars correlates negatively with US equity markets as represented by the S&P 500, meaning that the US dollar tends to appreciate against the Australian dollar when the US share market is falling and vice-versa. In other words, the Aussie dollar tends to perform well when markets are rising, which is linked to demand for Australia’s resources-heavy exports. This is demonstrated further in the following charts. As shown in the correlation panel at the bottom of the chart below, across 5 years there is a negative relationship between the movements of the S&P 500 compared to the USD/AUD rate. In periods of more pronounced downturns, the correlation has become more negative, as seen in the global financial crisis and the more recent volatility in March 2020. Long term S&P 500 vs USD/AUD rate (performance in top chart and correlation in bottom chart) Source: Bloomberg, 14 May 2020 To highlight how pronounced that relationship can be the chart below shows a strong negative relationship between the S&P 500 and the USD/AUD rate in the recent months of COVID-19 driven volatility. Short-term S&P 500 v USD/AUD rate (performance in top chart and correlation in bottom chart) Source: Bloomberg, 14 May 2020 An enhanced approach to the US dollar ZUSD tracks the USD/AUD rate and invests in US dollar bank deposits with maturities ranging from overnight to three months and aims to earn a rate above the rate available on overnight deposits. Deposits are held with one or more Authorized Deposit Taking Institutions and earn a variable rate of interest spread across a range of maturities to enhance yield, while maintaining the liquidity of the fund. Generally though, exposure to the US dollar through ZUSD may assist as a buffer against weakness in the Australian dollar and offer diversification in the cash allocation of a portfolio. Alternatively, investors may choose to consider ZUSD as a trading tool for a short-term tilt to access any strength they may anticipate in the US dollar. ZUSD is the only physical US dollar ETF offering quarterly distributions. This may make it appealing to income-focused investors. More information on ZUSD Fund Name ETFS Enhanced USD Cash ETF ASX Code ZUSD Management Fee 0.30% p.a. Distribution Frequency Quarterly For more information on ZUSD, please contact us on: Sales Trading Phone +61 2 8311 3488 Email: sales@etfsecurities.com.au Phone +61 2 8311 3483 Email: primarymarkets@etfsecurities.com.au

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Investing for better outcomes

May 13, 2020

How to build your clients’ portfolios to meet their goals The unpredictable nature of markets means that advisers need to be pragmatic and measured in their approach to meeting their clients’ goals, ranging from building a house deposit and paying for education to generating a consistent retirement income while maintaining enough capital for aged care deposits. Whatever the goals, most advisers typically need to be able to preserve a certain level of capital for their clients, while also investing for long term growth or for stable income. An enhanced core-satellite approach to portfolio construction can offer a cost-efficient and measured way to target investment goals and manage market volatility. Download the complete paper or read the summary below: What is enhanced core-satellite investing? In enhanced core-satellite investing, the core is made up of passive exposures, including smart beta, to major asset classes (mainly equities and fixed income) while satellite investments are more opportunistic and designed to seek specific growth outcomes, sometimes at higher levels of risk. Satellite investments might traditionally have been active managed funds or direct investments in companies or real estate but are now equally likely to be selected from the tailored ETFs available today. Generally, the core might be 65-85% of the portfolio, depending on the investor’s goals, investment horizon and risk tolerance, while satellites would represent 15-35%[1]. How this might look in practice is as follows: an investor focused on income might use the satellite components for yield or proactively switch to defensive or growth tilts to bolster their core investments, depending on market conditions. Their core might include investments such as ETFS S&P/ASX 300 High Yield Plus ETF (ASX code: ZYAU) or ETFS EURO STOXX 50 ETF (ASX code: ESTX). In the current market conditions, the investor might choose to increase exposure to defensive investments to the satellite like ETFS Physical Gold (ASX code: GOLD), or include an exposure to foreign currencies like the US dollar which offer a higher yield compared to the Australian via an ETF like ETFS Enhanced USD Cash ETF (ZUSD). How enhanced core-satellite investing supports client needs and goals? Core-satellite investing is a flexible approach and the core will look different according to the individual investor. A high growth strategy might have a core with a higher proportion of ‘riskier’ assets like equities, while a defensive strategy might focus more on assets like gold or fixed income. Investors should consider the core as where they set their strategic asset allocation – where the long-term targets are set for the investment composition to meet your goals, needs and views. By contrast, the satellite is for tactical asset allocation – for shorter-term investments based on market and world conditions that are likely to be more temporary. [Learn about how core-satellite investing has worked during the COVID-19 pandemic here] Core-satellite portfolio construction also assists in cost management for investors. Passive investing is typically lower cost when compared to actively managed funds. Using ETFs may offer additional pricing efficiencies for investors, such as lower administration and management fees as well as lower entry point compared to managed funds and listed investment trusts. Other considerations from using ETFs may be benefits from liquidity which can assist in flexibility to move based on market conditions or to free up funds to meet specific cash needs. There is also a wide range of ETFs available, assisting advisers in identifying those which may fill specific portfolio gaps, match specific goals or even meet particular views held by clients. For more information on enhanced core-satellite portfolio construction or to find out more about using our range of ETFs in your portfolio, speak to ETF Securities.

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Adjusting portfolios during COVID-19

May 13, 2020

Investing has become a game of chicken in the eyes of some investors. Has COVID-19 become a buying opportunity? Have we seen the bottom, or is the worst yet to come? It’s hard to make any solid predictions in this unfamiliar territory – investment markets have experienced a health crisis rather than being undone by poor fundamentals, such as in the global financial crisis. The essentials, defensive assets and growth trends should be considered by advisers exploring the opportunities to tilt the satellite portion of their clients’ portfolios. Incorporating the essentials There are a number of areas which may benefit from the current situation – or if not benefit, then at least be largely able to continue normal operations. Companies in the consumer staples sector is an easy starting point. People need basic supplies to live and supermarkets like Coles and Woolworths continue to operate and have seen increased demand in these times. There are even pockets to consider in the consumer discretionary sector as people use lockdown to carry out home based activities or upgrade the technology they use to work from home. Infrastructure, such as railways, energy suppliers and telecommunications, is a sector that continues to operate in periods of volatility. These types of companies normally have monopolistic fee structures and have very high barriers to entry with predictable revenue streams. This means they aren’t expected to rise as much in good times but are less likely to be materially impacted in the bad times. In the current situation, telecommunications has benefitted from an increased dependence from a population working from home. An ETF like ETFS Global Core Infrastructure ETF (ASX code: CORE) can offer exposure to global infrastructure companies in a client portfolio. Defending against volatility Defensive assets like gold or silver can offer a buffer in volatile markets. Gold in particular has been used as a safe haven asset in the past for its low and at times negative correlation to other asset classes. You might choose to use an ETF like ETFS Physical Gold (ASX code: GOLD) or ETFS Physical Silver (ASX code: ETPMAG) in the core of a portfolio or as an additional satellite tilt. Growth trends The volatility of COVID-19 has reset markets, and the time might be favourable for some investors to access growth trends at more favourable valuations. Technology trends have particularly accelerated during COVID-19, with ecommerce and online entertainment experiencing spikes in use. ETFs such as ETFS Morningstar Global Technology ETF (ASX code: TECH) or ETFS FANG+ ETF (ASX code: FANG) offer access to the companies withinthis theme. Biotechnology may be a longer-term trend but it is also particularly topical at the moment in the hunt for vaccines and a cure for COVID-19. The ETFS S&P Biotech ETF (ASX code: CURE) accesses this trend and offers exposure to some of the key players currently working against the virus, including Gilead, Regeneron and Moderna. The growing Indian economy may also pose an opportunity for some investors (learn more here). It can be accessed through the ETFS Reliance India Nifty 50 ETF (ASX code: NDIA).

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