Investment Professionals
Eurozone Outlook for 2018
Mar 22, 2018
Eurozone Outlook for 2018
Trade idea – ETFS EURO STOXX 50® ETF (ESTX)
Economic growth in the eurozone is at the highest level in
a decade and the outlook is positive for 2018.
ECB stimulus remains intact as inflation remains
subdued and the euro continues to strengthen.
Political headwinds tapered significantly in 2017, though
some hurdles remain on the radar.
ESTX provides low cost exposure to the blue-chip
eurozone companies driving European growth and offers
unhedged upside to a further strengthening euro.
In this week’s ETFS Trade idea, we look to the European economic and political outlook for 2018 and
highlight potential opportunities as well as some challenges on the horizon.
Eurozone economy growing at fastest pace in a decade
European data continues to paint a picture of an economy on the up, with positive momentum predicted to
carry into 2018. Eurozone GDP grew at a rate of 2.7% in 2017 and the outlook remains positive, with the IMF
forecasting growth to remain above 2% for at least the next two years. Moreover, while much of the initial
impetus had come from the powerhouses of Germany and France, the periphery has now started to follow
suit.
Labour markets are looking strong, with unemployment across the region continuing to plummet and wage
growth picking up. Despite slipping slightly in February, sentiment remains high, with economic and
consumer confidence both at levels last seen in 2001. PMI data remains positive and there are signs that
excess capacity is shrinking as economic growth gathers pace.
Monetary policy outlook remains stable
In the face of an expanding economy, the monetary policy outlook is surprisingly stable. Monetary stimulus
in the form of the ECB’s unprecedented asset-buying programme is likely to remain. Inflationary pressures
appear subdued, with CPI falling from 1.5% in November to 1.4% in December, well below the ECB’s target
level of 2%.
The strength of the euro is also aiding the stimulus impact by reducing inflationary pressure from imported
goods. In US dollar terms, the euro has appreciated by over 17% since the start of 2017. In historical terms, the currency is currently sitting close to its long-term average level, and many analysts are predicting further
appreciation in 2018.
Political risks remain on the horizon
Political risks, so prominent in the European dialogue over the past decade, took a back seat to the improving
economy in the second half of 2017. French, Dutch and German elections took place without major incident
as the anti-EU populist threat appeared to dissipate.
Italian elections last week saw a move away from the establishment parties. Whilst details on policy
directions have yet to emerge, the equity markets in Italy and across Europe have reacted positively this week.
Other risk events likely to have a bearing on the shape of Europe this year include the ongoing Brexit
negotiations and developments in the Catalan push for independence.
How to invest in the eurozone?
ETFS EURO STOXX 50 ETF (ESTX) is well positioned for investors for the following reasons:
ESTX captures the performance of the 50 largest corporations in the eurozone – all significant global
players in their fields.
ESTX tracks the world’s most widely traded European benchmark index – the EURO STOXX 50
Index.
ESTX is unhedged with respect to currency movements; meaning that investors benefit from a
strengthening euro or weakening Australian dollar and vice-versa.
No UK companies are included in ESTX, making it somewhat Brexit remote compared to other panEuropean funds.
ESTX is the joint lowest cost Europe-focused ETF on the ASX with an MER of 0.35% p.a.
ESTX is domiciled in Australia so there are no W8-BEN tax forms for investors to complete and US
estate tax is not applicable
ESTX has Recommended rating by Lonsec.
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With Volatility Picking up, why Don't you Consider Owning Gold?
Feb 09, 2018
With volatility picking up, why don’t you consider
owning gold?
Trade idea – ETFS Physical Gold (GOLD)/
ETFS Physical Singapore Gold ETF (ZGOL)
Volatility has returned to the markets
Downside risks have increased dramatically
Gold has been consistently one of the best portfolio hedges
against geopolitical risk and inflation
Below we take a further look at why you should be holding
gold
There are three reasons why you should own gold.
1) Portfolio protection against volatility
2) Inflation hedging
3) Event risk hedging
Points 1 and 2 have recently increased from “no concern” or “neutral” in investors’ minds to “serious concerns”
so we believe that all advisers and planners should be considering including gold in their client portfolios, as it’s
one of the most historically reliable hedges in such circumstances.
Gold protects portfolios against negative equity
volatility
Just last week we had an example of gold performing as an
event risk hedge when equity markets plummeted and the gold
price surged upwards. On 5th February, we saw global equity
markets fall with the S&P 500 down 4.1% and the ASX 200
down 1.6%, meanwhile the gold price was up 0.5% in USD
terms as investors were turning risk averse. The year-to-date
performance chart on the right highlights the price actions of
the day. (Source: Bloomberg, data as of 13th February 2018)
Historical performance is not an indication of future performance
and any investments may go down in value.
Gold against inflation
Gold is also widely viewed as a tool against inflation. Historically, the gold price tends to appreciate when
inflation and interest rates are on the rise. The chart below shows how the gold price moves largely in-line with
the inflation (CPI) of the United States.
Event Risk Hedge
Lastly, although there have been no significant geopolitical events this year so far, it only takes one to roil the
markets. As the table below shows, being in gold in nine out of ten of the events below was a positive when held
within an investor portfolio.
Summary
There are three reasons why investors should own gold and two of them have dramatically spiked in terms of
relevance. We believe all advisers should at least consider owning gold through this late economic cycle, where
the probability of inflation and volatility is heightened.
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A Look Inside the ROBO Global
Jan 30, 2018
ETFSTrade idea – A Look Inside the ROBO Global® Index
Our world is being transformed as a new wave of innovation, often technology-led, challenges every aspect of how we live and work. In the final article of our Future Present series, we have selected 5 stocks from the ROBO Global® index to showcase how different businesses are riding on this megatrend.
The stock stories inclided are;
Novanta - Precision Surgery
Yaskawa - Industrial Robotics
GEA - Food and Beverage Processing
Xilinx - Programmable Chips
Koh Young - 3D Inspection
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How the Future Present Range Fits Your Portfolio
Jan 22, 2018
How the Future Present series fits your portfolio
Trade idea – ETF Securities Future Present series
i. ETFS Morningstar Global Technology ETF (TECH)
ii. ETFS ROBO Global Robotics and Automation ETF
(ROBO)
Key Takeaways:
Technology was the top performing sector in 2017, returning
39% for the calendar year and contributing 25% of the total
global equity market return(1).
The pace of innovation continues to grow and adoption of new
technologies in fields such as robotics and AI is quickly
spreading across many industries.
Adding funds like TECH and ROBO to an otherwise diversified
portfolio offers investors unique opportunities to capture any
future growth in this sector, while also reducing overall
portfolio risk.
(1) Source: Bloomberg data as at 18 January 2017. Information technology companies contributed 5.73% to the total return of 23.06% of the MSCI
World Index in 2017.
Future Proofing Portfolios
Investors looking to future-proof their portfolios in 2018 should consider the opportunities that are presented by
investing in new technology and innovation. Fields such as robotics, automation and artificial intelligence (RAII), in
particular, are forecast to grow massively in the coming years and impact almost every industry by providing key
enabling technologies and new applications for existing technologies.
Investments in technology have traditionally been viewed as high return/high risk, however in recent years the
established players in the technology world have become highly cash generative and broadly entrenched in our everyday
lives. This has given many technology companies defensive, counter-cyclical characteristics that are traditionally more
associated with utilities and real estate investments and has changed the way many investors look at the technology
sector.
ETF Securities Future Present Range
The Future Present range of ETFs allows investors to combine well-established technology firms with strong competitive
advantages, using TECH, with highly innovative firms from the exciting world of RAII, using ROBO. The below study
explores the impact of adding the Future Present range to a simple, diversified ETF portfolio consisting of Australian
equities, international equities, fixed income, gold and property. Hypothetical portfolio allocations are detailed in Charts
1 and 2 below:
Over the four years of available history, adding a 10% allocation to the Future Present range (5% each to TECH and
ROBO), while keeping the allocation to equities constant, not only improves the overall total return by 0.84% per
annum, but also reduces the portfolio volatility by 0.95%2. Charts 3 to 6, below, show the risk return characteristics of
the two portfolios as well as each of the constituents over 1, 2, 3 and 4 years.
Benefits to Your Portfolio
Apparent from the four charts below is the strong historical performance of the Future Present ETFs, with the two funds
ranking first and second on the basis of returns across all tenors. With regards to volatility or risk, as measured by
standard deviation, TECH and ROBO are at the higher end, though not substantially more volatile than either the
Australian or international equity ETFs or gold. In all four cases, however, diversification benefits are seen in that
adding above average risk investments lowers the overall portfolio risk in all cases, providing investors with better
risk/return profiles. This is particularly true for Australian investors with high portfolio allocations to the domestic
market, which is very underweight the technology sector.
Source: Morningstar Direct as at 31 December 2017. Benchmark index returns are used as a proxy for TECH and ROBO due to insufficient fund
history. Returns in AUD. Past performance is not an indicator of future performance.
These graphs illustrate the trade-off between risk (standard deviation or volatility around the mean) and reward (expected or average return). The
ideal position is within the upper left quadrant of the graphs. Placement here indicates that the portfolio returned more than the risk-free benchmark
(typically the yield on high quality government bonds) with lower volatility. The bottom right corner is the least desirable, since this represents highest
risk with lowest return
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The Rise and Rise of Technology
Jan 09, 2018
ETFS Trade idea – The Rise and Rise of Technology
Technology driven advances and the pace of innovation are the defining mega trend of our era. Developments in fields such as robotics and automation are changing many industries and are having an impact on the way we work and live.
Our Future Present range of exchange traded funds offers simple and intelligent ways to bring your portfolio into the 21st century by capturing growth in companies at the forefront of the technology revolution.
The rise and rise of technology
It has become something of a cliché, but technology
really is changing the way we live and work. On
buses and trains, for example, half of the passengers
are likely glued to smartphones or tablets.
Technological developments are certainly not
confined to telecommunications; in fact, new
technologies are heralding enormous changes in a
very wide range of industries globally. And, in some
cases, technological advances are creating entire
new industries whose participants are enjoying
stellar growth rates.
These powerful trends are interesting from an
investment perspective. After all, the premise of
equity investing suggests investors allocate capital
towards companies that can generate and maintain
strong growth rates, which are most likely to
generate favourable long-term returns for
shareholders. This philosophy is a hallmark of
thematic investing, whereby investors seek to
benefit from exposure to a particular trend or
theme. Thematic funds can be additionally
appealing to investors as their performance is often
uncorrelated with economic cycles and other forces
that drive mainstream equity and bond markets.
Accessing pioneering companies with the greatest
growth potential can be easier said than done. Small
and mid-cap companies at the cutting edge of
innovation in emerging industry sectors are
typically not well represented in traditional market
cap weighted indices. Constituents of the S&P/ASX
200 Index, for example, are more mature large-cap
companies, often with more modest growth rates.
Accordingly, investors might be missing out on
some of the brightest current investment
opportunities, even if their portfolio is heavily
weighted towards equities.
Similarly, investors who focus primarily on the
domestic market in Australia are not only missing
out on the benefits of international diversification,
but are likely to also be overweight sectors such as
Financials and Materials. Significantly, they are also
likely to be very underweight sectors such as
Information Technology and Heath Care, which are
major sources of growth and innovation.
In recognition of this – and reflecting our desire to
offer investors fresh, innovative and value-adding
investment options from across the globe – ETF
Securities has launched the Future Present range.
This range of funds enables investors to access some
of the most appealing investment niches currently
available, conveniently and cost-effectively through
an exchange traded fund (ETF) vehicle.
Accessing a new world of investment
opportunities
The Future Present range has been designed to
track the growth of new and innovative sectors that
have historically been challenging for investors to
access. Investing in the Future Present range of
funds enables investors to participate in the growth
arising from long-term structural shifts that are
underway in various industries.
The Future Present range was launched in 2017 with
the only ETF in Australia offering exposure to the
global technology sector – ETFS Morningstar
Global Technology ETF (ASX code: TECH).
Technology has been a major source of global
growth in recent years. Since 1995, earnings across
the technology sector have increased more than
500%, nearly double the wider market. This
translates into an annual compounded growth rate
of 8.5% per annum compared to 5% for the market.
In 2017 technology was clearly the leading
performing sector, averaging a total return of close
to 40% on a market capitalization-weighted basis(1).
In designing TECH, ETF Securities partnered with
Morningstar, whose expertise as a leader in equity
research provides insight used to identify the
leading technology companies across the globe,
based on rigorous analysis of the strength and
sustainability of their competitive advantages.
Furthermore Morningstar’s valuation models
ensure that only firms trading at attractive
valuations relative to peers are selected for the fund.
Whilst mega-caps such as Apple, Google, Facebook
and Amazon dominate, there is innovation and
value to be found across the sector. From artificial
intelligence to cyber-security, e-commerce and
cloud infrastructure technology firms are growing
and diversifying in many different directions. As
such, companies are equally weighted within the
fund to capture growth in small- and mid-cap
companies that emerge as leading players in their
field.
The Future Present range has since expanded to
include Australia’s first robotics, automation and
artificial intelligence ETF – ETFS ROBO Global
Robotics and Automation ETF (ASX code: ROBO).
Companies are increasingly investing in automation
as they seek to improve productivity; reducing
production costs and, in turn, increasing
profitability. Already generating more than $200
billion annually, sales in the robotics and
automation sectors are tipped to increase more than
five-fold over the next decade. (2)
Currently, more than two thirds of industrial robots
are employed in the automotive, electronics and
metal industries(3)
, but their use is likely to become
more widespread as artificial intelligence systems
develop further. Improvements in image and voice
recognition, for example, as well as increasing
usability of machine vision technology will enable
robots to perform ever more complex tasks,
widening their application and seeing them
penetrate other industries.
For ROBO, ETF Securities has partnered with
ROBO Global, pioneers in robotics and automation
investing and the developers of the benchmark
industry classification system for the sector. ROBO
Global’s expertise lies in their ability to identify
companies that are best-placed to benefit from the
structural changes underway. Which have
competitive advantages that are likely to persist
through time? Which are most profitable and likely
to generate the strongest long-term returns for
shareholders?
Benefiting from ETF Securities’ heritage as
Australia’s second oldest provider of exchange
traded products, combined with the specialist
expertise of our research partners, the Future
Present range provides investors with a unique
opportunity to invest in mega trends that are
occurring all around us. We look forward to
expanding the Future Present product range in 2018
and beyond.
(1) Source: Bloomberg data as at 11 January 2018.
(2) Business Insider Intelligence, Cyber Security Report, Apr
2016
(3) Source: International Federation of Robotics 2016
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Europe Playing Catch Up
Oct 30, 2017
Europe Playing Catch Up
ETFS Trade idea – ETFS EURO STOXX 50® ETF (ESTX)
The European Central Bank’s (ECB) proactive approach
is helping aid Europe’s economic recovery
Lending growth is on the up
The ECB wants a weaker euro which will support many
of the multi-nationals in the EURO STOXX 50, who
generate a majority of their revenue offshore
ETFS EURO STOXX 50 ETF (ESTX) provides low cost
access to European stocks without any UK exposure. This
ETF was rated Recommended by Lonsec
Whilst we focus on what Trump will tweet next, what new high the Dow will hit, or how long the Australian market can
continue moving sideways, Europe has quietly been going about its business, continuing its recovery phase. This
recovery has been aided by the ECB’s proactive approach and a stabilising geo-political environment.
What should investors be looking at in Europe?
What are the ECB doing?
Last week on Thursday the ECB met market expectations for tapering its bond purchase program.
Globally markets responded positively. For the day at close of markets on Thursday 26th October:
o EURO STOXX 50 Index was up 1.3%
o DAX was up 1.4%
o Positive news from the ECB had a spill-over effect on the S&P 500 which was up 0.2%
Show me the money
Analysing Eurozone M3 data for September, lending growth is extending:
o Lending to corporates rose to 2.5% y/y
o Mortgage lending rose to 2.4% y/y
o Consumer credit growth steady at 6.7%
M1 (good indicator of transactions demand for money) in September rose to 9.7% y/y from 9.5% y/y in August
Recent European reporting season
Whilst the Australian reporting season was somewhat uneventful, the recent European season showed that the region is
recovering strongly:
Is Europe over or undervalued?
The EURO STOXX 50 is still cheap when looking at valuations against other broad indexes
Europe earnings also show that it has much greater catch-up potential
The ECB wants a weaker euro
The ECB’s concern about a rising euro will see it continue to adopt a dovish stance, as seen in last week’s policy
announcement
The ETFS Research team believe that any spikes higher in the euro are temporary and that the market has
largely priced in tapering of the ECB’s bond purchasing program
A weaker euro will support many of the multi-nationals in the EURO STOXX 50 that generate a majority of their
revenue offshore
Below chart shows a breakdown of the geographic revenue exposure of the EURO STOXX 50 and the S&P 500
Given the continued revival of Europe, the ETFS EURO STOXX 50 ETF (ESTX) is well positioned for investors for the
following reasons:
no inclusion of UK companies means fallout from Brexit negotiations is reduced
the proportion of revenue generated offshore is close to 50% meaning a weaker euro could be a positive scenario
for many of the constituent companies
ESTX is the lowest cost Europe-focused ETF on the ASX with an MER of 0.35% p.a
ESTX is domiciled in Australia so there are no W8-BEN tax forms for investors to complete and US Estate Tax is
not applicable
Recommended by Lonsec