Individual Investors

ETFs versus LICs – which is best for my portfolio?

Aug 06, 2020

Finder.com investments editor Kylie Purcell explains the differences between ETFs and LICs. Exchange traded funds (ETFs) and listed investment companies (LICs) are both popular investment options within Australia. Although they share a number of similarities, there are also important differences to consider as an investor. We’ll look at some of the main differences between the pair to help you decide which is best for your portfolio. What is an ETF? An ETF is a type of investment fund that trades on a stock exchange – similarly to regular shares. ETFs invest in a basket of assets, such as stocks, commodities and bonds. ETFs will often track a particular market index such as the S&P/ASX 200. Rather than trying to outperform this index, these “passive” ETFs aim to closely mimic the index performance. This means your returns will rise and fall in line with the tracked index. What is a LIC? A LIC is a publicly listed company (hence the name, listed investment company) that operates like a managed fund. Like an ETF, LICs may invest in a variety of assets, including stocks, property and bonds. The main similarity is that both ETFs and LICs allow you to invest in a diversified portfolio. This may include a single asset class, such as stocks or bonds, or it could hold multiple assets. You also invest in a LIC in much the same way as an ETF – over a stock exchange. Unlike ETFs, LICs issue a fixed number of shares that investors can buy or sell on the stock market (usually the ASX). This means that the price of a LIC is partly determined by demand from investors and may not always be liquid. In some scenarios, an investor might be forced to sell their LIC shares at an undesirable price if there aren’t enough buyers in the market. On the other hand, ETFs are known as ‘open-ended’ investments, meaning the number of ETF units in circulation is not fixed. Instead, units can be issued and removed based on demand. This means that supply and demand have less of an impact on ETF prices than the underlying portfolio itself. What are the main differences between the ETFs and LICs? Structure A LIC is structured as a company, so if you decide to invest in a LIC, you’ll own shares in the LIC itself, rather than the underlying assets. An ETF, on the other hand, is a unit trust, which means you’ll receive units in the fund if you decide to invest. Strategy ETFs typically offer exposure to an entire market, region or market sector such as global health or technology stocks. They have the potential to track hundreds or even thousands of stocks. Although not always the case, most ETFs are passive investment products, meaning they either track an index or use filters to decide which stocks are included in the fund. LICs, on the other hand, actively select each individual asset to invest in. The LIC will have an investment team responsible for choosing and managing the company’s investments. Tax obligations Because an ETF is a unit trust, all tax obligations are passed on to investors. Any dividends and franking credits are passed directly to unitholders. With a LIC, all dividends are paid to the company and it’s at the discretion of management whether to pass on that income or reinvest the money back into the fund. If the LIC receives unfranked dividends from the underlying investments, it will typically pay tax on those dividends at the company tax rate and deliver franked dividends to shareholders. Cost ETFs are relatively cheap because they aim to track an index rather than outperform it. LICs tend to cost more because they have investment managers deciding which assets to invest in. If the manager outperforms the benchmark, this may result in additional fees. Both ETFs and LICs are an affordable way to invest in a wide asset pool. Management fees are generally lower than traditional managed funds (although these can differ depending on whether the fund is passively or actively managed). Both investment options offer high liquidity and provide access to a diverse range of assets in a single trade. Purchasing ETFs or LICs – or both – can be advantageous, but it’s important to understand how your money will be invested beforehand. One of the biggest factors for most investors is how aligned prices are with the underlying assets, i.e. the net asset value (NAV). Because ETFs have an open-ended structure, the price of the ETF will trade very closely to the NAV. So if the value of the stocks held by the ETF rise, the price of the ETF will rise with it. This is not always the case with LICs. They may trade at a premium (above) or discount (below) NAV, depending on how many buyers and sellers are trading LIC shares. So if stocks held by the LIC go up, but investors still aren’t willing to buy, its share price may not rise. More information about Finder. For information about ETF Securities range of products, please contact us or visit our product pages. Client Services Trading Phone +61 2 8311 3488 Email: infoAU@etfsecurities.com.au Phone +61 2 8311 3483 Email: primarymarkets@etfsecurities.com.au

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How to invest in 5G

Aug 05, 2020

5G is anticipated to transform the world, bringing new efficiencies and opportunities to how we live and work. For investors interested in incorporating this growth theme within their portfolios, the options are broader than simply telecommunications companies. 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. It is anticipated to transform the ‘internet of things’ and become the force for the fourth industrial revolution. The fourth industrial revolution refers to how cyber physical systems are expected to drive the next era of industrial reform and change, bringing new efficiencies and opportunities to how we live and work1. Wireless networks are integrated into our lives and 5G sees that dependency increase further in the immediate future. It is already here in its early stages. 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 environment2. How to invest in 5G There are a range of options to consider for investors keen to incorporate 5G within their investments. Three options are listed below. Broad investments across sectors given all companies will need to use 5G in some form at some stage, be it to conduct business operations or as part of their services. Sector investments such as via telecommunications companies which will be building the infrastructure to support 5G. Thematic investments covering the 5G supply chain. The supply chain extends from underlying technology suppliers and producers to companies creating technology and software for automation, robotics and artificial intelligence which will advance substantially from the use of 5G. Interested in accessing 5G exposure by using robotics, automation and artificial intelligence? Find out more about ETFS ROBO Global Robotics and Automation ETF (ASX code: ROBO) or contact us. Client Services Trading Phone +61 2 8311 3488 Email: sales@etfsecurities.com.au Phone +61 2 8311 3483 Email: primarymarkets@etfsecurities.com.au [1] https://www.hitechnectar.com/blogs/fourth-industrial-revolution-5g-future/ {2} https://insights.roboglobal.com/as-the-covid-19-storm-rages-on-3-waves-of-growth-are-on-the-horizon

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How robotics and AI are transforming supply chains

Jul 06, 2020

The COVID-19 crisis has shed a light on how fragile supply chains can be, with essentials from toilet paper to milk vanishing from shelves. The solution could be robotics, automation and AI according to a new paper from ROBO Global, the index provider behind ETFS ROBO Global Robotics and Automation ETF (ASX code: ROBO). Read the article The current pandemic has demonstrated how heavily existing supply chains rely on a human labour force. While many companies, such as Coles, already had plans to incorporate automation, it is likely that the current situation will accelerate this trend. There are five key areas where robotics, automation and AI are likely to transform supply chains. Automated warehouse solutions High flying robots, such as from Verity, can assist with access and inspection of inventory at warehouses allowing for taller warehouses and increasing safety for the human workforce. Warehouse picking and packing Picking and packing is highly labour intensive. Using robots has been a game-changer for companies like Amazon and Walmart. Online grocers Online orders for groceries substantially increased during COVID-19 lockdowns and the convenience may see the interest continue. Companies like Ocado, with sophisticated warehouse technology and robotics, are selling their technology to other partners like Coles. Micro-fulfilment Think curbside pick-up of orders, but facilitated by automated technology. Prepared food delivery Restaurants have struggled to keep up with food delivery demand during lockdown periods so ‘ghost kitchens’ designed just for food prepared solely for delivery may assist. Restaurants have struggled to keep up with food delivery demand during lockdown periods so ‘ghost kitchens’ designed just for food prepared solely for delivery may assist. For more information on investing in robotics, automation and AI, contact us using the details below. Sales Trading Phone +61 2 8311 3488 Email: infoAU@etfsecurities.com.au Phone +61 2 8311 3483 Email: capitalmarkets@etfsecurities.com.au

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Three reasons to invest in the vaccines of tomorrow

Jun 24, 2020

Technology is not just transforming the way we work and live, it is also saving lives and changing how we treat diseases. The biotechnology industry may be appealing from a social and moral perspective, but it is also trending for future growth. Download the full article 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. This industry has hit the headlines during the COVID-19 pandemic, with companies like Moderna and Gilead part of the race to find effective vaccines and treatments. Why consider investing in global biotechnology? A growth industry backed by demand from an increasing population (and the trend of an aging population) a. Biotechnology is predicted to be valued at more than US$729bn by 2025, compared to US$295bn today[1]. 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[2]. Diversification in your portfolio a. Biotechnology in the US is valued at approximately 14.2x the Australian industry[3]. b. Biotechnology can be lucrative but is also high risk, so spreading internationally across a number of companies can assist in managing these risks. The chance to invest in something ‘bigger’, incorporating social themes into your portfolio a. The opportunity to be a backer for more efficient future health treatments, a social good with the potential to generate growth. How to invest in biotechnology? You could consider direct shares or managed options. 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.gminsights.com/industry-analysis/biotechnology-market [2] https://www.healthleadersmedia.com/finance/national-health-spending-growth-projected-54-annually-through-2028 [3] https://www.ibisworld.com/au/industry/biotechnology/1901/

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Powering the future: investing in battery technology

Jun 10, 2020

Renewable energy is a growing sector that is set to overtake fossil fuel energy in the future. Investors interested in this area should consider battery technology and storage, an area that is essential for the growth of renewables. A growing market: why 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. Lithium ion batteries have transformed the battery industry and accounts for 85% of commissioned, utility scale battery storage worldwide[1]. By 2022, utility scale battery energy storage capacity is expected to more than double, while the market for battery technology is anticipated to reach $90bn by 2025, growing more than 12%[2][3]. This growth is due to growing demand and increasing affordability of renewable energy like wind and solar power, along with the transition towards electric cars. Renewable energy in particular is an intermittent source and thus, dependent on reliable storage systems to ensure ongoing power. The Telsa-built Hornsdale Power Reserve in South Australia is a large-scale example of battery storage in play. How to invest in battery technology? Investors can access battery technology exposure in a range of ways. Focusing on value chain component companies such as mining companies or battery manufacturers. Considering broader established companies with some exposure to battery technology. Managed options, either active or via ETFs like ETFS Battery Tech & Lithium ETF (ASX code: ACDC). For more information about ETFS Battery Tech & Lithium ETF (ASX code: ACDC) or investing in battery technology, please contact us on 02 8311 3488 or infoAU@etfsecurities.com.au

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Investing to meet your financial goals

May 13, 2020

Whether your goal is to build a house deposit, pay for education or create a retirement income, taking a measured approach to your investments can help. Most investors typically need to be able to preserve a certain level of capital, while also investing for long term growth or income. An enhanced core-satellite approach to building your investment portfolio can help you target your goals and manage market movements. Download the complete paper or read a summary below. What is enhanced core-satellite investing? Enhanced core-satellite investing is a two-pronged approach to portfolio construction, where the core is made up of passive exposures to major asset classes (mainly equities and fixed income) and the satellite investments are more opportunistic and designed to seek specific growth outcomes, sometimes at higher levels of risk. Satellite investments could be targeted ETFs, actively managed funds or investments in individual companies or real estate. Generally, the core might be 65-85% of the portfolio, depending on the investor’s goals, investment horizon and risk tolerance, while satellites tend to represent 15-35%[1]. Assisting you with your goals This approach can assist investors in meeting their goals because it allows the main component to focus on long term growth and stability and use the satellite component to take on investing opportunities which may carry greater opportunity of returns alongside greater risk of loss to help meet specific goals. Interested in finding out how this approach has worked during the COVID-19 pandemic? Read more How this might look is as follows. An investor might use an ETF like ETFS S&P/ASX 300 High Yield Plus ETF (ASX code: ZYAU) to represent the Australian equities exposure in the core of their portfolio. They might then choose to incorporate a growth theme like robotics and artificial intelligence in their satellite portion by using an ETF like ETFS ROBO Global Robotics and Automation ETF (ASX code: ROBO). Using ETFs in the investment portfolio can be beneficial due to characteristics like liquidity (allowing investors to be flexible based on needs or market conditions), low costs along with flexibility and variety. With a wide range available on the ASX, investors are more likely to find an ETF to meet specific goals or match particular views. 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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