Investment Research

ACDC: Beneath the Bonnet

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Oct 09, 2019

Published: 10th October 2019 Product in Focus: ETFS Battery Tech & Lithium ETF Key Points Bloomberg New Energy Finance predict that global lithium-ion battery demand will grow 8-fold by 2030. Over 2 million electric vehicles were sold in 2018, accounting for less than 2% of global passenger vehicle sales. Sales forecasts are estimated to rise to 56 million by 2040. ACDC aims to provide investors with exposure to growth across the entire battery technology value-chain, including lithium miners and energy storage companies. Recent years have seen significant developments in lithium-ion battery power output and efficiency. Lighter and smaller batteries with increased output and falling prices have opened-up a wide range of new applications. These have already had big impacts on the consumer electronics market. The next step in the evolution of the battery technology industry is in larger scale applications. Electric vehicles for private and mass transportation, aided by the emergence of autonomous vehicle technologies and the rapid reductions in charging times. Further, use of lithium-ion batteries is promoting the growth of renewable energy technologies such as solar and wind, which are now able be consumed on demand and not only at the right times, or when weather permits. ETFS Battery Tech & Lithium ETF (ASX Code: ACDC) aims to provide investors with exposure to growth across the entire battery technology value-chain, from lithium miners to energy storage companies across a range of established and emerging companies. This note looks at the key areas driving growth across this quickly developing industry and highlights the operations of several selected companies to provide real-world examples of technological developments and how they are being monetised. Lithium – exploring the supply and demand outlooks Forecasts complied by Bloomberg New Energy Finance predict that global lithium-ion battery demand will grow 8-fold by 2030. This will have a significant impact on demand for lithium carbonate equivalent (LCE) and other core metals, such as copper, aluminium and nickel as well as rare earth metals, such as cobalt. China maintains a dominant position in the supply-chain through both its control of mining companies and its dominance of refining capacity. Electric vehicle demand is anticipated to be the core growth driver over the coming decades, with passenger EVs dominating. Current forecasts point to a supply surplus out to at least 2025, which has been reflected in recent price action. As shown in figure 3, lithium prices have been in decline for the past 15 months, following a three-year bull-run during which prices trebled. Stock in Focus: Albemarle Corp Stock Code: ALB Albemarle is the world’s largest producer of LCE and a pioneer in the development of brine production processes that are commonly used today. Products include lithium metal as ingots, foil, rods and anodes, high purity lithium alloys, lithium salts and lithium sulphide, all of which have battery-related applications. One of its stated aims is to provide materials and to support the growth and success of lithium-ion technology to promote advances in mobile communication, power storage and electric mobility. Production and storage sites are located in Europe, North and South America, Asia and Australia, while Albemarle’s customer base is spread across more than 100 countries. Source: www.albemarle.com Financial information as at 30 Sep 2019: Electric vehicles Over 2 million electric vehicles were sold in 2018, which represents significant growth from a low base, but accounts for less than 2% of global passenger vehicle sales. Forecasts compiled by Bloomberg New Energy Finance indicate accelerating growth over the coming decades with sales to rise to 10 million in 2025, 28 million in 2030 and 56 million by 2040. By the mid-2020s electric vehicle sales are expected to reach parity with internal combustion vehicles, at which point 30% of passenger vehicles on our roads will be electric. Stock in Focus: BYD Stock Code: 1211 BYD is a Chinese manufacturer of passenger vehicles, mass transit vehicles and battery technology and is heavily backed by Warren Buffett's Berkshire Hathaway, which holds a 25% stake. China currently represents around 60% of the global electric vehicle market, with over 600,000 fully electric vehicles sold in the first half of 2019. BYD is the largest Chinese producer, with market share currently running at close to 25%. BYD’s market share has increased in 2019 to-date, despite a slowing in the Chinese market as a result of the removal of subsidies. 63% of BYD’s revenue is currently generated by electric vehicles. Aside from passenger vehicles, BYD is currently a major supplier of electric busses, with government contracts across Asia, Europe and North and South America. BYD is also investing in large-scale battery storage projects. Source: www.byd.com, Bloomberg New Energy Finance Financial information as at 30 Sep 2019: Grid storage batteries The electric power sector has seen significant disruption from renewable sources in recent years, with wind, solar and other sources quickly becoming more economically viable relative to fossil fuel sources in many markets. Component costs are falling and efficiency is rising but improvements in battery technology have been the key to releasing these technologies and allowing them to meet consumer demand at times when the sun isn’t shining and the wind isn’t blowing. Bloomberg New Energy Finance predicts 50% of world electricity output to be wind and solar generated by 2050 and that this transformation will require heavy investment in battery technology. There are numerous competing battery types and new technologies under development. Examples include flow batteries, lead-carbon, sodium-sulphur and compressed-air energy storage. Lithium-ion, however, is the established technology of choice and currently accounts for 85% of commissioned, utility-scale battery storage worldwide. Source: Bloomberg New Energy Finance “New Energy Outlook 2019” Stock in Focus: GS YUASA Stock Code: 6674 GS Yuasa is a Japanese company that manufactures and sells automotive batteries, industrial batteries, power supply systems and other electrical equipment. They are a leader in lithium-ion technology and provide a range of storage solutions for renewable and reserve power applications. The company is involved in multiple large-scale energy storage projects including constructing one of the world’s largest lithium-ion batteries, to be connected to a wind energy plant in North Hokkaido, Japan. The battery will have an output of 240MW and a capacity of 720WMh, which is equivalent to 45,000 electric vehicles. Source: www.gs-yuasa.com Financial information as at 30 Sep 2019: About ACDC ACDC tracks the Solactive Battery Value-Chain Index, which aims to capture the performance of companies that are providers of electro-chemical storage technology and mining companies that produce metals that are primarily used for manufacturing of lithium batteries. Companies comprising the Index are determined by reference to: 1. The U.S. Department of Energy's DOE Global Energy Storage Database, which identifies companies that are electro-chemical storage technology providers; and 2. Metal Bulletin, which identifies mining companies that produce lithium. Constituents are equally weighted to provide maximum diversification. ACDC currently holds 29 stocks from seven countries with sector allocations heavily in favour of the Industrials, Materials and Consumer Discretionary sectors.

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Megatrends Make Sense For Investors

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May 16, 2019

Product In Focus: ETF Securities Future Present Range Megatrends are powerful forces that have the potential to cause long term structural changes in the economy and society. The Future Present range has been designed to give investors access to the emerging megatrends that are starting to define the world we live in. The range’s products positive performance is testament to investor trends. CURE up 22.0% year to date, ROBO 22.5%, TECH 20.7% and ACDC 7.1% (as at 12 April 2019) One of the most challenging aspects of investing has always been identifying ‘the next big thing’. In a rapidly changing world, where megatrends are drastically reshaping the way we live and do business, that process has become even more complex. Megatrends are best described as powerful forces – either socioeconomic, environmental or technological – that have the potential to cause long term structural changes in the economy and society as a whole. Technological advancement, demographic shifts, urbanisation and climate change are just some of the key megatrends combining to redefine the investment landscape. While the various megatrends are disrupting our lives in different ways, they are intertwined by the common thread of digitisation and the associated explosion in the power of data. Some are already dramatically changing the way particular industries operate. For example, the push for renewable energy is transforming car manufacturing with the rise of electrification, while artificial intelligence has seen robots replace thousands of jobs on the assembly line. Certainly, with the pace of change across business and society growing exponentially, investors cannot afford to ignore the influence of megatrends. Accessing investment in these megatrends, however, can be difficult for investors with limited knowledge or expertise in the technologies involved. Many of the best investment opportunities to tap into megatrends also involve going offshore. A good option for investors looking for exposure to megatrends is to invest in one of the specialised exchange traded funds (ETFs) that have emerged in recent years. ETFs have the advantage of offering investors a cost effective way to access the growth potential of various megatrends, while also providing an avenue for global diversity. Most ETFs tend to focus on a particular theme associated with one or more of the megatrends. US and European issuers have led the way, with ETF’s offering exposure to a diverse range of megatrends including technological progress and automation, digitalisation, ageing population, Asia’s expanding middle class, healthcare innovation, urbanisation, cybersecurity, water supply and even diversity and gender equality. In Australia, ETF Securities offers the Future Present range, which focuses on four funds providing access to disruption in sectors that will have a more dominant role in the future. These include robotics and artificial intelligence (ROBO), battery technology (ACDC), biotechnology (CURE) and broad global technology (TECH). Robotics and AI Once the subject of fantasy and science fiction thrillers, robotics are increasingly part of our everyday lives and look set to dominate the future. Already being widely used in manufacturing and online retail distribution, robots are expected to rapidly penetrate other industries as automation continues apace and companies seek to unlock productivity gains and improve profitability. The potential for growth is reflected in the fact that the world’s largest economy, China, has approximately 1 robot per 100 manufacturing workers, well down on the 7 per 100 employee in Singapore and South Korea. The growth in robotics will be driven by the efficiency gains on offer as robots perform monotonous tasks with high levels of precision and lower costs than their human counterparts. A report issued last year by the jobs website, Adzuna, found that 1 in 3 Australian jobs are at risk of automation by 2030. The potential for Robotics and AI, however, extends far beyond manufacturing efficiencies. A recent article by Raffaello D’Andrea, co-founder of Amazon Robotics and strategic adviser to ROBO Global, noted the limitless applications. “Using AI-fuelled robotics to farm the land more efficiently, we will we be able to provide food and shelter for ourselves and our families with ease. 5G networks will support everything from self-driving vehicles to digital medicine to ‘smart cities’” he said. ETF Securities’ global robotics and automation ETF (ROBO) tracks the performance of the ROBO Global Robotics and Automation index. It invests in a mix of stocks whose business is related to robotics, automation and AI. Battery Technology Climate change is causing a major push towards renewable energy, which is in turn, driving investment in alternative energy storage. Ultimately the companies behind this technology hope to develop batteries efficient enough to fly planes and feed power stations. For now, however, the most tangible example of battery application is the rapidly expanding world of electric vehicles (EV). Although initially slow to take off, EV sales are dramatically ramping up in some parts of the world. Norway has had by far the biggest take up of electric cars, with 49% of all sales, followed by Iceland and Sweden. Notably, however, the five countries in which EVs are the most popular account for only 0.5% of the world’s population. Chinese drivers are rapidly coming aboard, with over a million new vehicles hitting the road in 2018. Crucially, China also leads the market for charging stations. Australian sales have been slow to take off but will gather momentum, particularly if the ALP wins power at the next Federal Election. The ALP has set a 50% target for electric vehicles as a percentage of new passenger vehicles sales by 2030. ETF Securities was the first Australia issuer to bring out an ETF focused on energy storage and production (ACDC). The fund provides investors with access to companies involved in battery technology and the mining of lithium, which is used to make a range of batteries, including those found in your mobile phone. ACDC tracks the Solactive Battery Value-Chain Index. Investors can also gain exposure to the renewable energy megatrend by investing in Palladium, a key metal used by car manufacturers to control emissions from gasoline engines, which are replacing diesel under crackdowns on vehicle pollution in overseas markets. Palladium prices have recently hit record highs, reflecting strong demand from car manufacturers. ETFS offers investors an avenue to invest through ETFS Physical Palladium (ETPMPD). Biotechnology Biotechnology is one of the original megatrends. Scientific advances in the development of potential new treatments for diseases such as cancer, as well as excitement around the application of DNA sequencing, have underpinned interest in biotechnology companies for many years. However, the prospect of an ageing population, coupled with the increasing incidence of chronic illnesses such as diabetes and dementia, have reinforced the significance of biotechnology companies going forward. As well as searching for therapies to help treat chronic illnesses, biotechnology may also hold the key to solving food security, which poses significant challenges with the world population tipped to exceed 9 billion by 2050. One of the difficulties posed by investment in biotechnology is its highly speculative nature and the lengthy lead times involved with new discoveries. For example, it can take 10-15 years from the conceptual stage for a drug to reach the marketplace, usually with little to no income in the intervening period. Another difficulty is that, with the exception of a few listed Australian stocks, the bulk of biotech companies are located overseas. For this reason, biotechnology is a megatrend that is particularly well suited to an ETF. The ETFS S&P Biotech ETF (CURE) issued by ETF Securities late last year replicates the S&P Biotechnology Select Industry Index, which offers exposure to approximately 120 small-to-large cap international biotech companies. These include the likes of Seattle Genetics which is focused on producing specialised cancer therapies and Amgen, whose Enbrel treatment for arthritis had 2017 sales of US$5.4 billion. The recent performance of ETF Securities’ Future Present range demonstrate that investors are warming to the megatrend thematic with CURE UP 22.0% year to date, ROBO 22.5%, TECH 20.7% and ACDC 7.1% (as at 12 April 2019). For retail investors, ETFs continue to offer a low cost way into some of the themes that look set to dominate the investment horizon for some time to come.

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Here's the Buzz around Megatrends

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Feb 18, 2019

Here’s the Buzz around Megatrends Products in Focus: The ETF Securities Future Present Range Q4 2018 saw high levels of volatility that particularly affected the tech sector and high beta areas of the market . YTD performance in 2019 has seen a rebound of many of these stocks . In this article we explore some of the key drivers of growth in the future . In the long term there is a positive outlook for technology, robotics, battery tech and biotechnology. At ETF Securities, we often talk about megatrends; disruption, displacement, game-changing and revolutionary technologies. Whilst it is easy to become cynical about the overuse of these terms, it’s clear that the pace of change is accelerating with no signs of slowing. Since 1956 there has been more than a trillion-fold increase in computing power where today the power of the iPhone 6 (an already outdated technology) could theoretically guide 120 million Apollo 11 rockets at once. Taking a step back, the greatest driver of this advancement is simply the enormous expansion in computing power. We now have capabilities to capture and analyse immense quantities of data, and this knowledge is being applied to a wealth of areas, with many of these technologies previously restricted to the realms of science fiction. The ETF Securities Future Present range gives investors a way to access disruptive technologies in a diversified manner. The range includes four funds targeting different sectors that are looking to have a greater presence in the future: TECH: ETFS Morningstar Global Technology ETF Once seen as a highly speculative investment, technology has now firmly cemented its place at the top of the S&P 500. It is fair to say that most people are highly dependent on leading tech firms that have become exceedingly integrated into our lives. We wake up, check the weather on our Apple iPhone, cycle to work on that (pricey) Cannondale and track the ride on our Garmin. Once at the office, the computer is booted up and Microsoft Office provides the tools to get us through the day. These technologies are ubiquitous and as such it is important to know the different ways of gaining exposure to the companies behind them. TECH holds a basket of 32 global technology stocks that have been identified using Morningstar’s moat methodology, meaning they have a competitive advantage over other similar businesses. With Morningstar’s active influence in this fund, it has outperformed the Nasdaq 100 since it was launched in April 2017. ROBO: ETFS ROBO Global Robotics & Automation ETF While the tech sector is dominating the present, it’s robotics, automation and AI (RAAI) that looks set to dominate the future. The outlook for growth in RAAI looks bright and with recent volatility providing increasingly attractive valuations in this sector, is now the time to consider to invest in this thematic? This year industry experts are pointing to improvements in network capabilities, particularly the roll out of 5G networks, aiding growth across the board, with the upgrade from 4 or 4.5G yielding as much as 10-100 time improvements in network speeds. These enhancements are instrumental in enabling the development and implementation of other technologies. Can you imagine using Netflix in the days of dial-up internet? Further penetration of manufacturing robots is also expected to occur as the automation of the workforce continues. Today’s China has approximately 1 robot per 100 manufacturing workers, with huge scope for growth if it’s to reach ratio’s in line with Germany and South Korea’s 6 per 100. These robots are performing monotonous tasks with high levels of precision and increasingly lower costs than their human counterparts, meaning companies will need to keep up with the levels of automation their rivals are using to keep up with the competition. ACDC: ETFS Battery Tech & Lithium ETF Global climate change and the move towards renewable energy is one of the most pressing issues of today and one of the key drivers of our success in addressing this issue will be in the development of energy storage. Imagine a world where battery technology is efficient enough to fly planes and feed power stations – this is the world companies behind this technology are striving for, and we’re already on our way with the explosion of electric vehicle development. But it’s not just electric vehicles making advances. In classic Musk fashion, Elon managed to make batteries the talk of the town in 2018 with his 100-day delivery of the Hornsdale Power Reserve battery in South Australia, currently the largest in the world. This drew attention for the necessity of pairing renewable energy generation with practical storage solutions. Whilst Tesla has had the first-move advantage in the electric vehicle (EV) market, it is rapidly being chased by established car manufacturers like BMW, Volkswagen and Nissan, who have equally ambitious goals to capture the growing consumer demand for green-transport. JP Morgan project EVs and Hybrid Electric Vehicles (HEVs) will account for 30% of all vehicle sales by 2025. CURE: ETFS S&P Biotech ETF Whilst biotechnology is arguably one of the oldest forms of technology, its prospects for future development are high. Since the first smallpox vaccine was administered in 1761, there have been huge advances in the biotechnology field. The sequencing of the first human genome in 2003 enabled a plethora of new biotech drugs to be developed. DNA sequencing has created hope for those previously suffering incurable diseases and has provided a quality of life where it was previously lost. At the time of writing 67 of the 119 stocks in CURE are either researching or producing diagnostic tools or drugs that treat cancer. Therapies are being developed for psychological disorders, inoperable tumours, chronic pain, hereditary diseases and degenerative illnesses. As an industry that is renowned for its volatility, biotechnology can be a particularly difficult sector to choose a winner. For the uninitiated, it is a realm full of highly specific medical jargon, tied up with regulatory barriers and inexplicable results to clinical trials. This is why CURE offers an equal weight and broad exposure to the biotech sector. And whilst it is difficult to know who will be responsible for the next breakthrough treatment, what we do know is that people will always pay for healthcare, especially as our aging population grows. This is an industry where success does not just mean more dollars in the bank, but lives saved, and families kept together. The Future is Now The examples above provide just a glimpse into the full scope of innovation that is captured by the ETF Securities Future Present Range. The future is now, and the way we live and work will continue to be defined by these mega trends. Accessing these sectors through a diversified, equal weight ETF allows investors to take a view on what trends will dictate the times to come.

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