Investment Professionals

Managing volatility for your clients

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Apr 02, 2020

The current COVID-19 concerns have rattled markets, with advisers fielding calls from concerned clients. In some cases, advisers may choose to add tilts or hedges for their clients’ investments, while for others, it will be better to stay the course. There are a range of ways to manage market volatility in a portfolio, some universally valuable, others dependent on the individual clients. In this paper, we’ve highlighted some of the most common. Download now In your discussions with clients, these principles can be a helpful starting point in reinforcing your approach and providing comfort in uncertain times. 1. Diversification Reinforcing the value of diversification with your clients can be as simple as the analogy of not having all your eggs in one basket. The current environment has reinforced the importance of diversification within asset classes and sectors, with some companies able to benefit (ie supermarkets) and others needing to close down (i.e. travel and tourism companies). 2. Incorporating more stable, less cyclical investments Holding companies which are able to consistently operate regardless of market conditions, such as essential services infrastructure, can assist in buffering portfolios against falling markets. 3. Alternative investments Investments which are designed to perform differently to equity and bond markets can range in complexity. Gold is a simple asset with a low or even negative correlation with other asset classes which has acted as a safe-haven investment across a number of market events over time. 4. Strategic tilts For some investors, incorporating short-term tilts alongside the long-term core strategy can assist in managing market volatility. Depending on the strategy, this could mean adding a tilt to high growth (and therefore ‘riskier’ assets) or adding more defensive position. ETFs can be an effective tool for managing volatility for your clients. Beyond characteristics including liquidity and cost-efficiency, the wide range available, broad exposures and instant diversification mean they can be suitable across investor types. For more information on our range of ETFs and using them in your clients’ portfolios, 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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ZUSD - It's All About The Benjamins

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Apr 08, 2019

Product in Focus: ZUSD: ETFS Enhanced USD Cash ETF Most portfolios hold cash to provide liquidity and downside protection Investors can seek to increase the return on their cash allocation using ZUSD Current US rates are significantly higher than Australian rate The deposit rate of ZUSD is currently 2.36% (as of 7 April 2019), enhanced by holding funds in deposits ranging from overnight to 3 months Cash Is King Defensive assets such as cash hold an important place in portfolios not only for liquidity but also downside protection. When you look at the typical asset allocation ranges for the five main risk profiles it’s clear what a critical part cash plays in a portfolio; now more than ever with many deeply concerned about the end of the equity cycle. However, many Australian investors only consider cash as AUD cash. This is understandable, but cash balances should be diversified in the same way as equities and fixed income. This gives the benefit of both diversification and, often, better yields. The ETFS Enhanced USD Cash ETF (ZUSD) achieves this for the low cost of 0.30% p.a. The United States Of Play The Federal Reserve has two main objectives. They are: Low and stable inflation over the long term (a target of 2% in the U.S) Full employment With both objectives looking stable in the current US economic environment Powell looks to be fulfilling his mandate and this has been reflected in the current Fed Target rate - set at a range of 2.25% to 2.5% - giving the market a strong indication that rates are likely to be unchanged for the remainder of the year and if on what looks like to be a small chance there is a change, it is likely to be in the form of a cut. He is unphased by short term misses of inflation targets and concentrates on long term trends. This resonates with his recent statement (March 2019) about the use of Monetary policy, he stated that: “We don’t see data coming in that suggest that we should move in either direction. They suggest that we should remain patient and let the situation clarify itself over time.” The Fed And The Reserve – Are They Kicking Goals? The current US yields are higher than the equivalent Australian duration. As you can see in the chart above the 10-year yields on government bonds are over 50 basis points better in yield terms in the US than Australia right now. Even with the yield curve displaying inverted characteristics, shorter duration US yields are better than the Australian equivalent. Current Market Deposit Rates For US And Australian Cash The cash rates on offer on US cash deposits are significantly higher even in the scenario that the RBA raises rates and the Federal Reserve holds. Even in the unlikely event that the RBA has consecutive increases (given inflation looks stable and economic growth looks late in the cycle) to the cash rate and the Fed held rates constant, the cash deposit rates on offer to investors could remain in favour of those with US deposits. In the graph below the spread between US and Australian deposits has been more beneficial to US deposits since March 2018. Product Solution Investors holding US Dollar Cash should be aware of the benefits of the ZUSD - ETFS Enhanced USD Cash ETF that achieves the following: Exposure to US dollar cash Enhanced yield Quarterly distributions ZUSD makes use of higher yielding deposits out to a term of 3 months in duration to help enhance the yield for investors in the fund. Using a combination of “at call”, 1M and 3M duration deposits ZUSD is designed to give investors an enhanced US dollar cash position rather than just holding exposure to the physical US dollar. Investors should consider diversifying their cash positions by holding non-domestic cash in addition to Aussie dollars via ZUSD.

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