Weekly ETF Monitor for week ending 17 January 2020


Jan 20, 2020

This week's highlights Precious metals Palladium and Platinum surged last week. ETFS Physical Palladium (ETPMPD) continued its run up 17.3% and ETFS Physical Platinum (ETPMPT) was up 6.2%. The flow on effects were seen in the basket of Gold, Silver, Palladium and Platinum. ETFS Physical Precious Metal Basket (ETPMPM) was also up 6.2%. Global and domestic equities continued their strong rally as they broke through and maintained all time highs. Vanguard Global Infrastructure Index ETF (VBLD) was up 3.3% and Magellan Global Equities Fund (MGE) up 3.2%. Global banks, oil and Australian dollar hedge funds were amongst worst performers. BetaShares Strong Australian Dollar Hedge Fund (AUDS) was down 1.1%, BetaShares Crude Oil Index ETF - Ccy Hedged (OOO) down 0.7% and BetaShares Global Banks ETF (Hedged) (BNKS) down 0.3%. Inflows for the week were $414 Million and outflows totalled $19 million. Majority of the inflows were seen by iShares S&P/ASX 200 ETF (IOZ). Outflows were highest from BetaShares S&P/ASX 200 Financials Sector ETF (QFN).

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Weekly ETF Monitor for week ending 10 January 2020


Jan 13, 2020

This week's highlights Asian equities dominated the top performing funds last week, with CNEW, ASIA, IKO and IAA all returning 3.5% or more. Australian shares also had a strong week with the S&P/ASX 200 reaching new all-time highs. DIV and ILC were the week’s best performing domestic equity funds. Global banks (BNKS), gold miners (GDX and MNRS) and a range of commodity funds were the biggest decliners for the week. Precious metals were mixed. Gold rallied to 6-year highs following Iran’s military action against U.S. assets, before pulling-back as tensions eased. ETFS Physical Gold (GOLD) finished the week 1.0% higher. ETFS Palladium (ETPMPD) soared 7.5% to new all-time highs, while platinum and silver declined. Crude oil spiked above US$65/bbl before dropping sharply. OOO declined 6.3% for the week. Total flows into domestically domiciled ETFs were $368m, while outflows totalled $72m. iShares Core MSCI World All Cap ETF (Hedged) (IHWL) saw the largest inflows for the week, followed by a range of equity, fixed income and commodity funds. Domestic equity funds IOZ and STW saw the bulk of the week’s outflows. VAS was the most traded fund last week, followed by SWT and IOZ. IHWL and GOLD saw above average volumes. ETFS Morningstar Global Technology ETF (TECH) returned 38.1% in 2019 and is already up 4.4% in 2020. TECH provides equally-weighted exposure to a diverse range of technology companies that have strong competitive advantages in their field and are attractively valued, as determined by Morningstar’s analyst ratings.

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Weekly ETF Monitor for week ending 13 December 2019


Dec 17, 2019

This week's highlights Global and domestic property fell last week with six of the bottom ten performers all providing exposure to property. MVA, VAP and SLF all posted negative returns. Asia, emerging markets and some precious metals had a strong week on the back of positive trade talks. UBS IQ MSCI Asia APREX 50 Ethical ETF (UBP) was up 4.7% and ETFS Physical Palladium (ETPMPD) up 4.6% as the metal scaled to new highs, falling just short of US$2,000/oz. Flows for the week consisted of $303 Million of inflows and $8 Million of outflows. Majority of inflows were to IOZ, to the tune of $80 Million. Hybrid and international and domestic equity ETFs also saw a good proportion of inflows. IOZ, VAS, STW and AAA were the top traded ETFs for the week keeping up the trend for the year. ETFS Physical Palladium (ETPMPD) year-to-date has returned 59.1%. The precious metal has a wide range of industrial and commercial uses in areas such as dentistry, medical equipment, jewellery and electronics. But its biggest demand comes from the automotive industry where the metal is used in catalytic converters to control the emission of harmful exhaust gasses.

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Weekly ETF Monitor for week ending 6 December 2019


Dec 10, 2019

This week's highlights Domestic equities declined last week with the S&P/ASX 200 posting its worst week since early October. Domestic ETFs VHY, SELF, IHD, MVW, RDV, QOZ and SYI were all amongst the week’s poorest performers. The top equity performers were China funds CNEW and CETF along with Japan fund IJP. Bearish equity funds (BBOZ and BEAR) and Australian dollar fund AUDS also posted strong gains. Precious metals pulled-back last week, with the exception of palladium. Crude oil rallied sharply. OOO returned 7.3% and was the week’s top performing fund. Currency hedged commodities (QCB and QAU) were also amongst the better performers. Total flows into domestically domiciled ETFs were $309m, while outflows totalled $112m. New entrant, VanEck Vectors Australian Subordinated Debt ETF (SUBD) saw the largest inflows for the week, followed by a diverse range of fixed income, equity and commodity funds. A200 and AAA saw the bulk of the week’s outflows. A200 was the most traded fund last week, followed by VAS and VGS. SUBD saw strong volume in-line with its flows. ETFS Physical Palladium (ETPMPD) has returned more than 50% year-to-date. Increasingly tight supply and growing demand, primarily from the auto industry, have seen palladium prices trending higher for most of the past four years. At US$1,880 per ounce, palladium is trading at all-time highs and is now at close to a 30% premium to the price of gold.

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Weekly ETF Monitor for week ending 29 November 2019


Dec 03, 2019

This week's highlights ETFS S&P Biotech ETF (CURE) was last week’s top performing ETF, returning 6.5%. Domestic resource funds also fared well, with MVR, OZR and QRE all posting strong gains. Australian property funds SLF and VAP were also amongst the top performers. China and emerging markets funds (CNEW and EMKT) declined for the week. Palladium surged to new all-time highs, with ETFS Physical Palladium (ETPMPD) returning 4.1%. Other precious metals pulled-back last week. Crude oil declined, with OOO falling 4.5% and global energy company fund FUEL down 1.9%. Total flows into domestically domiciled ETFs were $171m, while outflows totalled $51m. IOZ and GOLD saw the largest inflows for the week, followed by HBRD and MVW. Cash fund AAA saw the bulk of the outflows for the week. AAA was the most traded fund last week, followed by VAS and STW. VSO, VHY and GOLD saw above average volumes. ETFS S&P Biotech ETF (CURE) has gained more than 22% over the past two months. A raft of FDA approvals and some high profile acquisitions by large pharmaceutical companies have spurred a recovery across the biotechnology sector following a lacklustre year thus far. Further FDA activity is expected over the coming months.

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2020 Trends in Robotics, AI, and Healthcare Innovation


Jan 27, 2020

This is an extract of the ROBO Global paper 2020 Trends in robotics and AI innovation. To access the ROBO Global white paper, please click the download now button above. Companies around the globe are revising and rethinking their strategies to cement their futures in a world that is dictated by robotics, automation, and AI (RAAI). Deep learning, 5G, and computer vision are among the trends to watch in 2020 and beyond. 1. Computer vision Computer vision is the technology that gives computers and machines the sense of sight and the ability to analyse and understand the content of digital images. It is increasingly used throughout the manufacturing process to enhance product quality, reduce waste, and improve productivity in a variety of endmarkets, including consumer electronics, automotive, pharmaceuticals, and many more. 3D vision, a type of computer vision which has long been prohibitively expensive and complex, is set to accelerate with the help of Isra Vision in manufacturing, Koh Young in semiconductor and electronics inspection, and FARO and Hexagon in metrology and surveying. Computer vision is also enabling collaborative robotics and advanced driver assistance. Ambarella, the video processing technology provider, is rapidly morphing into an AI computer vision company. The company has received design wins for its CV chip in the professional security camera market and is engaged in several use cases in the automotive market. 2. Deep learning A subfield of machine learning, deep learning uses algorithms that strive to mimic the deep neural networks of the human brain. Reinforcement learning (RL), an aspect of deep learning, refers to goal-oriented algorithms that are the key to enabling autonomous robots, improving personalization, and accelerating drug discovery. RL will be used to dramatically improve the personalization of news and other content—a shift that will transform the massive data sets available to the advertising industry into practical, usable information— and to revolutionize myriad processes that can be simulated, including fraud detection and credit loan processes in the banking industry. 3. 5G The fifth generation of mobile wireless communications—5G—boasts features that have the potential to supercharge everything from business processes to how we engage with the Internet. Once it is fully deployed, 5G is expected to deliver up to 100x faster connection times than 4G and is expected to enable download speeds of 500-1500 Mbps in a matter of seconds. Major carriers are expected to roll out some type of 5G services in late 2020 and into 2021. Consumers will soon be able to choose 5G-compatible mobile devices from leaders like Apple, Samsung and Xiaomi, powered by Qualcomm’s latest 5G Mobile Platform Snapdragon. This best-in-class RF System provides peak speeds that promise to surpass most wired connections and transform the mobile experience. The Internet of Things (IoT) currently includes about 30 billion devices. The power of 5G will be more crucial than ever as this figure accelerates thanks to investments in autonomous vehicles, smart cities, smart factories, big data, and AI. ETFS ROBO Global Robotics & Automation ETF (ROBO) helps investors capture these trends across robotics, automation and enabling technologies. Find out more about ROBO here. For more information on accessing these trends through ETFs for your clients, please speak to ETF Securities. Sales Trading Phone +61 2 8311 3488 Email: Phone +61 2 8311 3483 Email:

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Top five ETF trends in 2020


Jan 24, 2020

To access the ETF Trends 2020 whitepaper, click here. The ETF landscape has expanded rapidly from the straight index replication of the past to more tailored offers covering themes, specific industries or sectors and even using alternative weighting. Advances in technology has allowed ETFs to become more sophisticated to meet with investor needs and demands. The value of the Australian ETF market is currently $A60.24bn[1] and is anticipated to continue to grow both in size and available options. Here are five trends likely to continue in 2020. 1. The search for yield Continued globally low interest rates means investors are seeking alternative sources of yield. Some are still looking at fixed income, but focusing on international options like the US, which has higher interest rate compared to its counterparts. Others are considering using equity dividend streams to help provide an income. Investors concerned about volatility risks for an equity approach might look towards infrastructure ETFs. The infrastructure sector includes many essential services areas like utilities, telecoms, industrials and transport which tend to be less vulnerable to market cycles and movements. Investments in gold tend to be popular with investors in times of low yield and market volatility. Holding appeal for both consumption purposes and investment, the performance of gold tends to have low correlation with other asset classes and tends to offer stability in times of market volatility. 2. Investing to offset Australian exposures Australian investments have been influenced over several years now by factors like slowdown in resources and residential property, along with a weaker Australian dollar. This has meant investors have needed to focus more on investing internationally to diversify the local risks and access growth and income opportunities. For example, investors are looking at particular growth themes like the middle class in Asia or at sectors not widely available in the Australian market, like technology. Currency ETFs are also becoming more popular, particularly those exposed to the US dollar which continues to be stronger than many developed nation currencies. 3. Thematic investing ETFs are becoming a cost-efficient and transparent way for investors to express their specific market opinions, growth themes, moral and ethical views or to target niche areas of growth. Concerned about UK post-Brexit? You might choose a European ETF which excludes UK companies. Passionate about new technology? A robotics or tech focused ETF might be for you. There is a movement towards ethical investing, with environmental investing a particular focus at the moment. As a quickly developing space with investor demand, there is likely to be continued growth in ETFs supporting this space, such as in alternative energy like battery technology. 4. Bespoke and smart beta strategies There has been a rise in ETFs using sophisticated rules or algorithms (smart beta) to ‘beat’ the market while still remaining passive. This might mean the exclusion of certain factors or using a different way of weighting investments compared to the index. For example, excluding companies in a particular industry. Or rather than weighting the investment based on company size, it might be weighted based on how volatile the companies are to market movements. Some ETFs like this are designed bespoke to large-scale institutions looking for both cost-efficiencies as well as the ability to match strategic or philosophical needs but still available to retail investors on the stock exchange. 5. Active ETF investing Active ETFs are an emerging area and typically track the strategies of active investment managers. ASIC lifted its suspension of new active ETFs in December 2019 and released new admission guidelines. Given international activity in this space as well, there is likely to be further growth in the available active ETFs in the Australian market. These may appeal to self-directed investors looking for active and liquid solutions with greater ease of use compared to many other active managed funds. For more information on accessing these trends through ETFs for your clients, please speak to ETF Securities. Sales Trading Phone +61 2 8311 3488 Email: Phone +61 2 8311 3483 Email: __________________________ [1]

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ETF Trends 2020


Jan 23, 2020

To access the white paper, please click the download now button above. The continued evolution of the ETF landscape has seen it move from broad-based index replication, to select sectors, based on certain themes or even smart beta (alternative weighting to capture yield or value). In 2020, ETF Securities expects a number of trends to influence the ETF landscape across economic drivers, investor dynamics and enhanced investment styles. Below is a summary of these, you can also read more detail in the ETF Trends 2020 Whitepaper. Economic themes for ETFs Investors have been faced with globally low interest rates across 2019 and this is anticipated to continue due to geopolitical risks, such as tensions between US and Iran, or typical market volatility associated with a US Presidential Election year. Further to that, Australian investors have faced ongoing economic challenges from the slowdown in the resources and residential property sectors, stagnant wages growth and employment figures and will see further repercussions from the devastating 2019/2020 fire season. These themes will mean the following for ETFs: The quest for yield may see interest in US fixed income ETFs (due to the higher yield compared to Australia and Europe) as well as ETFs which can offer dividends for alternative sources of income. Commodity ETFs, particularly gold and silver, tend to benefit from low interest rates due to a low opportunity cost – as an asset with both consumption and investment appeal, it has a low correlation to equity markets and other assets and therefore tends to perform in a range of markets. Internationally focused ETFs will appeal to those wanting exposures outside of Australia and the weak Australian dollar, such as to regions like Europe, sectors less available in Australia like technology or currencies like the US dollar which continues to be stronger than its counterparts. Investor dynamics and enhanced investment styles Increasingly, investors are expecting greater transparency in their investments and want investments to reflect their ethical and social values. Following from the GFC and the Royal Commission, there is also greater cost and fee consciousness. ETFs naturally are benefiting from this environment due to attractive characteristics like transparency, liquidity and typically lower fees. Further to this, improving technology has allowed for greater tailoring of strategies and even active management. The ETF landscape is growing as a reflection of this. More ETFs are appearing in the market to offer access to specific themes or growth areas like robotics or emerging markets, or to reflect views or concerns on ethical and social matters, such as the environment. Continued growth in bespoke and smart beta strategies offering alternative weighting to the index or the ability to exclude certain factors to minimise risks. Some of these strategies are being developed at the behest of larger institutions but may eventually reach retail audiences as technology continues to advance. Active ETFs are emerging, and with the lift of the ASIC ban in December 2019, are likely to continue to grow. Across 2020 and the coming years, ETFs are likely to increasingly evolve to fill the gaps in investor needs and demands. For more information on accessing these trends through ETFs for your clients, please speak to ETF Securities. Sales Trading Phone +61 2 8311 3488 Email: Phone +61 2 8311 3483 Email:

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LONG FORM - ETF Trends for 2020

Jan 22, 2020

The ETF landscape continues to rapidly expand beyond the replication of major stock market indices such as the S&P/ASX 200 and S&P 500. Today’s investor can choose ETFs across different sectors, based on certain themes or even offering alternative weighting schemes, like yield or value, captured by the phrase smart beta. The value of the Australian ETF market is currently $A60bn[1] , only a small portion of the overarching $A3,680bn assets of the managed funds industry[2] and a fraction of the global ETF market valued at $US5tr[3] . The vastly larger U.S. and European ETF markets offer some indication of the direction the Australian industry may take. In 2020, ETF Securities expects a number of trends to influence the ETF landscape, including economic drivers, changing investor dynamics and newer investment styles courtesy of improving technology. Economic drivers for the ETF landscape Investments generally are being influenced by three key economic themes: the low interest rate environment globally, continuing challenges in the Australian economy and ongoing growth in Asia. 1. The global low interest rate environment After a period of tighter monetary policy between 2016-2018, the U.S. Federal Reserve switched course and decreased rates in mid-2019. This tied in with a year of increasingly accommodative monetary policy globally. The European Central Bank (ECB) announced it would resume quantitative easing and decreased its already negative bank deposit rate to -0.5%, while domestically, the Reserve Bank of Australia (RBA) decreased rates three times. This environment is likely to continue into 2020 as the global economy continues to manage sluggish growth and inflation, as well as provide a buffer for potential risks which may arise during the post-Brexit adjustment period for the UK and Europe, the escalation in activity with Iran, the typical market volatility associated with a US Presidential Election year or any changes in the current ‘cease-fire’ in the US-China trade war. Lower interest rates continue to place pressure on traditional sources of yield like fixed income. Australian investors will need to look beyond domestic holdings to access yield in fixed income. Given this scenario, investors may be more likely to look at using riskier asset classes like equities, as well as ‘safe haven’ assets like gold. What this means for ETFs? Commodities ETFs, in particular gold and silver, should continue to benefit from this environment due to a low opportunity cost. Gold has both consumption and investment appeal so has low correlation to equity markets and other assets. This means it tends to perform in a range of markets and offer stability when share markets are volatile. Investors may look towards ETFs targeting dividends as an alternative source of yield. Investors still looking at fixed income, either for diversification or as a low risk asset, may look at the US as it holds higher yield compared to Australian and European counterparts. 2. Challenges in the Australian economy On the whole, performance has been positive for the Australian market across 2019 but has lagged peers and this is likely to continue in 2020. The Australian economy has been challenged over the past few years by a slowdown in the resources sector, falls in the residential property market, along with stagnant wage growth and employment numbers. Corresponding to this, the Australian dollar is low relative to recent history – $US0.70 as at 31 December 2019[4]. While these issues have affected investment, there have also been domestic themes taking a dominant role. For example, the ramifications of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry both in terms of regulation and penalties, along with damaged consumer trust, continues to influence the stock prices of many financial companies. The extent of the devastating fire season in Australia is as yet unknown but will be felt heavily in the financial sector, especially in the insurance industry. Investors may consider a few options from this scenario. One aspect is sourcing opportunities overseas or focusing on more niche areas both within and external to Australia which are less likely to be influenced by the current dynamics. A second is considering the impact of currency, given the low Australian dollar. What this means for ETFs? Investors may look to currency-based ETFs offering exposures outside Australia, particularly to the US dollar which continues to be stronger than many developed nation currencies. ETFs in themes or markets to offset the financials exposure in Australia, for example, in technology and medical sectors or in emerging markets. 3. Growth in the Asian region The growth of the middle-class across Asia has been a market theme for more than a decade, despite concerns over Chinese slowdown. Investors are becoming increasingly aware of the opportunities for countries outside of China such as India, Malaysia or South Korea. India, for example, is expected to see the percentage of households in poverty drop from 15% to 5% by 2030 representing a huge opportunity in terms of consumption[5] . Even as the Chinese economy slows and the trade war with the US continues to drive uncertainty, it still represents opportunity for growth. A number of companies are starting to emerge as global power players from the Asian region, with massive and growing client bases and the ability to leverage to other regions. Chinese based company Alibaba and Indian multinational Infosys Ltd are some examples. External to Asia, a number of companies and sectors have spent the past decade developing strategies and positioning to take advantage of this growth. Luxury consumer discretionary brands like LVMH are already reaping the benefits[6] , while healthcare and vitamin companies like Blackmores are discovering consumers who are focused on their health needs and have the finances to pay for it[7]. What this means for ETFs? ETFs specific to the Asian region including those focused on individual countries like India, along with ETFs covering themes that benefit from Asian growth will continue to be of interest. ETFs targeting sectors like healthcare or even focused on medical advancements such as ETFS S&P Biotech ETF (ASX Code: CURE) are also positioned to take advantage of a growing customer base in Asia who seeks out and can afford the latest and best. This is also supported by the growing medical tourism industry in Asia, targeting those tourists wanting to take advantage of the lower cost bases for treatment. Changing investor dynamics and ETFs Investor needs and demands have been responsible for change across much of the investment industry, with transparency and costs, along with ethical and social concerns, becoming a key focus. 1. Demand for greater transparency and cost-effective investments Influenced by the Global Financial Crisis and the more recent Royal Commission, investors are taking a greater interest in where and what their investments are. Transparency over investments and the investment approach is becoming important. Investors are also becoming more conscious of fees and aware that costs can erode returns. This is having a flow-on effect to investment managers and financial advisers, requiring them to not only justify their own fees but be more conscious of fee budgets within portfolios. What this means for ETFs? The trend towards transparency and cost focus is supportive of ETFs, which typically offer these characteristics and can be easily traded should they no longer meet an investors’ strategy and needs. A tighter focus on fee budgets in managed funds and portfolios make ETFs an attractive option to access specific themes, offer broad exposure or tilt a portfolio. 2. Ethical and social concerns Linking to a greater interest in transparency, investors are also starting to consider incorporating their ethical and social values within their investments. Many companies are starting to be vocal about their Environmental, Social and Governance (ESG) policies. To some extent, this is a basic expectation for investors – even the greatest polluters have an ESG policy. In recent times, investors have started to look at incorporating specific themes, like climate change or socially responsibility, within their investments. This is still emerging in the Australian market and is more developed in the US market, which even offers impact investment style ETFs. What this means for ETFs? Growth in ESG and ethical ETFs will continue in response to investor demand and innovation in a quickly developing segment. This may also support more bespoke ETF strategies, for example, some dealer groups have started to consider broad based indices with an ethical overlay for core exposures in their clients’ portfolios. A maturing market with new technology, more choice and investment styles As the market has matured, the choices available to investors are becoming more sophisticated to match with changing needs and demand. This has also been supported by improving technology allowing for greater tailoring of strategies or even active management. 1. Thematic investing Investors have become increasingly aware of how to use ETFs in their portfolios and their demands have become more specific. ETFs have become a tool to express specific market opinions, moral and ethical views or to target niche areas of growth. For example, an investor who believes that the UK is likely to struggle post Brexit, might select an ETF that covers top European companies, while excluding UK ones. Or alternatively, an investor interested in growth in India might choose to increase their exposure through an Indian specific ETF. ETFs have also opened access to newer investment spaces, which may previously have been restricted to private capital in the past, such as artificial intelligence and robotics. 2. Bespoke and smart beta strategies Improving technology has allowed the rise of more tailored ETFs, using sophisticated algorithms or rules (smart beta) to ‘beat’ the market while still remaining passive. This may mean alternative weighting compared to the index, or the exclusion of certain factors to minimise risks. Some ETFs of this type are also specially designed for larger scale clients to meet their needs and cover exposures they specifically want. While this kind of ‘customisation’ is generally exclusive to large scale institutions looking for cost efficiencies, there is a link back to the broader retail trend for personalised goods and services[8]. It’s not a great leap to consider that consumers who are used to personalised service at no extra cost in most areas of their lives may come to expect it from their investments too. The backend technology may not be to that retail level yet, but demand may see it come to pass. 3. Active ETF investing Active ETFs are an emerging area and typically replicate the strategies of active investment managers, such as Magellan or Fidelity. ASIC recently conducted a review, suspending the creation of such funds for six months and lifting this in mid-December 2019[9]. The release of admission guidelines, along with international activity (the US relaxed regulations around disclosure in 2019[10]), is likely to see further growth in this area. Active ETFs transforms the traditional view of ETFs as a passive, index-following and transparent investment. They tend to be more opaque, given active managers prefer not to provide all their IP explicitly. They are likely to appeal to self-directed investors looking for active solutions with greater ease of access and liquidity. in managed portfolios due to characteristics like liquidity. It is a time of change and transformation generally for the Australian investment landscape, and opportunities are rising from newer attitudes, technology or even regulations. Across 2020 and the coming years, ETFs are likely to increasingly evolve to fill the gaps in investor needs and demand. Using the US and European ETF markets as a template, there’s further to move and grow for the ETF landscape. Influenced by the current environment, Australian investors, like their international peers, are making more deliberate efforts to seek ETFs for their portfolios. For more information on accessing these trends through ETFs for your clients, please speak to ETF Securities. Sales Trading Phone +61 2 8311 3488 Email: Phone +61 2 8311 3483 Email: _____________________ [1] [2] [3] [4] Bloomberg [5] Growth_Consumers_markets_India_report_2019.pdf [6] [7] [8] [9] [10]

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India: Down But Not Out


Dec 09, 2019

Published: 5th December 2019 Product in Focus: ETFS Reliance India Nifty 50 ETF Key points: India’s economy has underlying strengths and over the past 12 years has become an economic powerhouse, jumping from the 11th to the 5th largest economy in the world. After a 2 year slow down, India’s outlook remains positive. RNAM forecasts GDP growth to recover towards 7% over the next 12-15 months. NDIA allows investors access to the Indian share market, a notoriously difficult region to invest, by tracking the performance of 50 of India’s leading blue-chip companies. India has been increasingly moving into the spotlight of many investors in recent years. Over the past 12 years India has jumped from the 11th to the 5th largest economy in the world and is likely to take 3rd position within a decade. This makes it difficult to ignore India when building a global equity portfolio. Further, the recent launch of ETFS Reliance India Nifty 50 ETF (ASX: NDIA), Australia’s first Indian-focused ETF, has provided investors with ready access to a market that was previously difficult to invest in. The case for India Structurally, India’s economy has underlying strengths that have enabled robust growth and provide a strong macro story. Demographics: with a median age of 28 years, India’s population is highly skewed towards young working-age people who drive both income and consumption. By 2030 India’s median age is forecast to rise to just 31, compared to 40 in the U.S. and 42 in China. Further, a dramatic urbanisation of the population is in progress, which will create a massive need for infrastructure investment across housing, transport, communications and utilities. Low debt levels: To this point Indian economic growth has not been excessively reliant on debt. Household leverage in India remains one of the lowest in the world, which presents a huge opportunity for sustained economic expansion. Strong domestic consumption: Nearly 60% of India’s GDP is driven by domestic private consumption, as compared to 40% in China. This provides India with a degree of protection against external demand shocks. Furthermore, India’s per capita spending is way below China and more in line with levels seen in China in the mid-2000s. Progressive reforms: India has undergone many reforms in the last 5 years. Most have been aimed at increasing compliance and transparency and removing red tape across the financial system. Longer-term, a stable and reform-focused regime should support an environment conducive to business and investment. Future Outlook While Indian growth has slowed over the past two years, the outlook remains positive. Reliance Nippon Life Asset Management forecasts GDP growth to recover towards 7% over the next 12-15 months. Key factors driving near-term growth include; Corporate tax cuts: India has recently reduced its effective corporate tax rate to 25.1% from over 30%. In addition, firms who set up new manufacturing units will enjoy an effective tax rate of 17.1%. This is expected to attract significant investment from foreign companies looking to access India’s domestic market and those looking to diversify away from China as uncertainty continues with regards to the global trade and tariff situation. Infrastructure spending: Government initiated infrastructure projects are a key driver of the Indian economy. It was recently announced that India will spend about $US 1.4 trillion over the next five years on projects including, for example, doubling the number of highways, airports and the capacity of ports, building 50 new metro systems in cities, electrifying and standardising the rail network and improving both rural irrigation and household access to piped water. Monetary policy: The RBI has cut policy rates by 1.35% over the past year to 5.15% to provide stimulus to the economy and counter the weakness seen in global demand. Low inventory levels: Inventory levels across the economy are well positioned to provide a favourable base for a recovery across the manufacturing sectors. Access to India The ETFS Reliance India Nifty 50 ETF offers Australian investors the ability to access the Indian share market via the ASX for the first time. NDIA tracks the Nifty50 Index, which is the primary benchmark for the Indian equity market. It not only provides a measure of the performance of 50 of India’s leading blue-chip companies, it also provides a representative picture of the entire Indian market. The 50 constituents account for 67% of overall Indian market capitalisation and 53% of total trading volume, as well as providing a broadly similar sector exposure to the wider market. Trailing returns Using India in a portfolio Investors looking to take a meaningful exposure to the Indian growth story should consider taking an exposure beyond broad emerging markets/Asia. India currently accounts for just 2.6% of global equity market capitalisation, despite having over 17% of the world’s population and 9.5% of the world’s GDP. In comparison, China, which is the most comparable country from a population perspective, currently accounts for 8.2% of global equity markets. [1] A tactical overweight to India would provide investors with a fairer reflection of India’s potential. While historical data does not present the entire picture of the Indian growth opportunity as it stands today, it is worthwhile investigating the impact that a heightened India exposure would have had on historic portfolio returns. To do so, we focus on the Asia ex Japan segment of world equity markets and compare the performance of the MSCI Asia ex Japan Index, which includes roughly a 10% allocation to India, to a portfolio comprised of 90% MSCI Asia ex Japan and 10% Nifty50 Index. The blended portfolio contains approximately a 19% India allocation. Cumulative returns over the past 20 years are shown in Chart 1. Over the full 20-year time series, the portfolio including the Nifty50 outperformed by 0.51% per annum, exhibited 0.5% per annum lower volatility and saw a 1% lower drawdown. By extension, risk-adjusted returns were also improved. Table Y summaries the portfolio risk and return characteristics over 3, 5, 10 and 20 years to give a picture of the contribution India would have made over a range of time horizons. In each case the over-weighting of India was positive for the portfolio from both a return and a risk perspective. Fund in Focus Name ETFS Reliance India Nifty 50 ETF ASX Code NDIA Management Fee 0.85%* Benchmark Nifty50 Index Inception Date 19 June 2019 Distributions Annual [1] Source: Bloomberg as at 30 November 2019. *Plus expense recoveries up to a maximum of 0.15% p.a.

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Oct 10, 2018

The educational guide to Australian Exchange Traded Funds (ETFs)

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