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Weekly ETF Monitor for week ending 21 June 2019

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Jun 25, 2019

This week's highlights Risk assets rallied last week on rate-cut expectations in the U.S. and eurozone. Resources and commodity stocks outperformed. Gold mining ETFs (GDX and MNRS) were amongst the top performers for the week, while China and Asia-Pac ETFs performed strongly across the board. ETFS S&P Biotech ETF (CURE) returned 6.4% for the week. Gold rallied above US$1,400 for the first time since 2013 and hit new all-time highs in Australian dollar terms. GOLD returned 2.8% for the week. Oil (OOO) returned 8.8% for the week following the Iran drone attack. Total flows into domestically domiciled ETFs were $182m, while outflows totalled $71m. The biggest inflows were into Russell Australia Responsible Investment ETF (RARI), broad based Australian equity funds (IOZ, A200 and STW), a range of domestic fixed income/hybrid funds (HBRD and AAA) and GOLD. STW and AAA were the most traded funds last week, while GOLD and GEAR saw above average volumes. ETF Securities launched Australia’s first India ETF on Friday; ETFS Reliance India Nifty 50 ETF (NDIA), which tracks the Nifty50, India’s flagship benchmark index.

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Weekly ETF Monitor for week ending 14 June 2019

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Jun 18, 2019

This week's highlights Resources and commodity stocks outperformed last week, dominating the top performing ETFs for the week. Palladium continued its renewed rally, with ETPMPD returning 8.8% for the week. S&P/ASX 200 Resources Sector funds (QRE and OZR) returned close to 5%, while agriculture (QAG), precious metals (ETPMPM) and gold miners (GDX) all gained in excess of 4%. China rallied on economic stimulus measures despite the Hong Kong protests with both CNEW and CETF amongst the top performers. Oil (OOO), energy company (FUEL) and long Australian dollar (AUDS) funds were amongst the poorest performers for the week. Total flows into domestically domiciled ETFs were $73m, while outflows totalled $11m. The biggest inflows were into VanEck Vectors Australian Equal Weight ETF (MVW) and a range of domestic fixed income/hybrid funds (CRED, HBRD and IAF). AAA was the most traded fund last week, while CRED and VAP saw above average volumes. ETFS Morningstar Global Technology ETF (TECH) returned 1.5% for the week and is up 18.5% year-to-date. It provides exposure to the global technology sector with a tilt to attractively valued firms, using Morningstar’s moat methodology.

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Weekly ETF Monitor for week ending 7 June 2019

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Jun 12, 2019

This week's highlights This week saw the RBA cut rates to 1.25% after 33 months on hold. Australian Financials and Materials rallied but this was not a match for the performance across some global and U.S. strategies. The top performers for the week were BetaShares Geared US Equity Fund - Ccy Hedged (GGUS) up 10.3% and BetaShares Global Gold Miners ETF (Hedged) (MNRS) up 5.5%. The worst performers over the week were the BetaShares US Equities Strong Bear HF - Hedged (BBUS) down -9.4% and VanEck Vectors China New Economy ETF (CNEW) down -5.9%. Chinese markets pricing is the latest in the U.S.-China trade wars. Looking longer term, bear strategies with exposure to U.S. and Australian markets are the worst performers over the year-to-date and last 12 months. BetaShares Australian Equities Strong Bear (BBOZ) down -31.7% YTD. The best performers over 12 months remain ETFS Physical Palladium (ETPMPD) up 43.2% and VanEck Vectors Australian Property ETF (MVA) up 30%. Looking at flows over the week there were $294 million in outflows and $87 million in inflows for ETFs. The outflows were from BetaShares Australia 200 ETF (A200) with outflows of $135 million and BetaShares Australian High Interest Cash ETF (AAA) with outflows of $93 million. VanEck Vectors Australian Equal Weight ETF (MVW) saw the largest inflows of $18 million.

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Weekly ETF Monitor for week ending 31 May 2019

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Jun 04, 2019

This week's highlights Trump’s tariff threats returned to centre stage last week hitting equity markets across the globe, while speculation mounted on potential activity from the RBA, Federal Reserve and ECB in coming weeks. Defensive sectors such as energy, consumer staples and utilities underperformed, with ETFs such as ZYUS, MOAT, VVLU and QUS all amongst the poorest performers for the week. Emerging markets still managed to post gains, with VGE, EMKT, IEM and FEMX all returning at least 1.7%. Precious metals benefited from the risk-off sentiment with ETFS Physical Gold (GOLD) returning 0.8% for the week and gold mining funds (MNRS and GDX) topping the performance tables for long-only equities. Crude oil dropped substantially, with OOO down 8.7% for the week. Total flows into domestically domiciled ETFs were $120m, while outflows totalled $60m. The biggest inflows were into domestic fixed income, cash and hybrid ETFs (IAF, AAA and HBRD), while the biggest outflows for the week were from inflation-linked bond (ILB) and emerging market (IEM) ETFs. AAA was the most traded fund last week, while QPON saw above average volumes. STW saw a substantial reduction in trading volume. ETFS Physical Precious Metals Basket (ETPMPM) returned 0.9% for the week and is up 12.6% over the past 12 months. It provides diversified exposure to the four major precious metals and their different supply and demand drivers. Its current allocation is 50% gold, 25% palladium, 17% platinum and 8% silver.

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Weekly ETF Monitor for week ending 24 May 2019

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May 28, 2019

This week's highlights Aussie sectors, financials and resources soared last week off the back of a confidence boost from the LNPs win in the federal election. Financials also received a boost from APRAs proposal to remove the survivability buffer on home loans. Globally, markets were impacted by increasing trade war tensions between the U.S. and China as well as added uncertainty from May’s resignation. Unsurprisingly, VanEck Vectors Australian Banks ETF (MVB) and BetaShares S&P/ASX 200 Financials Sector ETF (QFN) were the best performers over the week, with MVB returning 6.9% and QFN 6.1%. The worst performers were BetaShares Crude Oil Index ETF - Ccy Hedged (OOO) down 6.8%, BetaShares Asia Technology Tigers ETF (ASIA) down 5.1% and BetaShares Global Robotics and Artificial Intelligence ETF (RBTZ) down 4.5%. The top flows for the week were seen by BetaShares Australian High Interest Cash ETF (AAA) and SPDR S&P/ASX 200 Fund (STW). Closely followed by BetaShares S&P/ASX 200 Financials Sector ETF (QFN) and BetaShares Australia 200 ETF (A200). Net inflows for Australian ETFs were a significant $313 Million. Looking longer term at performance over twelve months, ETFS Physical Palladium (ETPMPD) remains the best performer up 48.8% and VanEck Vectors Australian Property ETF (MVA) is up 28.1%. The worst performers are exchange listed hedge funds, with BetaShares Strong Australian Dollar Hedge Fund (AUDS) down 21.3% and BetaShares Australian Equities Strong Bear (BBOZ) down 24%.

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The changing face of India

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Jun 21, 2019

Product In Focus: ETFS Reliance India Nifty 50 ETF (NDIA) Key Points India has the world’s second largest population and is soon expected to surpass China The median age is just 28, this young demographic is powering significant growth The World Bank has estimated that India’s 2019/20 GDP growth will be 7.5% ETF Securities have launched Australia’s first ETF giving access to Indian equities (ASX Code: NDIA) The colour and chaos that is India has always captivated the imagination like no other country. From ancient agrarian beginnings, shaped by five thousand years of political, cultural and religious diversity, India is now emerging as an economic powerhouse. With a population of almost 1.3 billion people and one of the fastest growing economies in the world, many commentators are hailing India as ‘the new China’. Australian investors now have the opportunity to access this vibrant and rapidly growing economy with the launch by ETF Securities of the first exchange traded fund offering exposure to Indian stocks. What is propelling the India growth story? It is difficult to ignore the sheer scale of India. Currently the world’s second most populous nation, India is expected to claim the number one spot from China within the next decade. By 2025, it is estimated that one fifth of the world’s working age population will be Indian. And, with a median age of just 28 years, India’s young demographic is expected to power the country’s economy into the next decade. The potential is clearly shown by the pace at which Indians have embraced digital technology. With a take up rate second only to Indonesia, the number of Indian internet users is expected to hit 1.1 billion by 2030. Already, Indians spend more time on social media than their counterparts in China and the United States. The World Bank recently estimated that India’s GDP would grow by 7.5% in 2019/20, and continue this pattern in 2021 and 2022, pointing to the increasing resilience of its economy. Consumption among India’s younger demographic is only part of the story. The growth upswing is also being driven by increased foreign investment, which has been encouraged by structural reforms in the taxation and business sectors. Reserve Bank of India figures show that investment activity accelerated by 12.2% in 2018/19 compared to 7.6% in the previous year. Significantly, much of the investment over the past two decades has found its way not into industry but into a booming services sector. Social reforms and policy initiatives in infrastructure development, health and rural transformation have also played a big part, shifting India’s economy from one characterised by overwhelmingly high levels of poverty to one with an increasing degree of self-sufficiency. The changing face of India is reflected in the shrinking number of its citizens living in extreme poverty, which was slashed from 46% to an estimated 13.4% in the two decades leading up to 2015, according to the World Bank. In the past two decades, per capita income in India has risen fivefold, passenger car sales by 5.5 times and the number of inbound tourists by 8 times. The Asian Development Bank in its latest Asian Development Outlook said that it, too, expected the Indian economy to outperform, although its forecasts were slightly less bullish than the World Bank at 7.2% for FY2019/20. “India has a golden opportunity to cement recent economic gains by becoming more integrated in global value chains. The country’s young workforce, an improving business climate and a renewed focus on export expansion all support this,” the ADB said. “An increase in utilisation of production capacity by firms, along with falling levels of stressed assets held by banks and easing of credit restrictions on certain banks, is expected to help investment grow at a healthy rate.” Challenges ahead Although India’s economic development in recent years has outstripped that of many other emerging markets, the country still faces some challenges to ensure progress extends to all demographic and geographic areas. These key challenges include skill development and employment for the future workforce, creating a healthy and sustainable population, and lowering barriers for socio-economic inclusion of India’s rural population. Some commentators predict that India needs annual growth of 8% to create enough jobs for the more than 12 million young Indians entering the workforce each year. However, the unevenness of the growth in the economy has meant that growth in jobs has not kept pace. A recent McKinsey Global Institute study concluded that the digitisation of India’s economy could create 65 million jobs by 2025 but 40 million workers would need to be retrained to do them. India is at a tipping point and the time is ripe for key stakeholders within the public and private sector to come together to address these issues head on. Doing so will unshackle the potential of India’s youthful and technologically connected population and allow India to be a model for other fast-growing consumers markets. Indian election The recent return to power of the Bharatiya Janata Party (BJP), headed by Narendra Modi has been viewed as a positive, although the government faces several challenges to maintain the country’s economic momentum. Modi has been praised for his swiftness in dealing with geopolitical issues and implementing key supply-side reforms. Some commentators, however, have been critical that he has not delivered on economic promises to create more jobs, particularly in rural areas, where two thirds of the population is based. This will be a key target for his government over his second five year term. First ETF for India (NDIA) ETF Securities has teamed with Reliance Nippon Life Asset Management, one of India’s largest asset managers, for the launch of its NDIA ETF. Reliance has a 23 year track record in India and has some $USD 61 billion under management. NDIA will invest in a basket of stocks based on the Nifty50 Index – which comprises the 50 biggest listed companies listed on the National Stock Exchange (NSE), including HDFC Bank, Reliance Industries, Housing Development Finance Corporation, Infosys, ITC, ICICI Bank and Hindustan Unilever. It accounts for 13 sectors representing about 66.8% of the free float market capitalisation of the stocks listed on the NSE. The Nifty50 is up 13.6% over the past year and 16.3% over five years. Until now, India has been difficult for offshore investors to access due to the country’s strict foreign investment rules. Although there are a few unlisted “active” funds that invest in India, ETF Securities’ NDIA is the first vehicle for passive investment available to Australian investors. ETF Securities is Australia’s only independent ETF provider. Founded by philanthropist Graham Tuckwell, the group has more than A$1 billion in funds under management, across sectors as diverse as robotics, biotechnology, infrastructure and commodities.

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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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TECH: Combining Growth with Value and Quality

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May 08, 2019

Product in Focus: TECH - ETFS Morningstar Global Technology ETF The tech sector has provided significant opportunities for growth investing in recent years Prudent technology investors should examine value and quality stocks TECH actively selects technology leaders that have a competitive advantage over other companies The portfolio contains 25 to 50 stocks from a global universe Technology Is On A Roll The Information Technology (IT) sector has contributed nearly 30%(1) of total global equity returns over the past 5 years. This is more than double the performance of the next best sector - consumer discretionary, which itself can attribute much of its performance to 'tech style' stocks such as Amazon. Although there have been speed bumps along this growth trajectory there is a consensus that the incorporation of technology into our daily lives and the subsequent growth of the companies behind this will continue for some time. The big-name FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) have sky-rocketed, with Apple and Amazon becoming the first two companies to top the US$1 trillion mark in 2018 and Microsoft recently achieving the same milestone. The Nasdaq 100 hit new all-time highs in April and to date has only posted a single negative week in 2019. As such, losses in the correction of the last quarter of 2018 have largely been recouped, but the volatility has not been forgotten by many. Questions, rightly, are being raised as to whether valuations are overblown, whether we are building towards a second tech bubble or, alternatively, whether the technology revolution is only just beginning. How Do you Navigate Stretched Valuations and Volatility? Exciting times lie ahead for technology companies, but it’s unlikely to be completely smooth sailing, with bouts of volatility always a possibility. Prudent technology investors should consider: Introducing ETFS Morningstar Global Technology ETF (ASX: TECH) ETFS Morningstar Global Technology ETF (TECH), which tracks the Morningstar Developed Markets Technology Moat Focus Index, was designed with this approach in mind. Here’s how its stock selection works to provide exposure to technology sector growth, while focusing on value, quality and diversification. ➢ Growth As a technology sector fund, TECH is by default highly exposed to growth as an investment factor. It is worth, however, clarifying exactly what constitutes a technology stock in this context. Relative to the well-known Nasdaq 100, this fund is less broad from a sector viewpoint, but broader on a regional basis. The Nasdaq 100, while highly technology exposed, is currently only about 45% invested in pure technology companies. TECH is therefore a more pure-play in terms of exposure to technology growth. Of the FAANG stocks TECH currently holds Apple, Google and Facebook. ➢ Value TECH benefits from research and analysis conducted by Morningstar’s extensive team of global equity analysts in assessing the fair value of eligible index constituents. Eligible companies are ranked according to their ratio of price/fair value and only the most undervalued companies are included in the Index. TECH currently holds positions in 31 companies, of which 20 are showing fair value above current market price (Chart 1). The weighted-average discount to fair value across the portfolio is 6.6% as at the end of April. This compares with a 5.5% weighted average premium to fair value across the Nasdaq 100(2). Further, companies that fall into the bottom 20% based on price momentum are screened out to ensure that the Index is not mistaking negative sentiment for value. ➢ Quality TECH invests only in quality companies and does this by screening firms according to their Morningstar Economic Moat Rating. An economic moat, as the name suggests, is something inherent in a company’s business model that defends its market position and cannot be easily replicated by competitors. It is the source of their competitive advantage and only well-established, high quality businesses achieve moat ratings. Wide Moat companies are the highest rated and are deemed able to maintain above average returns for the next 20 years. Narrow Moat companies are the next highest rated at should maintain excess returns for at least 10 years. TECH currently holds 12 Wide Moat companies including Adobe and Salesforce and 19 Narrow Moat companies including Computershare and LINE. ➢ Global Diversification The Index selects between 25 and 50 stocks from across global developed markets and equally weights them on a quarterly basis. Diversification benefits arise from the number of stocks chosen and the fact the they are drawn from an international universe. TECH currently holds stocks from the U.S., Japan and Australia. The equal weighting scheme is designed to both limit excessive exposure to the mega-cap names and to provide a greater opportunity for smaller companies to meaningfully contribute to performance. How has TECH performed? Chart 2 and Table 1, below, show the performance of TECH relative to a selection of prominent ETFs that offer technology-related exposures. These funds include Nasdaq 100 trackers listed in Australia and the U.S. (NDQ and QQQ respectively), a fund tracking the broad, market cap weighted S&P Global IT Sector Index (IXN) and the largest U.S. technology sector ETF (XLK). Returns are in Australian dollars and are net of fees. Since its inception on 7th April 2017, TECH has returned 30.1% p.a., which is 3.5% p.a. ahead of XLK and 6% p.a. ahead of the two Nasdaq 100 ETFs. Performance Without Taking More Risk Not only has it performed strongly, it has achieved its performance without taking undue levels of risk – it’s volatility since inception ranks fourth-lowest amongst the five funds shown. IXN, which holds close to 120 stocks compared to TECH’s 31 at present, has been about 1% p.a. less volatile. Performance During the Recent Market Correction Chart 3 shows the performance of the same five ETFs since the end of Q3 2018, which encompasses both the period of market volatility seen in the last quarter of the year and the subsequent recovery in 2019 to the end of April. Over that period TECH returned a total of 12.2%, which is more than double the return of the Nasdaq 100 funds and over 4% ahead of the next best performer, XLK. TECH’s maximum drawdown over the period from the end of September 2018 was 17.4%. This was almost 4% ahead of the next best fund, IXN, which dropped 21.4% over the period. In the recovery since Christmas, TECH returned 35.8%, which ranks second amongst the funds, behind only XLK, which rose 38.1% to the end of April. Summary The ETFS Morningstar Global Technology ETF (TECH) affords investors a simple solution to allocate assets to the technology sector in an intelligent way. This fund has been designed to provide pure exposure to the sector with stock selections seeking to choose a diversified portfolio of companies that have a competitive advantage over others operating in the field. Sources: 1 Bloomberg data as at 30 April 2019. The Information Technology sector contributed 13.2% of the 5-year total return of 46.4% of the iShares MSCI World ETF as a proxy for the global equity market. 2 Morningstar Direct as at 30 April 2019. Based on Morningstar analyst fair value ratings, which are available for 97.3% of the market capitalisation of the Nasdaq 100 index.

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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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Europe Stacks up Despite Brexit

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Mar 14, 2019

Europe Stacks up Despite Brexit Product in Focus: ETFS EURO STOXX 50 (ESTX) Brexit uncertainty has impacted on investor sentiment towards Europe . However there are multiple indicators that the negativity around the rest of Europe has been overdone . EURO STOXX 50 up 9.4% year to date in line with S&P 500 . Europe will always be a core part of investor portfolios. Perhaps now is a good time to allocate? Uncertainty surrounding the protracted Brexit negotiations has seen many investors shy away from European equity markets in favour of higher returns in the US. Yet, with the US economy looking increasingly vulnerable to a slowdown, it might be time for your clients to refocus their sights on Europe – 20% of the world’s GDP. Why have Australian Investors Been Wary of Investing in Europe? Economic conditions in Europe have been surprisingly resilient throughout the political to-ing and fro-ing that has accompanied Brexit. European stock prices, however, have lagged their US counterparts. In 2018, the primary benchmark EURO STOXX 50 Index fell by around 14.3%, compared to a decline of just 6.2% by the S&P 500 during the same period. Poor performance by banking and auto stocks due to jitters around interest rates and tariffs, respectively, were the primary factors depressing European markets last year. Investor sentiment on Europe has been dampened by a range of factors. The cloud over Brexit, and its likely impact for the UK and continental Europe, is the obvious culprit. Ongoing budgetary conflict between Italy and the European Union, fears of an escalation in global trade wars and speculation on when the European Central Bank will raise rates, have also weighed heavily. But Do These Fears Stack Up? So far in 2019, it is a different story. The EURO STOXX 50 is up 9.4% year to date, tracking similarly to the S&P 500 (also up 9.4%) and relative valuations look more attractive. The euro is also approaching two year lows, which could provide a boost to Europe’s export sector. There are also suggestions that underlying economic conditions in the powerhouse economies of Europe are stronger than sentiment would suggest. This view is supported by the release earlier this month (March) of the Markit Eurozone Composite PMI numbers for February which were revised upwards to 51.9, the first increase (albeit slight) in private sector activity in three months. The PMI index tracks business trends across manufacturing and services based on data from over 5,000 companies. Another sign that the negative sentiment around Europe might have been overdone is the Citibank European economic surprise index. This index (which measures data surprises relative to market expectations) while still in negative territory, has been ticking upwards since the beginning of the year. Emotions Do Not Equal Facts The tendency for sentiment to run at odds with economic reality was raised recently by Martin Beck, chief economist at Oxford Economics. He spoke of the “the difficulty of separating emotion from hard economic developments in driving survey responses” during times of high uncertainty. A number of factors underscore the view that Brexit uncertainty is having a disproportionate impact on investor sentiment. Unemployment across Europe continues to fall and is at 10 year lows, wages growth has picked up and German retail sales rebounded in January, rising more than 3%. ….And What About BREXIT So how great are the Brexit risks for European stock performance? Certainly the economic fortunes of the UK are deeply entwined with those of the EU. The UK is among the EU’s three largest trading partners, accounting for about 13% of its trade in goods and services. While Brexit uncertainty has been damaging for both the UK and the Eurozone, the worst case ‘no deal’ scenario is likely to hit UK companies much harder than their European counterparts. The IMF has forecast that a no deal Brexit could result in a 4% hit to the UK’s GDP BY 2030 should Britain end up adopting the default World Trade Organisation rules for its trading relationships with the EU. The two countries with the largest weighting in the EURO STOXX 50 index, France and Germany by comparison are expected to suffer declines of only 0.2% and 0.5% of GDP, respectively. Meanwhile, a more benign Brexit scenario preserving access to the single market but not membership of the customs union would have only “negligible” impact on output and employment for the EU, according to the IMF. The ultimate consequences of Brexit for both the UK and Eurozone countries, however, are likely to take many years to materialise and will depend on whatever shape any eventual deal takes. Europe Without the UK - ETF Securities’ EURO STOXX 50® ETF As with any late cycle investment strategy, the key to any European foray is to focus on quality companies with strong earnings track records. To this end, Europe offers some of the world’s most prestigious blue-chip names. The EURO STOXX 50, includes the 50 largest and most liquid stocks operating in the Eurozone. The top 10 stocks in the EURO STOXX 50 Index (which is updated annually) are Total, SAP, Sanofi, Linde, Allianz, LVMH Moet Hennessy, Siemens, Unilever, ASML Holdings and Banco Santander. For investors looking to gain exposure to Europe, exchange traded funds offer a way to gain widespread diversification at a low-price. The ETFS EURO STOXX 50® (ESTX) offers broad based exposure to the 50 largest companies across the Eurozone by tracking the performance of the EURO STOXX 50 Index. For the year to date, ESTX is up 8.0% (in AUD). Source: Bloomberg data as at 11th March 2019

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Oct 10, 2018

The educational guide to Australian Exchange Traded Funds (ETFs)

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