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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: infoAU@etfsecurities.com.au Phone +61 2 8311 3483 Email: primarymarkets@etfsecurities.com.au

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Weekly ETF Monitor for week ending 17 January 2020

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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

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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

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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

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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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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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