Nov 26, 2019
This week's highlights Precious Metals and Healthcare rallied last week. ETFS S&P Biotech ETF (CURE) was up 4.3% over the week. Precious Metals Palladium, Platinum and Silver also had a good week. ETFS Physical Palladium (ETPMPD) was up 2.7%, ETFS Physical Platinum (ETPMPT) up 2.5% and ETFS Physical Silver (ETPMAG) up 2.2%. Australian Financials underperformed as Westpac fell heavily in light of recent developments. VanEck Vectors Australian Banks ETF (MVB) was down 3.4% and BetaShares S&P/ASX 200 Financials Sector ETF (QFN) was down 3%. Total net inflows were over $310m for the week. The best flows for the week were spread across Australian Equities and Gold. Australian Market Cap ETFs IOZ and STW both had strong inflows of $58m and $56m respectively. GOLD also had another strong week adding $14m as investors continue to add the physical bullion to their portfolios.
Nov 18, 2019
This week's highlights Gold miners, property, healthcare and infrastructure funds outperformed last week. VanEck Vectors Gold Miners ETF (GDX) was the week’s top unleveraged performer. Property funds (SLF and MVA), global healthcare (IXJ), sustainability funds (FAIR and ETHI) and infrastructure (GLIN) were also amongst the top performers for the week. Asian equities underperformed, with IZZ, CETF, VAE and UBP all amongst the week's poorest performers. Precious metals mostly rallied. ETFS Physical Silver (ETPMAG) added 1.0% and ETFS Physical Gold (GOLD) was up 0.9%. ETFS Physical Palladium (ETPMPD) fell 1.8% from recent highs. Total flows into domestically domiciled ETFs were $399m, while outflows totalled $52m. New fund SELF saw the week’s largest inflows with $101m in seed funding. IHCB, IEM and QOZ saw the next largest inflows for the week, followed by a range of domestic equity funds. Cash fixed income funds IGB, AAA and IHEB saw the largest outflows for the week. VAS was the most traded fund last week, followed by AAA and IOZ. VSO and GOLD saw above average volumes. SelfWealth SMSF Leaders ETF (SELF) launched last week. The fund tracks an index that uses a unique and innovative peer-to-peer methodology to select a portfolio of ASX-listed companies based on the trading activities of over 80,000 SMSF portfolios.
Nov 12, 2019
This week's highlights The improving trade outlook saw a risk-on sentiment return to global equity markets. Asia and technology focused funds outperformed. UBS IQ MSCI Asia APREX 50 Ethical ETF (UBP) was the week’s top performer, followed by ACDC and ASIA. Gold mining funds (GDX and MNRS) and property funds (REIT and MVA) were amongst the weeks poorest performers. Precious metals pulled-back. ETFS Physical Silver (ETPMAG) was the week’s biggest mover, closing down 6.5%. Gold and platinum also declined. Total flows into domestically domiciled ETFs were $253m, while outflows totalled $50m. IOZ and QAU saw the largest inflows for the week, followed by BILL and QPON. Cash fund AAA saw the largest outflows for the week. VAS was the most traded fund last week, followed by STW and AAA. IHCB and IEM saw above average volumes. ETFS Battery Tech & Lithium ETF (ACDC) offers investors equally-weighted exposure to the energy storage and production megatrend by investing in a selection of global companies that are either developers of battery storage technology, or producers of lithium. The fund has produced a year-to-date return of 16.9% .
Nov 05, 2019
This week's highlights The U.S. Equity Market hit fresh highs last week, which saw the iShares S&P 500 AUD Hedged ETF (IHVV) finish the week 1.5% up. Globally, the healthcare sector had a strong week, with BetaShares Global Healthcare ETF (Hedged) (DRUG) up 2.6% and ETFS S&P Biotech ETF (CURE) returning 1.6% for the week. Australian financials had a weak week. VanEck Vectors Australian Banks ETF (MVB) was down 3.4%, while SPDR S&P/ASX 200 Financials ex A-REIT Fund (OZF) and BetaShares S&P/ASX 200 Financials Sector ETF (QFN) were both down 3.1%. Total flows into domestically domiciled ETFs were $258m, while outflows totalled $62m. QPON and FUEL saw the largest inflows for the week, followed by HBRD and a mix of equity funds. IHCB and ILB saw the bulk of outflows for the week. VAS was the most traded fund last week, followed by FUEL and QPON. The best performing ETF Securities fund was the ETFS S&P Biotech ETF (CURE). This fund offers investors equally-weighted exposure to the U.S. biotechnology sub-sector. It captures returns from firms that focus on the research and development of innovative drugs and treatments. The performance of individual biotechnology companies can be speculative and is highly dependent on FDA approvals and M&A activity. CURE offers exposure to advances in the sector, while diversifying the single-name risk across more than 120 companies.
Oct 29, 2019
This week's highlights Global stocks rallied last week on a temporary truce in U.S.-China trade relations. High beta equities, such as ETFS S&P Biotech ETF (CURE) and BetaShares Global Cybersecurity ETF (HACK) posted strong gains. Oil rallied strongly, with OOO up 5.2% and energy company ETF (FUEL) returning 3.9% for the week. Precious metals also posted strong gains across the board. ETFS Physical Gold (GOLD) gained 1.9%, while ETFS Physical Platinum (ETPMPT) was the week’s overall top performing fund, returning 5.4%. Total flows into domestically domiciled ETFs were $227m, while outflows totalled $39m. AAA and QRE saw the largest inflows for the week, followed by GOLD and a mix of equity and fixed income funds. Domestic financial sector and property ETFs (QFN and MVA) saw the bulk of outflows for the week. VAS was the most traded fund last week, followed by STW and AAA. QFN and QRE saw above average volumes. ETFS S&P Biotech ETF (CURE) offers investors equally-weighted exposure to the U.S. biotechnology sub-sector. It captures returns from firms that focus on the research and development of innovative drugs and treatments. The performance of individual biotechnology companies can be speculative and is highly dependent on FDA approvals and M&A activity. CURE offers exposure to advances in the sector, while diversifying the single-name risk across more than 120 companies.
Nov 20, 2019
Published: 20 November 2019 Product in focus: ETFS Physical Gold Key Points: Gold has long been considered a safe-haven asset used by investors to hedge against event risk but is often not appreciated for the way in which it can aid portfolio returns in different market conditions. Over the long-term gold has close to zero correlation with share markets. This is good for investors. Uncorrelated assets provide diversification and help improve returns or reduce risk within a portfolio. ETFS Physical Gold (ASX: GOLD) is a simple and cost-effective and efficient way to access gold by providing a return equivalent to the movements in the gold spot price. At ETF Securities, as manager of Australia’s largest and the world’s oldest exchange traded gold product (ASX: GOLD), we spend a lot of time looking at how gold can work for our clients to improve outcomes across their portfolios. Gold is well-known as a hedge against event risk and as a way of preserving capital against inflation, but people often don’t appreciate how well a long-term holding can aid portfolio returns in different market conditions. When we talk about using gold in a portfolio, we tend to focus on its role as a core strategic holding, not an asset to trade in- and out- of on a regular basis. This article outlines five key reasons you should consider gold as a core holding. 1. Gold is an effective hedge against unpredictable events Gold has been one of best performing assets globally over the past year and has attracted a lot of attention. In Australian dollar terms gold has never been more valuable, having risen 32% over the 12-month period to the end of September. Not only has gold performed very well, but it has done so against a backdrop of rising geopolitical risk, periodic bouts of equity market volatility, global growth concerns and an abrupt shift in monetary policy, both domestically and abroad. The recent past is just one example in gold’s long history of performing well when markets are in turmoil or when risks are heightened. Other prominent examples include; the 1987 stock market crash; gold rose 6% while the S&P 500 fell 33% the global financial crisis; gold rose 26% while the S&P 500 fell 56% the European sovereign debt crisis; gold rose 9% while the S&P 500 fell 19% It is not surprising, therefore, that many people use gold as a safe-haven asset in much the same way they would use insurance to protect their physical assets. Of course, you don’t just take out home insurance when you feel a flood or fire may be imminent, which is why we advocate holding gold long-term to protect against events that are inherently unpredictable. 2. The price of gold is driven by many factors and is difficult to predict Gold does not conform to traditional financial asset principles and there is no widely accepted model to determine a fair price for gold. While many different models exist, it is fair to say that the price of gold is driven by a wide range of variables and is difficult to predict. Gold is both a consumption and an investment asset, which often makes it both pro- and counter-cyclical at the same time. Levels of economic growth are positively related to demand for gold for use in jewellery and technology products, while expectations of lower growth may drive investment or safe haven buying. Gold is used as a store of wealth and as protection against inflation, while it is also in demand when interest rates and inflation are low and economic prospect look poor. Further, central banks are key investors and have massive reserves and a wide range of different motivations for owning gold, which can heavily influence demand. With such an array of competing factors for which to account, forecasting changes in the price of gold and the timing of changes is extremely difficult. We therefore rarely recommend gold as a trade-in/trade-out investment, where market timing is key. Instead we focus on how gold can be used as a core strategic holding. Depending on their circumstances, we often see investors using gold with a 2%, 5% or 10% allocation across their portfolios. 3. Gold’s long-term returns are better than many other asset classes Since gold became a freely traded commodity in 1971 its price has increased by an average of 11.7% per year in Australian dollar terms. Chart 1 shows how gold has performed relative to other major asset classes from the perspective of an Australian investor. While some investors worry that gold produces no regular income, its overall returns have out-stripped many more widely used investments. Gold has significantly outperformed both fixed income investments and diversified commodities. Its long-term returns are comparable with share market returns. Chart 1. Source: Bloomberg data as at 30 September 2019. Returns shown are compounded annual growth rates. Australian Equity is represented by the S&P/ASX 200 Total Return Index. Global Equity is represented by the MSCI World Total Return Index. Australian Fixed Income is represented by the Bloomberg AusBond Composite 0+ Yr Index. Global Fixed Income is represented by the Bloomberg Barclays Global Aggregate Total Return Index. Commodities are represented by the Bloomberg Commodity Total Return Index. 4. Gold helps diversify your portfolio when you need it most Over the long-term gold has close to zero correlation with share markets. This is good for investors. Uncorrelated assets provide diversification and help improve returns or reduce risk within a portfolio. Table 1 shows correlations between gold and other major asset classes over 20 years and you can see that gold generally has low correlations with other assets. It tends to be negatively correlated with equities, while being mildly positively correlated with bonds and commodities. Table 1. Source: Bloomberg data as at 30 September 2019. Correlations are calculated monthly over 20 years in Australian dollars. Australian Equity is represented by the S&P/ASX 200 Total Return Index. Global Equity is represented by the MSCI World Total Return Index. Australian Fixed Income is represented by the Bloomberg AusBond Composite 0+ Yr Index. Global Fixed Income is represented by the Bloomberg Barclays Global Aggregate Total Return Index. Commodities are represented by the Bloomberg Commodity Total Return Index. Not only has gold’s correlation with share markets been low, it has the nice property that it has tended to become more negative when stock markets are falling. Chart 2 shows the correlation between gold and global equities separately considering periods where the equity returns are positive, and then negative. This contrasts with other uncorrelated or “alternative” assets that became highly correlated with stock markets during the GFC. Not only does gold benefit from safe-haven buying during times of market stress, unlike most other financial assets, it has no element of credit risk, which immunises it from extreme market dislocations. Chart 2. Source: Bloomberg data as at 30 September 2019. 5. Gold can improve risk-adjusted returns over the long-term To demonstrate the impact that a core gold position can have in a portfolio, we have simulated adding a gold holding to a collection of typical asset allocation models that include Australian and international equity and fixed income assets with four different allocations representing Conservative, Balanced, Growth and High Growth profiles. Charts 3 - 6 below show the outright return, volatility or risk (measured by standard deviation), maximum drawdown or biggest loss and the risk-adjusted return (measured by the Sharpe ratio) for each asset allocation portfolio and for each portfolio with the addition of 2%, 5% and 10% gold. Source: Morningstar Direct data from 31 March 2003 to 30 September 2019. Conservative, Balanced, Growth and High Growth portfolios are represented by the Vanguard LifeStrategy funds, which have been live since February 2003 or longer. Gold is represented by ETFS Physical Gold (ASX: GOLD), which has been live since March 2003. Figures quoted are in Australian dollars and are net of fees. What we observe is that the addition of gold to an otherwise diversified portfolio has aided performance in every case. Outright returns are higher and increase as the gold allocation is increased. From a risk perspective, however, the impact of gold is even more important. The addition of gold reduces risk through gold’s ability to provide diversification. Risk-adjusted returns are higher and importantly drawdowns, or worst-case scenarios, are significantly improved.  Bloomberg data as at 30 November 2018
Nov 13, 2019
Published: 13th November 2019 The global economy is showing signs of strain and expectations from investors around growth and income is decreasing. Can global infrastructure assets provide a solution? Infrastructure has long been a favourite equity asset class for investors as it offers the following characteristics: Access to long term stable cash flows, given people continue to pay for infrastructure in their day-to-day lives, e.g. toll roads, airports and utilities Upfront capital - investment is high for large infrastructure projects and generally the cash flows from investment are realised for long periods into the future High barriers to entry, reducing competition Infrastructure assets have the ability to produce stable income with low volatility and should therefore be a staple in investor portfolios. With the global uncertainty experienced so far during 2019, investors may look to infrastructure as a source of stable capital and yield. ETFS Global Core Infrastructure ETF CORE offers a low cost way to gain exposure to quality global infrastructure companies which have exhibited the least volatility in the last 6 months. CORE has been resilient during 2019’s market volatility and has returned 19% in the last 12 months with a yield of 4% (31 October 2019). Please see below some further information on CORE, outlining why you should consider this ETF for your infrastructure exposure. Attractive Income CORE has a 12 month yield of 4.11% to the 31 October 2019 Stable Growth Since CORE’s launch in 2017 it has returned over 13.5% p.a. Since its inception CORE has delivered risk adjusted returns (refer to sharpe ratio table) above both the S&P Global Infrastructure Index and the MSCI World Index Low Volatility CORE selects the 75 least volatile global infrastructure companies and weights them by their inverse volatility You can see the effect of CORE’s low volatility screen in the performance table below Period Total Return (p.a.) 3M 6M 1Y 2Y from 19 Sep 17 ETFS Global Core Infrastructure ETF (AUD, NAV, TR) 3.16% 8.19% 18.89% 11.70% 13.66% S&P Global Infrastructure Index (AUD, TR) 4.03% 8.75% 24.39% 11.61% 12.69% MSCI World Index (AUD, TR) 2.48% 6.00% 15.70% 12.61% 15.40% Annualised Volatility 3M 6M 1Y 2Y from 19 Sep 17 ETFS Global Core Infrastructure ETF (AUD, NAV, TR) 6.95% 6.97% 7.38% 8.04% 8.04% S&P Global Infrastructure Index (AUD, TR) 8.57% 8.37% 8.70% 8.95% 8.84% MSCI World Index (AUD, TR) 11.26% 10.74% 10.86% 10.67% 10.53% Sharpe Ratio 3M 6M 1Y 2Y from 19 Sep 17 ETFS Global Core Infrastructure ETF (AUD, NAV, TR) 0.31 1.00 2.35 1.25 1.49 S&P Global Infrastructure Index (AU, TR) 0.35 0.90 2.63 1.11 1.24 MSCI World Index (AUD, TR) 0.13 0.45 1.30 1.02 1.30 Source: Bloomberg as at 31 October 2019. Returns in AUD. Past performance is not an indication of future performance. Global Diversification Due to CORE’s rules based approach it does not have a significant concentration in any single company and instead offers a diversified infrastructure exposure As at 31st October 2019 the top 10 stocks in CORE accounted for just 18.80% of the portfolio The US and Canada make up the largest portion of CORE’s portfolio, followed by Asia and Europe. Australia has a very small exposure in the index, with QUBE Holdings as the only Australian stock currently in the portfolio Source: Bloomberg as at 31 October 2019. Returns in AUD. Past performance is not an indication of future performance.
Oct 09, 2019
Published: 10th October 2019 Product in Focus: ETFS Battery Tech & Lithium ETF Key Points Bloomberg New Energy Finance predict that global lithium-ion battery demand will grow 8-fold by 2030. Over 2 million electric vehicles were sold in 2018, accounting for less than 2% of global passenger vehicle sales. Sales forecasts are estimated to rise to 56 million by 2040. ACDC aims to provide investors with exposure to growth across the entire battery technology value-chain, including lithium miners and energy storage companies. Recent years have seen significant developments in lithium-ion battery power output and efficiency. Lighter and smaller batteries with increased output and falling prices have opened-up a wide range of new applications. These have already had big impacts on the consumer electronics market. The next step in the evolution of the battery technology industry is in larger scale applications. Electric vehicles for private and mass transportation, aided by the emergence of autonomous vehicle technologies and the rapid reductions in charging times. Further, use of lithium-ion batteries is promoting the growth of renewable energy technologies such as solar and wind, which are now able be consumed on demand and not only at the right times, or when weather permits. ETFS Battery Tech & Lithium ETF (ASX Code: ACDC) aims to provide investors with exposure to growth across the entire battery technology value-chain, from lithium miners to energy storage companies across a range of established and emerging companies. This note looks at the key areas driving growth across this quickly developing industry and highlights the operations of several selected companies to provide real-world examples of technological developments and how they are being monetised. Lithium – exploring the supply and demand outlooks Forecasts complied by Bloomberg New Energy Finance predict that global lithium-ion battery demand will grow 8-fold by 2030. This will have a significant impact on demand for lithium carbonate equivalent (LCE) and other core metals, such as copper, aluminium and nickel as well as rare earth metals, such as cobalt. China maintains a dominant position in the supply-chain through both its control of mining companies and its dominance of refining capacity. Electric vehicle demand is anticipated to be the core growth driver over the coming decades, with passenger EVs dominating. Current forecasts point to a supply surplus out to at least 2025, which has been reflected in recent price action. As shown in figure 3, lithium prices have been in decline for the past 15 months, following a three-year bull-run during which prices trebled. Stock in Focus: Albemarle Corp Stock Code: ALB Albemarle is the world’s largest producer of LCE and a pioneer in the development of brine production processes that are commonly used today. Products include lithium metal as ingots, foil, rods and anodes, high purity lithium alloys, lithium salts and lithium sulphide, all of which have battery-related applications. One of its stated aims is to provide materials and to support the growth and success of lithium-ion technology to promote advances in mobile communication, power storage and electric mobility. Production and storage sites are located in Europe, North and South America, Asia and Australia, while Albemarle’s customer base is spread across more than 100 countries. Source: www.albemarle.com Financial information as at 30 Sep 2019: Electric vehicles Over 2 million electric vehicles were sold in 2018, which represents significant growth from a low base, but accounts for less than 2% of global passenger vehicle sales. Forecasts compiled by Bloomberg New Energy Finance indicate accelerating growth over the coming decades with sales to rise to 10 million in 2025, 28 million in 2030 and 56 million by 2040. By the mid-2020s electric vehicle sales are expected to reach parity with internal combustion vehicles, at which point 30% of passenger vehicles on our roads will be electric. Stock in Focus: BYD Stock Code: 1211 BYD is a Chinese manufacturer of passenger vehicles, mass transit vehicles and battery technology and is heavily backed by Warren Buffett's Berkshire Hathaway, which holds a 25% stake. China currently represents around 60% of the global electric vehicle market, with over 600,000 fully electric vehicles sold in the first half of 2019. BYD is the largest Chinese producer, with market share currently running at close to 25%. BYD’s market share has increased in 2019 to-date, despite a slowing in the Chinese market as a result of the removal of subsidies. 63% of BYD’s revenue is currently generated by electric vehicles. Aside from passenger vehicles, BYD is currently a major supplier of electric busses, with government contracts across Asia, Europe and North and South America. BYD is also investing in large-scale battery storage projects. Source: www.byd.com, Bloomberg New Energy Finance Financial information as at 30 Sep 2019: Grid storage batteries The electric power sector has seen significant disruption from renewable sources in recent years, with wind, solar and other sources quickly becoming more economically viable relative to fossil fuel sources in many markets. Component costs are falling and efficiency is rising but improvements in battery technology have been the key to releasing these technologies and allowing them to meet consumer demand at times when the sun isn’t shining and the wind isn’t blowing. Bloomberg New Energy Finance predicts 50% of world electricity output to be wind and solar generated by 2050 and that this transformation will require heavy investment in battery technology. There are numerous competing battery types and new technologies under development. Examples include flow batteries, lead-carbon, sodium-sulphur and compressed-air energy storage. Lithium-ion, however, is the established technology of choice and currently accounts for 85% of commissioned, utility-scale battery storage worldwide. Source: Bloomberg New Energy Finance “New Energy Outlook 2019” Stock in Focus: GS YUASA Stock Code: 6674 GS Yuasa is a Japanese company that manufactures and sells automotive batteries, industrial batteries, power supply systems and other electrical equipment. They are a leader in lithium-ion technology and provide a range of storage solutions for renewable and reserve power applications. The company is involved in multiple large-scale energy storage projects including constructing one of the world’s largest lithium-ion batteries, to be connected to a wind energy plant in North Hokkaido, Japan. The battery will have an output of 240MW and a capacity of 720WMh, which is equivalent to 45,000 electric vehicles. Source: www.gs-yuasa.com Financial information as at 30 Sep 2019: About ACDC ACDC tracks the Solactive Battery Value-Chain Index, which aims to capture the performance of companies that are providers of electro-chemical storage technology and mining companies that produce metals that are primarily used for manufacturing of lithium batteries. Companies comprising the Index are determined by reference to: 1. The U.S. Department of Energy's DOE Global Energy Storage Database, which identifies companies that are electro-chemical storage technology providers; and 2. Metal Bulletin, which identifies mining companies that produce lithium. Constituents are equally weighted to provide maximum diversification. ACDC currently holds 29 stocks from seven countries with sector allocations heavily in favour of the Industrials, Materials and Consumer Discretionary sectors.
Sep 10, 2019
Published: 10th September 2019 Product in Focus: ETFS Physical Silver Key Points Silver has historically performed in a similar way to gold 50% of silver is used in industrial applications including solar cells and automotive electrics A supply shortage of silver may impact price in the future MER: 0.49% p.a. Silver has become increasingly interesting to many investors. Not only does it exhibit similar properties to it more popular brother, gold, but it also has a much wider application in industry which gold doesn’t have. As such, for strictly investment purposes, silver has historically performed in a similar way to gold, but also has further support from industrial manufacturing demand and applications. Investors should consider this precious metal if they want exposure to an asset that, historically, benefits from both investment and non-investment demand. Non-Investment Demand Non-Investment demand comprises about 50% of silver demand. This can be split into four categories, seen in the table below. For this note we focus on the industrial and technological aspects. Additionally, we briefly look at the supply deficit in silver, which should provide a support for silver prices. Demand Driver Million ounces Percentage (%) Industrial and technological (including solar, automotive, brazing and soldering) 593 52 Jewellery 204 18 Bar and coin 193 17 Silverware 60 (approx.) 5 Source: GFMS, Refinitov/Silver Institute, 31 July 2019 Industrial and Technological Demand The industrial and technological use of silver is integral to many of the current processes used in manufacturing. Crucially, it is expected to grow significantly over the next decade. David Holmes, a senior precious metals analyst from Heraues, made this comment on the growth in a conference held in London at the LBMA in late 2018. Silver’s “long-term fundamentals as industrial demand within the electronics’ sector is expected to double over the next 15 years.” Of the industrial demand drivers for price, the use of solar energy is probably the most interesting aspect. Moving forward, increased demand for silver is expected to come from the solar energy sector, since the precious metal is a great conductor of both heat and electricity, making it perfect for use in solar panels. Solar currently accounts for 2% of the world’s generated power that is expected to grow to 7% by 2030. (1) Additionally, the progressive move towards electrical vehicles will increase the use of silver in cars too. Last year, around 36 million ounces of silver were used in automobiles. Each car itself uses about half an ounce of silver but the continuing electrification of cars is set to see that increase to one ounce. To put this in context, every electrical action in a modern car is activated with silver-coated contacts. Basic functions such as starting the engine, opening power windows, adjusting power seats and closing a power trunk are all activated using a silver membrane switch. Demand Deficit Further bolstering the positive tailwinds for the silver price is the supply shortage. Until recently, this had little effect on price but, as non-investment demand makes up about 50% of silver’s overall demand, it’s hard to avoid the impact of this continuing trend of demand not being met. Investment Demand Silver’s investment demand is based on a combination of fundamental drivers but also impacted by momentum. Fundamental Fundamentally silver’s investment demand profile is almost identical to gold. Currently this is primarily based on the desire to avoid currency debasement and the need for protection from threats to investment returns like trade wars and the end of the equity cycle. As much has already been written on this in regard to gold, this note will assume good knowledge of this from the reader. Momentum Momentum is also a driver of silver. Often increased interest begets further interest, and this can either help the price of silver move up further than expected short term or serve as a strong support when there is a correction. On this, the futures market gives a good indicator of momentum via the “net speculative positions” charts. Below you can see that silver is currently net long in terms of its futures positioning, meaning that there are more buyers than sellers. On the short-term, one can see that the positioning has risen up very rapidly lately, however, crucially, it doesn’t look extended versus other periods – especially versus 2016. Furthermore, the current positioning is off the back of a period (2018 – Q1 2019) where, on several occasions, silver was in a net short position i.e. investors were betting that silver was going down. As you can see, this was the only time this was the case since 2009 and serves to reinforce the current position as not overbought. Gold/Silver Ratio Finally, there is the gold/silver ratio. Many look at this as an indicator as to whether gold is expensive relative to silver or vice versa. Currently, based on this measure, silver currently appears undervalued. For those who believe the relationship should reinstate itself, many are buying silver as well as gold. Our view at ETF Securities is that it is not entirely clear whether this relationship stands anymore, or, at least, is as strong as it once was. This is because the use of silver in a non-investment capacity has grown so much over the last decade that it is becoming equally as meaningful as the investment demand. This is in contract to gold which is much more driven by investment demand. Nonetheless, we are not saying the ratio has no value. Only that it should not be a primary driver of silver investment. Summary In summary, silver’s price is dictated by both investment and non-investment demand. Silver shares many of the same fundamental characteristics for investment demand as gold but, because it is used far more widely in manufacturing for industry and technology, its price is also dictated by non-investment demand too. Taking both into consideration in the current environment, silver’s prospects look attractive and we encourage investors to looks at this in more detail. (1) https://investingnews.com/daily/resource-investing/precious-metals-investing/silver-investing/5-factors-drive-silver-demand
Aug 13, 2019
Published: 13th August 2019 Product in Focus: ETFS S&P/ASX 300 High Yield Plus ETF Key Points August reporting season is in full-swing, presenting investors with both opportunities and risks. ETFs offer a simple and cost-effective way to diversify away from single name risks. ZYAU, which holds companies based on quality and yield factors, could be an attractive solution over this period. Reporting season is upon us as most Australian companies prepare to present their financial results for the period ended 30 June 2019. This article looks at the risks and opportunities that may present themselves during the up-coming weeks and demonstrates how ETFs can be used to avoid some of the pitfalls that can arise. Reporting Season highlights Of the S&P/ASX 200 constituents, 152 will report by the end of this month, with activity peaking in the middle two-weeks of August. Highlights include Rio Tinto on 1st of August, Commonwealth Bank on the 7th, CSL Limited on 14th, Telstra Corp on the 15th and BHP Group on 20th. Wesfarmers and Woolworths report on 27th and 29th, respectively. Figure 1 provides a visual guide to the season ahead. Opportunity or Risk? Over the coming weeks market professionals will be positioning their portfolios and adjusting their ratings and targets in anticipation of earnings reports. Not only are they forecasting company results, following each announcement comes the task of digesting the details and evaluating how the market will react. With China’s slowing economy, global trade concerns, Brexit, Hong Kong and rate cuts on the cards both locally and abroad, there are also a lot of external factors to consider. For professional investors, reporting season represents an opportunity. Those with better insight into the workings of each company and a better ability to read how the market will interpret earnings reports and changes in external variables have a better chance of beating the market. For average investors, however, the risks of making a bad call on a single company can often outweigh the potential rewards. Stock Picking Is a Zero-Sum Game It is often not appreciated that stock picking and active management is a zero-sum game. For every investor who outperforms the market, another investor must underperform. The average return earned by all investors is, by definition, the return of the market. To demonstrate this, we introduce the concept of dispersion. Dispersion is a measure of how spread out stock returns are over a period of time. Figure 2 shows two simple examples. In Panel A, where dispersion is low, the opposite is true. To use an extreme example, in the case where all stocks have the same return, which is the market return, dispersion is zero and there is no ability for anyone to outperform the market. In Panel B, where stock returns are very spread out or dispersed, there are high rewards available for correctly picking the winners, but there are also high risks for backing the losers. How Risky Is Reporting Season? We now turn our attention to the Australian reporting season and investigate the dispersion of stocks over the two key reporting months; February and August. To do so we calculated the dispersion of S&P/ASX 200 stocks on a monthly basis over ten years, where dispersion is measured as the standard deviation of returns between stocks. Monthly dispersion numbers are then averaged across each calendar month over the sample period. Results are shown in Figure 3. As anticipated, the two highest dispersion months are February and August. On average the dispersion across these two months is over 2% higher than over other months. The conclusion that we draw from this is that reporting periods present both the biggest opportunity to beat the market, but also the biggest risk of lagging the market. For investors who do not have an edge, the risks of attempting to beat the market can be high. So, what can the average investor do to avoid such risks? Diversification using ETFs Exchange traded funds offer a simple and easy solution. They allow investors to purchase an entire portfolio of ASX-listed stocks in a single trade. Low-cost diversification is a key feature of ETFs and this is exactly what investors need over periods where single-name risk and market dispersion is anticipated to be high. Broad-based ETFs, which closely tracks the market, can be useful for riding-out risker periods, but investing in ETFs does not necessarily mean simply investing with the market. It is still possible to take an active position, while diversifying-away single stock risk. ETFs offer a wide range of different exposures, most of which provide significant diversification benefits. One strategy for reducing earnings-related volatility is to invest in high quality firms with stable income. ETF Securities offers a unique fund in this regard, which filters ASX-listed companies for both yield and quality. ZYAU provides exposure to a selection of 40 Australian companies that have high dividend yields and/or share buy-back rates. To be eligible for inclusion the companies must have stable or increasing dividends and must generate Free Cash Flow to Equity above the amount of their distributions. This avoids companies who are using debt to finance unsustainably high yields and helps to identify high quality companies. Companies with stable yields and strong cash flow generation tend to be well-established, stable businesses with strong balance sheets and may be less prone to negative earnings surprises. Fund Name ETFS S&P/ASX 300 High Yield Plus ETF (ASX Code: ZYAU) Management Fee 0.35% per annum Benchmark S&P/ASX 300 Shareholder Yield Index Inception Date 9 June 2015 Distribution Frequency Quarterly 12 Month Yield 5.09% plus franking credits Holdings A full list of current holdings is available through the product PCF located here. In Summary ZYAU offers investors a portfolio of high quality, yield-paying stocks on the ASX that can help achieve diversification in a single trade at a relatively low cost. This can be particularly powerful over reporting season, where returns in individual stocks tend to be more spread out and the risks from choosing the wrong stocks is higher. ZYAU is currently yielding 5.09% p.a. plus franking credits and has consistently been one of the best performing Australian equity-income ETFs since coming to market in 2015.