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Weekly ETF Monitor for week ending 7 December 2018

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Dec 11, 2018

This week's highlights Global equities declined last week on growth expectations and spiralling U.S.-China trade tensions. The S&P 500 fell 4.6%, with financials being hit hardest; BetaShares Global Banks ETF (BNKS) fell 5.2% for the week. The EURO STOXX 50 dropped 3.6% as a key week in the Brexit process approaches. The Nikkei 225 fell 3.0%. Domestically, the S&P/ASX 200 ended up on positive territory, up 0.3%. Property funds (MVA and SLF) were the top domestic funds for the week. U.S. 10-year Treasury yields fell 14 basis points on lower growth expectations. Similarly Australian 10-year yields fell 15 basis points. The Australian dollar ended the week 1.3% lower at US72.08c. Pound sterling fell for a fourth consecutive week and approached its lowest levels since June 2017. Precious metals advanced, with gold up 2.4% to US$1,249/ounce. Palladium briefly topped gold as the most valuable precious metal and ETFS Physical Palladium (ETPMPD) is clearly the year's top performing ETF to date, returning 23.4% in 2018. Crude oil also gained, adding 3.3% following OPEC's agreement to cut production by more than originally anticipated. The Australian ETF market saw inflows of $120m into and outflows of $12m from domestically domiciled funds last week. The largest flows were into BetaShares Australia 200 ETF (A200) and a range of international equity funds (WDMF, NDQ and IHVV).

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Weekly ETF Monitor for week ending 30 November 2018

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Dec 03, 2018

This week's highlights U.S. equities rallied strongly last week on Fed comments that interest rates are approaching equilibrium and a truce in the trade dispute with China. The S&P 500 gained 4.9%, led higher by IT and healthcare stocks. ETFS Morningstar Global Technology ETF (TECH) was the top performing unleveraged ETF for the week, returning 6.5%. NDQ returned 5.4%, while global healthcare fund DRUG returned 5.0%. Elsewhere the EURO STOXX 50 added 1.1% and the Nikkei 225 gained 3.3%. Domestically, the S&P/ASX 200 fell by 0.9% with the biggest declines being in the mining sector. QRE and OZR were both amongst the poorest performers for the week. The Australian dollar ended the week 1.0% stronger at US73.06c. U.S. Treasury yields pulled back as rate hike expectations tapered. Crude oil halted its recent slide, gaining 1.0% for the week as expectations of an OPEC production cut firmed. Gold fell slightly to US$1,221/ounce, while platinum declined 5.4%. The broad Bloomberg Commodities Index gained 1.3%. The Australian ETF market saw inflows of $349m into and outflows of $101m from domestically domiciled funds last week. The largest flows were into and out of broad based domestic and international equity funds.

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Weekly ETF Monitor for week ending 23 November 2018

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Nov 26, 2018

This week's highlights The global equity correction continued last week. The S&P 500 fell 3.8% as big technology names sold off. Apple was one of the hardest hit, falling 11.0%. BetaShares NASDAQ 100 ETF (NDQ) returned -3.8% for the week. The global energy sector also saw big moves with BetaShares Global Energy Companies ETF (FUEL) falling 4.3%. Healthcare is now the top performing US sector in 2018. Australia outperformed with the S&P/ASX 200 down just 0.3%. Financials and real estate were the top sectors and three domestic property funds, SLF, VAP and MVA, were amongst the week's top performing ETFs. The U.S. dollar regained ground last week against most majors. The Australian dollar ended the week 1.4% lower at US72.33c. U.S. Treasury yields pulled back as grown concerns dampened rate hike expectations. Crude oil continued to fall, dropping a further 10.7%. BetaShares Crude Oil Index ETF (OOO) was the poorest performing ETF for the week. Gold was flat for the week, while palladium declined 4.8%. The broad Bloomberg Commodities Index fell 2.9%. The Australian ETF market saw inflows of $212m into and outflows of $73m from domestically domiciled funds last week. The largest inflows were into domestic equity (A200, QOZ and E20) and fixed income (CRED and QPON) ETFs. Outflows were from Taiwanese equities (ITW) and domestic cash (AAA).

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Weekly ETF Monitor for week ending 16 November 2018

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Nov 19, 2018

This week's highlights Cyclical stocks (technology, consumer discretionary and energy) led equity markets lower last week. The S&P 500 fell 1.6% and the VIX remained elevated following its October spike. The EURO STOXX 50 fell 1.5% as Brexit and Italy concerns continued to develop. In Asia, Japan's Nikkei 225 dropped 2.6%, while China's Shanghai Composite provided some positive news, gaining 3.1% on strong manufacturing data. CETF was amongst the top performing ETFs for the week. Domestically the S&P/ASX 200 fell 3.2% as the overweight financials and materials sectors pulled-back. The U.S. dollar fell broadly last week as uncertainty around a December hike increased. The Australian dollar ended the week 1.5% stronger at US73.32c. Gold rallied last week, gaining 1.1% to US$1,223/troy ounce. Palladium gained 5.4% on growing auto demand supply concerns. ETFS Physical Palladium (ETPMPD) was the top performing unleveraged fund for the week. WTI crude fell 6.2% to its lowest level since last December and BetaShares Crude Oil Index ETF (OOO) was the poorest performing unleveraged ETF for the week. The Australian ETF market saw inflows of $138m into and outflows of just $7m from domestically domiciled funds last week. The largest inflows were into domestic equity ETFs (IOZ, OZF and FAIR).

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Weekly ETF Monitor for week ending 9 November 2018

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Nov 13, 2018

The week's highlights Global equity markets rallied last week in the wake of U.S. midterm elections. The S&P 500 gained 2.1% on the expectation that major policy changes would be slowed by the divided government. The EURO STOXX 50 added 0.5%, while the Nikkei 225 was flat. Domestically the S&P/ASX 200 added 1.2%, led higher by the big four banks, which posted an average gain of 4.3% for the week. Bank and property ETFs (MVB and MVA) were amongst the week's best performers. The Fed kept U.S. rates unchanged, while firming expectations of a December hike. Short-term yields rose and longer-dated yields remained near recent highs. The Australian dollar ended the week stronger at US72.26c. Commodities declined with gold down 1.9% and silver down 3.8%. WTI crude fell 4.7% to its lowest level since February and BetaShares Crude Oil Index ETF (OOO) was the poorest performing ETF for the week. The Australian ETF market saw inflows of $116m into and outflows of $23m from domestically domiciled funds last week. The largest inflows were into domestic equity ETFs (IOZ and MVW), while the largest outflows were from domestic small caps (ISO) and U.S. dollar (ZUSD). ETF Securities launched Australia's first biotechnology ETF; ETFS S&P Biotech ETF (CURE).

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Putting the Spotlight on Defenders

Nov 11, 2018

Key Takeaways Recent market volatility has encouraged investors to position portfolios more defensively ETF Securities has a selection of products more suited to a defensive strategy ZYUS gives a low volatility approach to the US market CORE gives exposure to the historically more stable infrastructure sector GOLD provides the best-known hedge against equity market downturn and political instability Introduction Investors have battened down the hatches over the past weeks as waves of volatility have dominated the market. Maybe the market calms down and equities resurge, but now, is clear, that late cycle volatility is here and will probably become more violent at each episode. The recent equity sell-off has heightened uncertainty, with consumer sentiment nicely described by the CNN ‘Fear and Greed Index’ that looks to characterise the primary emotion driving the market (see below). Right now, this index sits at 11, or ‘extreme fear’. Why? The consensus among investors appears to be that we’re in the ‘late stage’ of the investment cycle. Wall St’s thundering run has lasted a decade – the longest ever. And the market has become increasingly wary because of that. We have seen a very large sell-off in technology sector stocks with the Nasdaq, which is often taken as a proxy for US tech, recording its worst month since 2012. This suggests that some are losing faith in the continued performance of our recent equity stars (otherwise known as team FAANG). Adding fuel to the fire, the world has been curiously watching on as China and the US continue their game of trade policy tag. As the reverberations of any decisions by these heavyweights are felt by all, this tension is creating a difficult environment for investors. Playing Defence Though we are all familiar with the old adage ‘past performance is not an indicator of future performance’, it is sometimes helpful to look back at how previous storms have been weathered. The traditional market response to a late cycle downturn can generally be characterised by a move away from higher risk equities such as technology or emerging markets, greater focus on essential sectors such as healthcare, utilities and energy, and a general movement away from equities and into cash, short-term fixed income and commodities. As the bull market nears the close of its tenth year many are considering if now is the time to reposition portfolios towards ‘defensive’ assets. So, what are the options for investors looking to rearrange their holdings into a more defensive position? ** Gold is not considered in the risk illustration for two reasons. First, there is no counterparty risk with gold whatsoever (with cash there is still sovereign risk). Second, gold has historically had low correlations with equities, so its risk characteristics work differently. Defensive Equity Solutions America If you take a glance at global headlines, the US right now may seem a difficult market to play, with high levels of uncertainty around international policy and tariffs. However, as the world’s dominant economy, many would wish to maintain some sort of equity exposure but with a defensive tilt and an eye on capital preservation as much as growth. The ETFS S&P 500 High Yield Low Volatility ETF (ZYUS) is one option that is designed to achieve this. As suggested by the name, this ETF has a low volatility filter built into its index construction. The underlying assumption is that companies that don’t exhibit aggressive price movements are less likely to be sold down heavily in a general market sell off. Specifically, the index universe (the S&P 500) is ordered to select the 75 highest yielding stocks and then the 50 least volatile of those 75 are selected creating a high dividend paying, relatively low risk portfolio based on the trailing twelve months of price data. With reference to the chart above it is clear to see that, since the VIX jumped in October, IVV has lost approximately 10% whereas ZYUS has only lost 4%. Part of the reason for this is because ZYUS has a 16% greater exposure to utilities (historically low in volatility) whilst a 17% less to information technology (historically high in volatility) (as at 30th August 2018, source: S&P). Infrastructure Another strategy investors may consider in times of heightened volatility is increasing the allocation to sectors that have historically had greater stability. One such area known for this is infrastructure. The source of this stability can be explained by looking at the industries that fall into this sector: utilities, telecoms, industrials and transport. These industries typically have high capital costs, low elasticity of demand, long business timelines and often exist as regulated oligopolies or monopolies. Their capital-intensive nature means that they are very difficult and, in some cases, like energy distribution networks, nigh impossible to disrupt. This can mean that these sectors have lower risk (as measured by standard deviation of returns) than other sectors, such as technology or real estate. The table below illustrates the substantially lower volatility of infrastructure against these sectors.

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