Resources

ETFs versus LICs – which is best for my portfolio?

Aug 06, 2020

Finder.com investments editor Kylie Purcell explains the differences between ETFs and LICs. Exchange traded funds (ETFs) and listed investment companies (LICs) are both popular investment options within Australia. Although they share a number of similarities, there are also important differences to consider as an investor. We’ll look at some of the main differences between the pair to help you decide which is best for your portfolio. What is an ETF? An ETF is a type of investment fund that trades on a stock exchange – similarly to regular shares. ETFs invest in a basket of assets, such as stocks, commodities and bonds. ETFs will often track a particular market index such as the S&P/ASX 200. Rather than trying to outperform this index, these “passive” ETFs aim to closely mimic the index performance. This means your returns will rise and fall in line with the tracked index. What is a LIC? A LIC is a publicly listed company (hence the name, listed investment company) that operates like a managed fund. Like an ETF, LICs may invest in a variety of assets, including stocks, property and bonds. The main similarity is that both ETFs and LICs allow you to invest in a diversified portfolio. This may include a single asset class, such as stocks or bonds, or it could hold multiple assets. You also invest in a LIC in much the same way as an ETF – over a stock exchange. Unlike ETFs, LICs issue a fixed number of shares that investors can buy or sell on the stock market (usually the ASX). This means that the price of a LIC is partly determined by demand from investors and may not always be liquid. In some scenarios, an investor might be forced to sell their LIC shares at an undesirable price if there aren’t enough buyers in the market. On the other hand, ETFs are known as ‘open-ended’ investments, meaning the number of ETF units in circulation is not fixed. Instead, units can be issued and removed based on demand. This means that supply and demand have less of an impact on ETF prices than the underlying portfolio itself. What are the main differences between the ETFs and LICs? Structure A LIC is structured as a company, so if you decide to invest in a LIC, you’ll own shares in the LIC itself, rather than the underlying assets. An ETF, on the other hand, is a unit trust, which means you’ll receive units in the fund if you decide to invest. Strategy ETFs typically offer exposure to an entire market, region or market sector such as global health or technology stocks. They have the potential to track hundreds or even thousands of stocks. Although not always the case, most ETFs are passive investment products, meaning they either track an index or use filters to decide which stocks are included in the fund. LICs, on the other hand, actively select each individual asset to invest in. The LIC will have an investment team responsible for choosing and managing the company’s investments. Tax obligations Because an ETF is a unit trust, all tax obligations are passed on to investors. Any dividends and franking credits are passed directly to unitholders. With a LIC, all dividends are paid to the company and it’s at the discretion of management whether to pass on that income or reinvest the money back into the fund. If the LIC receives unfranked dividends from the underlying investments, it will typically pay tax on those dividends at the company tax rate and deliver franked dividends to shareholders. Cost ETFs are relatively cheap because they aim to track an index rather than outperform it. LICs tend to cost more because they have investment managers deciding which assets to invest in. If the manager outperforms the benchmark, this may result in additional fees. Both ETFs and LICs are an affordable way to invest in a wide asset pool. Management fees are generally lower than traditional managed funds (although these can differ depending on whether the fund is passively or actively managed). Both investment options offer high liquidity and provide access to a diverse range of assets in a single trade. Purchasing ETFs or LICs – or both – can be advantageous, but it’s important to understand how your money will be invested beforehand. One of the biggest factors for most investors is how aligned prices are with the underlying assets, i.e. the net asset value (NAV). Because ETFs have an open-ended structure, the price of the ETF will trade very closely to the NAV. So if the value of the stocks held by the ETF rise, the price of the ETF will rise with it. This is not always the case with LICs. They may trade at a premium (above) or discount (below) NAV, depending on how many buyers and sellers are trading LIC shares. So if stocks held by the LIC go up, but investors still aren’t willing to buy, its share price may not rise. More information about Finder. For information about ETF Securities range of products, please contact us or visit our product pages. Client Services 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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5G investments for your clients

Aug 05, 2020

The story of 5G is more than just an added boost to your phone and home wifi, it could transform the way we live and do business. From this perspective, it may form part of your clients’ growth investments now and into the future. What is 5G? Fifth generation wireless (5G) is a technology infrastructure system allowing communications and data access on-the-go, much in the same way that previous generations including the currently used 4G offered. While 5G was coming anyway, the COVID pandemic may see some companies accelerate their plans to access 5G-enabled technology, particularly automation, both as a safeguard against future lockdowns or simply to allow them to continue basic operations in the current environment1. Verizon estimates that “by 2035, 5G will enable $12.3 trillion of global economic output and support 22 million jobs worldwide”2. How to incorporate 5G exposure into your clients’ portfolios? In a typical investment portfolio, clients are highly likely to have some exposure to 5G already, in the form of telecommunications companies or companies which manufacture phones and other IT systems. However, it may be valuable to consider the broader 5G supply chain for a more diversified exposure. It extends from underlying technology suppliers and producers, such as companies like Qualcomm or National Instruments creating specialised chips and semi-conductors used in devices to create access to 5G, to companies creating technology and software for industrial automation, robotics and artificial intelligence which will advance substantially from the use of 5G, like Ocado or Daifuku. Much of the supply chain is dominated by robotics, automation and AI companies which is where an ETF like ETFS ROBO Global Robotics and Automation ETF (ASX code: ROBO) can assist with exposure to the 5G transformation. For more information on investing in 5G and ETFS ROBO Global Robotics and Automation ETF (ASX: ROBO), please contact us. Client Services Trading Phone +61 2 8311 3488 Email: sales@etfsecurities.com.au Phone +61 2 8311 3483 Email: capitalmarkets@etfsecurities.com.au [1] https://insights.roboglobal.com/as-the-covid-19-storm-rages-on-3-waves-of-growth-are-on-the-horizon [2] https://www.verizon.com/about/our-company/5G/how-5g-can-power-industrial-internet-things

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How to invest in 5G

Aug 05, 2020

5G is anticipated to transform the world, bringing new efficiencies and opportunities to how we live and work. For investors interested in incorporating this growth theme within their portfolios, the options are broader than simply telecommunications companies. What is 5G? Fifth generation wireless (5G) is a technology infrastructure system allowing communications and data access on-the-go, much in the same way that previous generations including the currently used 4G offered. It is anticipated to transform the ‘internet of things’ and become the force for the fourth industrial revolution. The fourth industrial revolution refers to how cyber physical systems are expected to drive the next era of industrial reform and change, bringing new efficiencies and opportunities to how we live and work1. Wireless networks are integrated into our lives and 5G sees that dependency increase further in the immediate future. It is already here in its early stages. While 5G was coming anyway, the COVID pandemic may see some companies accelerate their plans to access 5G-enabled technology, particularly automation, both as a safeguard against future lockdowns or simply to allow them to continue basic operations in the current environment2. How to invest in 5G There are a range of options to consider for investors keen to incorporate 5G within their investments. Three options are listed below. Broad investments across sectors given all companies will need to use 5G in some form at some stage, be it to conduct business operations or as part of their services. Sector investments such as via telecommunications companies which will be building the infrastructure to support 5G. Thematic investments covering the 5G supply chain. The supply chain extends from underlying technology suppliers and producers to companies creating technology and software for automation, robotics and artificial intelligence which will advance substantially from the use of 5G. Interested in accessing 5G exposure by using robotics, automation and artificial intelligence? Find out more about ETFS ROBO Global Robotics and Automation ETF (ASX code: ROBO) or contact us. Client Services Trading Phone +61 2 8311 3488 Email: sales@etfsecurities.com.au Phone +61 2 8311 3483 Email: primarymarkets@etfsecurities.com.au [1] https://www.hitechnectar.com/blogs/fourth-industrial-revolution-5g-future/ {2} https://insights.roboglobal.com/as-the-covid-19-storm-rages-on-3-waves-of-growth-are-on-the-horizon

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Weekly ETF Monitor for week ending 31 July 2020

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Aug 04, 2020

This week's highlights Technology stocks led markets higher last week on strong earnings announcements. ETFS Ultra Long Nasdaq 100 Hedge Fund (LNAS) was the week’s top performing fund, returning 9.7%. CNEW, HACK, ASIA and NDQ were all amongst the top performers. The domestic market ended the week lower, with BBOZ also amongst the top performers. The week’s underperformers were mixed and included Japan funds (HJPN and IJP), battery tech and lithium fund ACDC, infrastructure (CORE) and biotechnology (CURE). Precious metals were mixed with gold and silver pushing higher and platinum and palladium declining. Silver continued its recent outperformance. ETPMAG was the top performing unleveraged fund for the week, returning 6.0% and has now returned in excess of 30% year-to-date. Gold moved to new all-time highs, ending the week above $US1,975/oz. Palladium fund ETPMPD fell 6.4% for the week. Total reported flows into domestically domiciled ETFs were $359m, while outflows totalled $86m. Cash fund AAA saw the biggest inflows for the week followed by GOLD and NDQ. Silver fund ETPMAG saw significantly above average inflows in-line with its recent performance. Broad domestic equity funds IOZ and STW saw the bulk of the week’s outflows. BBOZ was again the most traded fund for the week. GOLD saw above average volumes. ETFS Ultra Long Nasdaq 100 Hedge Fund (LNAS) provides geared exposure to the Nasdaq-100 Index and is AUD currency hedged. LNAS maintains exposure to the Index within a target range of 2x to 2.75x and is actively managed. LNAS returned 9.7% for the week in comparison to the Nasdaq-100 Total Return Index, which returned 4.05% in US dollar terms.

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Weekly ETF Monitor for week ending 24 July 2020

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Jul 28, 2020

This week's highlights Equity markets were mixed last week with high beta plays retreating from recent gains amid virus resurgences. Technology-related funds (LNAS, NDQ, and FANG) and healthcare funds (CURE and IXJ) underperformed, as did China funds (CNEW, CETF and IZZ). Gold mining ETFs (MNRS and GDX) were the top equity performers for the week. Precious metals funds were the top performers across the board last week as gold neared its all-time highs, peaking above US$1,900/oz. Silver fund ETPMAG returned 15.4%, while platinum fund ETPMPT also posted a double digit weekly return. GOLD added 3.5%. US dollar weakness saw long AUD fund AUDS also amongst the top performers. Total reported flows into domestically domiciled ETFs were $320m, while outflows totalled $68m. Cash fund AAA saw the biggest inflows for the week followed by BBOZ and GOLD. Broad equity funds STW and IVV saw the week’s biggest outflows. BBOZ was the most traded fund for the week, followed by AAA. Nasdaq 100 fund NDQ saw above average volumes. ETFS Physical Precious Metals Basket (ETPMPM) provides exposure to all four precious metals. Current allocations are 48% gold, 28% palladium, 18% silver and 6% platinum.

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Weekly ETF Monitor for week ending 17 July 2020

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Jul 21, 2020

This week's highlights Equity markets were mixed last week with technology stocks taking a breather and other sectors coming to the fore. Agriculture fund FOOD was the week’s top performing ETF, while healthcare funds (DRUG and IXJ) and resources sector funds (OZR and QRE) also performed strongly. China funds (IZZ, CETF and CNEW) and technology-related funds (FANG, ASIA and HACK) were all amongst the week’s poorest performers. Palladium was the week’s best performing precious metal, with ETPMPD returning 3.7%, while gold consolidated recent gains. Total reported flows into domestically domiciled ETFs were $251m, while outflows totalled $65m. Sustainability funds (FAIR and ETHI), GOLD and bearish equity funds (BBOZ and BBUS) saw the biggest inflows for the week. Domestic equity fund STW saw the bulk of the week’s outflows. BBOZ was the most traded fund for the week, followed by VAS. VGS saw above average volumes. ETF Securities new Nasdaq 100 funds commenced trading last week; ETFS Ultra Short Nasdaq 100 Hedge Fund (SNAS) returned 4.6% for the week, while ETFS Ultra Long Nasdaq 100 Hedge Fund (LNAS) returned -4.5% as the Nasdaq-100 dropped by 1.8% in US dollar terms.

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