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Weekly ETF Monitor for week ending 3 April 2020

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Apr 07, 2020

This week's highlights Domestic equities rallied strongly last week as early signs of declining infection rates emerged. Resource sector funds (MVR, OZR and QRE) were all amongst the top performing ETFs for the week. Global energy companies (FUEL) also rallied as oil regained some ground. On the negative side, global banks (BNKS) and real estate funds (REIT and DJRE) were amongst the poorest performers, along with Japanese equities (HJPN and UBJ). Gold and silver pushed higher, while platinum and palladium declined. Oil rebounded on hopes of supply cuts, with OOO topping the weekly performance charts, up 31.9%. The Australian dollar ended the week dipping back below US60c. YANK was amongst the week’s top performers. Total flows into domestically domiciled ETFs were $539m, while outflows totalled $292m. Domestic equity fund STW saw the biggest inflows, while bearish funds BBOZ, BBUS and BEAR and gold (GOLD) also saw strong interest from investors expecting further downside. High yield fixed income fund IHHY saw the week’s biggest outflows. Bearish domestic fund BBOZ was the most traded fund for the fourth week running, followed by broad-based funds VAS and STW. Hedged global equity fund VGAD saw above average trading. ETFS Physical Silver (ETPMAG) has returned 16.9% since its mid-March low. At that time the widely followed gold/silver ratio reached all-time highs above 120, meaning that gold was briefly more than 120x more expensive than silver per ounce.

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Ounces to dollars - why aren't you invested in gold?

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Apr 07, 2020

Gold has grabbed headlines during the COVID-19 situation, as investors have raced to safe-haven assets. While gold is valued as a hedge against short term volatility, it can also hold a long-term role in a diversified portfolio given its defensive and growth qualities. Gold can represent 2-10% of a portfolio, depending on an investor’s needs or strategy, but many investors are missing this allocation. For these investors, it has become a question of why not? Gold as a safe haven Gold has both defensive and growth qualities, which has led to its position as an investment safe-haven in times of volatility. It can act as a store of value, as well as holding the potential to grow. There are two key reasons for this. 1) Gold has a low, and at times, negative correlation to other asset classes. That is, it performs differently to other asset classes and its performance is not necessarily associated with what is happening in other asset classes. This is shown in the table below: Australian Equity Global Equity Australian Fixed Income Global Fixed Income Commodities Correlation -0.29 -0.12 0.37 0.06 0.31 Source: Bloomberg data as at 31 December 2019. Correlations are calculated monthly over 20 years in Australian dollars. Australian equity is represented by the S&P/ASX200 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 Global Aggregate Total Return Index. Commodities are represented by the Bloomberg Commodity Total Return Index 2) Gold has the ability to offer positive performance in a range of market conditions, including periods of volatility. For example, if you consider the Global Financial Crisis, gold prices rose 26% while the S&P 500 fell 56%. Even in the current COVID-19 situation, between 19 February and 26 March 2020, gold gained 12.4% compared to the S&P 500 which fell 14.1% and the S&P/ASX 200 which fell 27.8% (all in AUD terms). You can see the performance of gold against other major asset classes in the chart below. Source: Bloomberg, ETF Securities, as at 26 March 2020 This ability to perform in a range of markets comes down to gold’s position as a consumer-driven and investment-driven asset. From a consumption perspective, while around 50% of its use is in jewellery, gold is also heavily used for other purposes such as electronics or even part of medical and diagnostics equipment [1,2] COVID-19: gold price falls and rises Given the facts around gold as a safe-haven asset, investors may therefore wonder what happened when gold prices fell across the week starting 16 March 2020 and how gold has performed across the COVID-19 situation to date. On the whole, gold has seen increased interest and flows during the COVID-19 situation, but markets did see price falls across the week commencing 16th March 2020. It is worth understanding why this happened, as it was less related to any concerns about gold and more related to other activities. Gold can be vulnerable to financial deleveraging – that is, investors needing to free up cash for a variety of reasons. Equity markets were hit simultaneously by the COVID-19 situation and a price meltdown in oil markets. This affected investors with leveraged positions who would have needed to sell other assets to free up cash to pay their liabilities. What this looks like is as follows. An investor using their own money and borrowed money to purchase investments is required to maintain the investment account at a certain value – this is a leveraged position (also called a margin loan account). If the total account falls below that value – generally because the investment itself has fallen in value, then the investor will need to ‘top up’ the account with their own cash to restore the account to its minimum value (this is a margin call). As markets fell across the week of 16 March 2020, many investors would have needed to top up their accounts and will have sold other liquid and performing assets, such as gold, to do so. This has occurred in the past too. During the Global Financial Crisis, gold was briefly sold in October 2008 to meet investors’ cash needs for liabilities from the equity market sell off but then recovered and returned 45% in US dollar terms from its October 2008 low into March 2009, compared to the S&P500 which fell 30% in the same period. Since then, gold has recovered, reaching seven-year highs on 25 March 2020 of A$2746.32 per ounce. Source: Bloomberg, ETF Securities The outlook for gold There are a few factors to suggest gold may continue to hold value across the current crisis. Market volatility from COVID-19 While China has begun to reopen after its COVID-19 lockdown, other countries are either in the midst of it or commencing stages of lockdown. From that perspective, investor concerns and volatility may continue for some time yet. The panic has been swift but recovery could take some time. Some sectors, like technology, are in theory well positioned for both crisis and recovery but investor confidence is a different matter. Other sectors, like retail and travel, will struggle during this period and may find ramping up post the crisis takes some time. From this perspective, many investors may continue to look for defensive assets like gold. They won’t be alone. Even central banks may bulk up their stores of gold across this period. The low interest rate environment and prospect of quantitative easing Gold traditionally performs well in periods of low interest rates, with investors using it rather than cash. Interest rates have been low for some time but have dropped further in the current situation. Australian rates have reached lows of 0.25% while the US has dropped to a range of 0-0.25%. Many countries, including Australia have announced fresh rounds of quantitative easing too. Temporary shortage At the same time as increasing numbers of retail investors seek to purchase physical gold bullion, supply chains have been disrupted by COVID-19 [3]. Refineries in Europe, particularly in Italy, have been unable to keep up with demand forcing traders to move into wholesale markets. While refineries in normal circumstances would be able to manage the surge in interest, lockdowns over COVID-19 may continue to place pressure on supply, in turn pushing prices higher. Accessing gold using an ETF The traditional forms of access to gold were either through physical holdings or an indirect exposure by owning shares in gold mining companies. Both had their challenges – physical holdings namely through prohibitive costs and indirect exposure by opening to assorted company risks. Generally speaking, physical holdings offer a more pure exposure. The first gold-backed ETF was launched in 2003 by ETF Securities, it still trades today as ETFS Physical Gold (ASX:GOLD) and held $1.65 billion in assets as at 27 March 2020. Gold-backed ETFs are literally as described, where physical gold is purchased and stored by a fund manager as part of a trust and investors buy units in the trust for exposure to the market movements of gold. Using an ETF for gold exposure has several features and advantages over the physical holdings. Cost tends to be a foremost consideration. Investors in physical gold may need to consider aspects like freight, storage and insurance, as well as the volumes available through their broker of choice. For example, some brokers may sell by the ounce which may be cost-prohibitive for some retail investors. Units in gold-backed ETFs tend to have management fees that are often cheaper than the costs for individuals to store and insure their own gold The liquidity and ease of use of gold-backed ETFs compared to physical gold is another consideration. Investors holding ETFs may be more easily able to adjust their holdings to reflect activity in the market, buying or selling small quantities when needed compared to those holding physical holdings which may have higher minimum trading quantities and take longer to transact. This can be a challenge for some investors depending on their size and horizon of their investment. ETFs are also typically easier to use compared to physical gold holdings, requiring as little as a trading account to get started and can be done anywhere. It can be less intimidating for many investors who may not be aware of even where to start for physical purchasing and trading. Understanding the risks As an investment tool, ETFs are subject to a range of general investment risks, such as market risk or counterparty risk. Market risk relates to loss of value due to movements in price. Changes in the price of gold relative to an investors purchase price create gains or losses. Counterparty risk is the risk that the other party to your investment defaults or mismanages your assets. For example, the risk that the custodian holding the physical gold (whether for an ETF or individual investor) has not securely stored the gold and it is stolen or lost. Custodians of assets in managed funds, like ETFs, typically use major international vaults to store the physical assets which offer highly sophisticated security arrangements compared to personal safes or small storage companies. Another example of counterparty risk might occur at the time of investment purchase if the trading tool or company doesn’t actually use your funds to buy the selected investment or asset. Using established and credible companies to purchase investments can be an important way of managing this risk. There can also be variation in the way that gold-backed ETFs are managed, so investors should research their options. One crucial difference to watch for is whether the ETF uses allocated or unallocated gold. Allocated gold means you own the physical gold based on your unit holding. In the event of a default by the custodian, your holding is unaffected. ASX: GOLD uses allocated gold and you can redeem your units for the physical gold. Unallocated gold means your cash investment is ‘backed’ by the physical gold holdings of the issuer still providing you with exposure, but these holdings remain the property of the issuer. This form of gold-backed fund has additional credit risk for investors. Should a default occur, you don’t have ownership over the physical gold so your claim is considered and paid alongside all other parties of the issuer who might also have a claim. Unallocated gold is used in many gold-backed ETFs so it is worth investigating the structure and management before you decide to invest. Both physical holdings and ETFs can also be subject to liquidity risk. Liquidity risk is the risk that the physical holding can’t be sold quickly or at a fair price in the market. Investors will need to weigh up all these risks before deciding to buy physical gold or a gold-backed ETF. Why aren’t you investing in gold? While events like COVID-19 and the Global Financial Crisis provide a clear demonstration of gold’s defensive qualities, investors should consider their longer-term strategy. Offering diversification, growth and stability over time, gold can be a suitable inclusion for many investors. In turn, gold-backed ETFs can offer liquid, cost-effective and easy to access exposure all using your existing trading platforms.

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Four ways to manage market volatility

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Apr 02, 2020

From the current COVID-19 situation to the future, markets will always face periods of uncertainty and volatility. A measured approach to investment management can assist with supporting your investment portfolio in these periods. In this paper, we discuss four common approaches. Download now Market volatility refers to the magnitude of upward and downward movements in asset prices over a period of time. A company whose stock price moves up and down by 1% daily is considered less volatile than one with 5% daily moves. Investors tend to think of volatility in terms of downward market movements, as we are currently seeing, but it can equally relate to the pace of rising markets. Approaches to managing volatility 1. Diversification Different assets, regions and sectors may react differently to market events and perform better in certain market conditions. For example, travel and tourism are struggling in the current situation while supermarkets are thriving. For this reason, spreading your money across a range of investments can help balance your exposure to volatility experienced in different areas. 2. Incorporating more stable, less cyclical investments Some investments may not offer high growth but tend to be consistent across a range of markets. For example, essential services infrastructure is needed regardless of market conditions so can continue to offer stable performance in times of volatility. 3. Alternative investments Some investors seek out investments which specifically perform differently to share and bond markets. The aim of this strategy is to help neutralise any negative outcomes experienced in share and bond investments. One asset used in this way is gold which typically has a low or negative correlation with other asset classes. 4. Strategic tilts For certain investors, incorporating short-term investments during market volatility might be part of their strategy. This might mean temporarily adding defensive investments to help protect their portfolio or it might mean seeking out high growth (riskier) investments if they believe there may be opportunities from an eventual market recovery. ETFs can be an effective tool for investors in periods of market volatility. They can assist by offering broad exposure and instant diversification in a liquid and cost-effective manner. The wide range of specialised ETFs available on today’s stock exchanges also offer investors choice and flexibility in how to adapt to changing market conditions. Beyond these measures, it’s worthwhile stepping back to consider the what, why and how of your investments rather than simply following the crowds. It can also help to speak to a financial professional about your strategy and options. For more information on the solutions ETF Securities offers, please contact us on: Sales Trading Phone +61 2 8311 3488 Email: sales@etfsecurities.com.au Phone +61 2 8311 3483 Email: primarymarkets@etfsecurities.com.au

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Managing volatility for your clients

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Apr 02, 2020

The current COVID-19 concerns have rattled markets, with advisers fielding calls from concerned clients. In some cases, advisers may choose to add tilts or hedges for their clients’ investments, while for others, it will be better to stay the course. There are a range of ways to manage market volatility in a portfolio, some universally valuable, others dependent on the individual clients. In this paper, we’ve highlighted some of the most common. Download now In your discussions with clients, these principles can be a helpful starting point in reinforcing your approach and providing comfort in uncertain times. 1. Diversification Reinforcing the value of diversification with your clients can be as simple as the analogy of not having all your eggs in one basket. The current environment has reinforced the importance of diversification within asset classes and sectors, with some companies able to benefit (ie supermarkets) and others needing to close down (i.e. travel and tourism companies). 2. Incorporating more stable, less cyclical investments Holding companies which are able to consistently operate regardless of market conditions, such as essential services infrastructure, can assist in buffering portfolios against falling markets. 3. Alternative investments Investments which are designed to perform differently to equity and bond markets can range in complexity. Gold is a simple asset with a low or even negative correlation with other asset classes which has acted as a safe-haven investment across a number of market events over time. 4. Strategic tilts For some investors, incorporating short-term tilts alongside the long-term core strategy can assist in managing market volatility. Depending on the strategy, this could mean adding a tilt to high growth (and therefore ‘riskier’ assets) or adding more defensive position. ETFs can be an effective tool for managing volatility for your clients. Beyond characteristics including liquidity and cost-efficiency, the wide range available, broad exposures and instant diversification mean they can be suitable across investor types. For more information on our range of ETFs and using them in your clients’ portfolios, please contact us on: Sales Trading Phone +61 2 8311 3488 Email: sales@etfsecurities.com.au Phone +61 2 8311 3483 Email: primarymarkets@etfsecurities.com.au

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India: A Long-Term Opportunity Amidst the Current Panic

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Apr 01, 2020

Key highlights India, like all other markets, has been deeply affected by COVID-19 However, this has now reset company valuations to highly attractive levels When the markets begin to recover there are strong reasons to believe India can flour-ish anew One of the easiest, most cost-efficient ways to get exposure to India for Australians is via the ETFS Reliance India Nifty 50 ETF (ASX code: NDIA) India: Current State of Play In the past month, the Indian stock market has undergone one of the sharpest corrections in history. Growth forecasts have seen sharp downgrades and India is no exception, with expected weakness for the remainder of the year. While these concerns are real, global policymakers have responded to this crisis with unprecedented levels of monetary and fiscal stimulus. Still, the panic in the market is visible in record levels of volatility which has led to deep cuts across most sectors. Market Valuations Return to GFC Levels After this sharp correction, market valuations have returned to near record lows not seen since the GFC. (Source: Blomberg & IMF Estimates) Policy support is expected to continue for a prolonged period and it is hoped that the COVID-19 epidemic will begin to subside in the second half of the year. With this in mind and given valuations are at near record lows, it seems the fallout of this epidemic is already priced in. While nobody can predict the extent to which the markets will continue to fall, or how long it will take for the current situation to return to normal, most market experts agree that current market valuations are attractive. Therefore, this could represent an attractive buying opportunity for long-term investors. Why India can recover Fiscal Response: If the COVID-19 epidemic results in prolonged lockdown a fiscal stimulus of at least 2% of GDP is likely. As an example of past stimulus, during the GFC additional expenditure amounting to 3% of GDP was provided [1] Strong Monetary Response: The RBI is expected to cut rates by at least 100bps, with the first rate cut of 75bps announced on the 30th of March [2] Rapid sequential growth for H2: Given India is a domestic consumption country, assuming COVID-19 can be contained and the lock down laws lifted, consumption can pick back up rapidly, without the reliance on international inflows [3] Access To India: ETFS Reliance India Nifty 50 ETF (ASX code: NDIA) One of the simplest ways to access the Indian stock market is through the ETFS Reliance India Nifty 50 ETF (ASX code: NDIA). NDIA tracks the Nifty50 Index, providing exposure to the top 50 large cap Indian companies (covering approx. 60% of the Indian market), most of which are currently available at their multi-year lows. Advantages of investing in the Nifty 50 index: Low cost Eliminates non-systematic risks like stock picking/portfolio manager selection Provides building blocks for portfolio construction Provides exposure to the top 50 blue chip companies who are, potentially, less likely to feel the long-term effects of the COVID-19 shut down For more information on ETFS Reliance India Nifty 50 ETF, please contact us on: Sales Trading Phone +61 2 8311 3488 Email: sales@etfsecurities.com.au Phone +61 2 8311 3483 Email: primarymarkets@etfsecurities.com.au

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Weekly ETF Monitor for week ending 27 March 2020

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Mar 31, 2020

This week's highlights Equity markets rallied last week on the announcement of significant stimulus measures across the globe. The top performing equity funds for the week offered a range of exposures from global property (REIT), Japan (HJPN), gold miners (MNRS) and energy companies (FUEL). On the negative side, Indian equities (NDIA and IIND) reacted to aggressive lock-down measures and Australian banks lagged the domestic market. Precious metals rebounded strongly from the previous week’s declines. Gold benefited from haven buying and a slowdown in financial deleveraging. Platinum and palladium both saw big jumps on supply concerns linked to mine shutdowns due to coronavirus. Palladium fund ETPMPD was the week’s top performer, returning 31%. Oil continued its decline, while the Australian dollar rally saw AUDS amongst the top performers and YANK, USD and ZUSD amongst the poorest. Total flows into domestically domiciled ETFs were $515m, while outflows totalled $553m. Bearish funds BBOZ and BBUS saw large inflows alongside equity funds A200, IHVV and STW, gold (GOLD) and US dollar cash (USD) also saw strong flows. IVV saw the largest outflows as investors looked for hedged exposures. Emerging market bonds (IHEB) also saw large outflows. Bearish domestic fund BBOZ was the most traded fund for the third week running, followed by broad-based funds STW and VAS. GOLD again saw above average trading. ETFS S&P Biotech ETF (CURE) has outperformed the S&P 500 by over 3% since the COVID-19 sell-off commenced. CURE holds positions in a number of companies that are at the forefront of the search of a cure or vaccine for the virus.

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Weekly ETF Monitor for week ending 20 March 2020

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Mar 24, 2020

This week's highlights Another week of extreme volatility saw the S&P/ASX 200 fall 13%, the S&P 500 drop 15% and the VIX peak above 85. Bearish ETFs (BBUS, BBOZ and BEAR) were the top performing funds, while foreign currency funds (YANK, ZUSD, USD and EEU) also saw strong gains for the week as the AUD fell to 17-year lows. Amongst long-only equity funds, gold miners (GDX) bounced back and Japan (IJP) saw modest gains. On the negative side, leveraged funds (GGUS and GEAR) were significant decliners along with oil (OOO). Real estate funds, both domestic (MVA, SLF and VAP) and international (REIT and DJRE) were also amongst the hardest hit. Precious metals mostly declined for the week. Silver and platinum saw big dips, while palladium stabilised. Gold dropped 2% in US dollar terms, but gained ground in AUD. Total flows into domestically domiciled ETFs were $297m, while outflows totalled $918m. Domestic equity funds including STW, GEAR and MVW saw the largest inflows. Cash and fixed income funds (IHEB, AAA, BILL, IAF, QPON, IHHY and CRED) saw significant outflows. Bearish domestic fund BBOZ was the most traded fund for the second week running, followed by broad-based funds VAS and STW. GOLD saw above average trading.

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Weekly ETF Monitor for week ending 13 March 2020

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Mar 17, 2020

This week's highlights COVID-19 and Saudi Arabia’s aggressive moves to ramp up oil supply saw for one of the most volatile weeks ever across financial markets. Bearish ETFs (BBOZ, BBUS and BEAR) were the top performing funds, while foreign currency funds (YANK, ZUSD, USD, EEU and POU) also saw strong gains for the week. Amongst long-only equity funds, only China ETFs (CETF and IZZ) saw green. On the negative side, there were many. Energy companies were hit hardest – FUEL fell 27% for the week. Gold miners were also hit hard, despite the metal trading flat in AUD terms. European equity funds (HEUR) were also amongst the biggest decliners. Precious metals were not immune. Gold dropped 7% is US dollar terms, but held its ground in AUD. Palladium gave up most of its recent gains, dropping nearly 30%. Oil ETF OOO fell 23% for the week. The Australian dollar fell below US62c for the first time since 2008. Total flows into domestically domiciled ETFs were $460m, while outflows totalled $468m. Domestic equity funds dominated flows with A200 and STW seeing the largest inflows and IOZ seeing the largest outflows. GOLD, QAU and USD saw strong haven flows, while crude oil fund OOO saw speculative inflows following the massive price drop. Bearish domestic fund BBOZ was the most traded fund last week, followed by broad-based funds VAS, STW and IOZ. Other leveraged funds, BBUS and GEAR, saw above average trading. ETFS Enhanced USD Cash ETF (ZUSD) returned 7.8% for the week, benefiting from the strengthening US dollar and the stability of cash amidst the turmoil in more volatile asset classes.

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Weekly ETF Monitor for week ending 6 March 2020

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Mar 10, 2020

This week's highlights Gold miners headlined the top performers in a turbulent week, with MNRS and GDX seeing returns in excess of 8%. Defensive sectors, including healthcare (DRUG), consumer staples (IXI) and infrastructure (IFRA) were also amongst the top performers alongside bearish funds BBOZ and BEAR. Financial sector ETFs (MVB, OZF, QFN and BNKS) were the week’s poorest performers, with high beta plays such as India (NDIA) and technology (TECH) also seeing declines. Gold continued to push higher, trading above US$1,690/oz towards the end of the week. Hedged gold (QAU) added 3.7%, while palladium (ETPMPD) dropped 8.0%. Oil saw big declines, with OOO dropping 7.8%. The Australian dollar regained ground, adding close to 3% for the week and AUDS was amongst the week’s top performing funds. Total flows into domestically domiciled ETFs were $424m, while outflows totalled $181m. iShares S&P/ASX 200 ETF (IOZ) and ETFS Physical Gold (GOLD) saw the largest inflows for the week. BetaShares Australian High Interest Cash ETF (AAA) saw the bulk of the week’s outflows. VAS was the most traded fund last week, followed by IOZ. BBOZ and MGE saw above average volumes.

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Investing in megatrends

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Mar 09, 2020

To access the white paper, please click the download now button above. Investors seeking growth in their portfolios need to look outside the box for opportunities in today’s market. The so-called blue-chips of the past are not necessarily the growth drivers of today or the future. Investing in megatrends may offer an effective and sustainable approach to growth in investor portfolios. Megatrends are universal socioeconomic, environmental or technological forces that change the way we do things . These trends tend to be sustained over longer periods, in some cases, 20 years or more and based on known patterns and pressures . Investing in megatrends has become increasingly accessible in recent times due to the abundance of managed investments focused on them. There are a range of megatrends influencing the world. A few of these are covered below. 1. Virtual connectivity and digitisation The internet is becoming faster and cheaper to access, with close to 60% of the world’s population already users . There are a range of opportunities following from the movement online, such as ecommerce or online entertainment and gaming. Even data storage and security are becoming major concerns. Access to this megatrend can be broadly through sectors like technology that service and fuel this trend, regions with companies dominating this trend, such as the US or across Asia, or via niche subthemes like robotics and artificial intelligence. Products in focus: > ETFS Morningstar Global Technology ETF (TECH) > ETFS ROBO Global Robotics and Automation ETF (ROBO) > ETFS FANG+ETF (FANG) 2. The growth of the Asian middle-class Two-thirds of the world’s middle-class population are expected to reside across Asia by 2030 and this offers potential for a range of industries, such as luxury goods, tourism, education and healthcare. Many global players have turned their focus to targeting consumers in this region, while regionally based companies like Alibaba or Infosys Ltd are well positioned for future growth. Investors can consider sectors like healthcare which will benefit from the growth or take a more concentrated approach by investing across Asia or within specific countries, like India. Products in focus: > ETFS Reliance India Nifty 50 ETF (NDIA) > ETFS FANG+ETF (FANG) 3. Limited resources Ongoing population growth and climate change are placing pressure on available resources including minerals, energy, water and food sources. This has forced an evolution in terms of new products, how we consume and how companies interact with us. Renewable energy and battery storage is one area tipped to grow off the back of this megatrend. Many larger corporations have also started to adjust their operations too, for example, Amazon CEO Jeff Bezos pledged $10bn to fight climate change through the Bezos Earth Fund . Investors may consider sub-themes like battery technology or electric cars, or they could consider industries which may experience higher demand on the basis of restricted resources like agriculture. Products in focus: > ETFS Battery Tech and Lithium ETF (ACDC) > ETFS FANG+ETF (FANG) For more information on the solutions ETF Securities offers, please contact us on: Sales Trading Phone +61 2 8311 3488 Email: sales@etfsecurities.com.au Phone +61 2 8311 3483 Email: primarymarkets@etfsecurities.com.au

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Three megatrends and how to invest

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Mar 09, 2020

To access the white paper, please click the download now button above. Investors considering growth in the portfolio may find megatrends offer an alternative and sustainable long-term approach. So, what are megatrends and how can you invest in them? Megatrends are universal socioeconomic, environmental or technological forces that change the way we do things . These trends tend to be sustained over longer periods, in some cases, 20 years or more and based on known patterns and pressures . Investing in megatrends has become increasingly accessible in recent times. A range of ETFs have appeared in the market to target specific trends and incorporate a wide range of companies in that area. Three examples of megatrends follow. 1. Virtual connectivity and digitisation The internet is becoming faster and cheaper to access, with close to 60% of the world’s population already users . There are a range of opportunities following from the movement online, such as ecommerce or online entertainment and gaming. Even data storage and security are becoming major concerns. Access to this megatrend can be broadly through sectors like technology that service and fuel this trend, regions with companies dominating this trend, such as the US or across Asia, or via niche subthemes like robotics and artificial intelligence. 2. The growth of the Asian middle-class Two-thirds of the world’s middle-class population are expected to reside across Asia by 2030 and this offers potential for a range of industries, such as luxury goods, tourism, education and healthcare. Many global players have turned their focus to targeting consumers in this region, while regionally based companies like Alibaba or Infosys Ltd are well positioned for future growth. Investors can consider sectors like healthcare which will benefit from the growth or take a more concentrated approach by investing across Asia or within specific countries, like India. 3. Limited resources Ongoing population growth and climate change are placing pressure on available resources including minerals, energy, water and food sources. This has forced an evolution in terms of new products, how we consume and how companies interact with us. Renewable energy and battery storage is one area tipped to grow off the back of this megatrend. Many larger corporations have also started to adjust their operations too, for example, Amazon CEO Jeff Bezos pledged $10bn to fight climate change through the Bezos Earth Fund . Investors may consider sub-themes like battery technology or electric cars, or they could consider industries which may experience higher demand on the basis of restricted resources like agriculture. For more information on the solutions ETF Securities offers, please contact us on: Sales Trading Phone +61 2 8311 3488 Email: sales@etfsecurities.com.au Phone +61 2 8311 3483 Email: primarymarkets@etfsecurities.com.au

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Weekly ETF Monitor for week ending 28 February 2020

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Mar 03, 2020

This week's highlights Risk-off sentiment dominated last week with equity markets entering correction territory across the globe. Bearish ETFs (BBUS, BBOZ and BEAR) were by far the top performing funds for the week. Geared funds aside, the biggest declines were seen across a range of sectors, including gold miners (MNRS), energy (FUEL), real estate (REIT) and banks (BNKS). Precious metals were mixed. Gold reached its highest level in seven years, before retreating later in the week. Palladium (ETPMPD) once again reached new all-time highs. Oil saw big declines, with OOO dropping 16.2% for the week. The Australian dollar fell below US65c for the first time since the GFC, driving currency ETFs higher. BetaShares Euro ETF (EEU) and ETFS Enhanced USD Cash ETF (ZUSD) were amongst the week’s top performers. Total flows into domestically domiciled ETFs were $381m, while outflows totalled $86m. BetaShares Australian High Interest Cash ETF (AAA) and ETFS Physical Gold (GOLD) saw the largest inflows for the week as investors looked for safe-haven assets. iShares Global 100 ETF (IOO) and BetaShares S&P/ASX 200 Resources Sector ETF (QRE) saw the bulk of the week’s outflows. VAS was the most traded fund last week, followed by AAA. GOLD and BBOZ saw above average volumes. ETFS FANG+ ETF (FANG) commenced trading this week. FANG offers exposure to an equally-weighted portfolio of ten of the world’s top innovators across today’s tech and internet/media companies.

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The three key drivers of Indian performance in 2019

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Mar 03, 2020

The Indian market disappointed investors in 2019, with three key drivers behind its performance. These included the non-banking financial companies (NBFC) crisis, the Indian election and India/Pakistan conflict. Despite this, the prospects for 2020 and beyond remain positive. Read the full article here. The drivers of performance Global markets were influenced by a range of events including the US/China trade war, slowing growth and recession fears in 2019. Alongside these concerns, the Indian economy was affected by a range of domestic issues, with three drivers of particular significance. 1. NBFC crisis NBFCs offer similar services to banks but don’t hold a banking license. Some examples include equipment leasing companies or infrastructure financing. These companies have been responsible for much of the financial liquidity in India through short term borrowing from banks and mutual funds. In late 2018, an NBFC called Infrastructure Leasing & Finance Services (IL & FS) defaulted on multiple loans and covenants across India. Banks and mutual funds stopped lending to NBFCs as a result, and this caused a liquidity and confidence issue across India. The crisis continued across the early parts of 2019. 2. Government election Narendra Modi returned to power in the India election, which offers ongoing political stability. However, it is common in the lead-up to an election for incumbent governments to focus more on re-election than policy implementation and 2019 was no exception to this. 3. India/Pakistan conflict Hostilities between India and Pakistan escalated in 2019, with the volatility subsequently felt in the economy. The outlook for 2020 The Indian government and Reserve Bank of India (RBI) implemented two key measures to manage the economic challenges of 2019. These included five rate cuts and a corporate tax cut to increase confidence, investment and liquidity. These are expected to support the economy for some time to come. In addition, the Indian economy is likely to continue to benefit from factors like low inflation, ongoing political and economic reform and low stable crude oil prices. Like the broader Asian region, India should also continue to experience a growing middle-class and in turn, increasing consumption spending patterns that accompany this. You can access India through the ETFS Reliance India Nifty 50 ETF (ASX Code: NDIA). For more information on the solutions ETF Securities offers, please contact us on: Sales Trading Phone +61 2 8311 3488 Email: sales@etfsecurities.com.au Phone +61 2 8311 3483 Email: primarymarkets@etfsecurities.com.au

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The economic return of the Indian elephant

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Mar 03, 2020

What drove India’s performance in 2019 and its outlook for 2020 Investors are increasingly seeing India as a high potential growth market, but it under-performed expectations in 2019. The country continues to see positive structural and economic reforms, leading to the question, what happened and does this change India’s prospects? Read the full paper here. Three drivers of negative performance in 2019 Global markets were generally affected by a range of events across 2019, including the US/China trade war, slowing growth and fear of recession. Beyond this, there were three key drivers behind India’s negative performance. 1. Non-banking financial companies (NBFC) crisis In the last quarter of 2018, an NBFC company called Infrastructure Leasing & Finance Services (IL &FS) defaulted on multiple loans and covenants across India. As a result, banks and mutual funds stopped lending to NBFCs which triggered a liquidity and confidence issue across India which dragged on performance, particularly in early 2019. 2. Government election Though Narendra Modi returned to power in the government election, the focus was on re-election rather than continued structural economic growth in the lead-up to polls. 3. Kashmir Hostilities between India and Pakistan escalated, with the volatility also felt in the economy. These drivers in turn affected manufacturing, core-sector production and consumer and capital goods production. India’s automobile and real estate sectors were also hard-hit. India’s future prospects The Indian government and Reserve Bank of India (RBI) implemented two key measures to resolve the problems of 2019. These included: > Five rate cuts by the RBI to 5.15%. > A corporate tax cut from 30% to 22%. India’s outlook for 2020 is further supported by factors such as low inflation, ongoing reforms and political stability. As such, the prospects remain positive and it is anticipated to continue to benefit from overarching themes across Asia such as the growth of the middle-class. You can access India through the ETFS Reliance India Nifty 50 ETF (ASX Code: NDIA). For more information on the solutions ETF Securities offers, please contact us on: Sales Trading Phone +61 2 8311 3488 Email: sales@etfsecurities.com.au Phone +61 2 8311 3483 Email: primarymarkets@etfsecurities.com.au

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Weekly ETF Monitor for week ending 21 February 2020

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Feb 24, 2020

This week's highlights Chinese stocks rebounded last week on the back of tough measures to contain the coronavirus outbreak and stimulate economic activity. CNEW and CETF were both amongst the top performing ETFs for the week. Other Asian markets including South Korea and Japan suffered as outbreaks spread; IKO, UBP, IJP, IAA, UBJ and ASIA were all amongst the week’s poorest performers. Global technology stocks (TECH) also suffered on global growth and supply-chain concerns. Precious metals all gained with haven assets in demand. GOLD returned 5.3% for the week, while palladium (ETPMPD) added 10.8% and once again touched new all-time highs. Gold mining ETFs (GDX and MNRS) were the top performing equity funds for the week. Total flows into domestically domiciled ETFs were $333m, while outflows totalled $43m. Russell Australian Responsible Investment ETF (RARI) saw the largest inflows for the week, followed by a range of global equity funds (ETHI, IEM, QUAL and NDQ). Domestic equities (IOZ), fixed income (QPON, IAF and AAA) and gold (GOLD) also saw strong flows. BetaShares FTSE RAFI Australia 200 ETF (QOZ) saw the bulk of the week’s outflows. RARI was the most traded fund last week, reflecting its flows, followed by VAS, AAA and STW. GOLD and IEM saw above average volumes. ETFS S&P Biotech ETF (CURE) returned 1.5% last week and is up 7.6% year-to-date. CURE provides broad exposure to the U.S. biotechnology sector including a number of companies actively involved in developing drugs and vaccines to combat the coronavirus.

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Weekly ETF Monitor for week ending 14 February 2020

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Feb 18, 2020

This week's highlights Global markets maintained their recent highs last week. Precious metal palladium was the best performer over the week, with ETFS Physical Palladium (ETPMPD) returning 6.5%. Australian financials and property ETFs were also amongst the best performers. SPDR S&P/ASX 200 Financials ex A-REITS Fund (OZF) was up 3.6%, BetaShares S&P/ASX 200 Financials Sector ETF (QFN) up 3.6% and VanEck Vectors FTSE International Property (Hedged) ETF (REIT) up 2.7%. The worst performers over the week were Japanese equity based ETFs. iShares MSCI Japan ETF (IJP) was down 2.1% and UBS IQ MSCI Japan Ethical ETF (UBJ) also down 2%. Looking at flows for the week. Inflows totalled A$311 million whilst outflows were A$78 million. The biggest inflows were into ETFS Physical Gold (GOLD) which saw A$28.6 million. Largest outflows for the week were in Japanese and Australian based ETFs. BetaShares Australia 200 ETF (A200) had A$35.4 million in outflows and iShares MSCI Japan ETF (IJP) A$17.4 million in outflows. Year to date inflows remain strongest in Australian and international equities as well as gold.

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Three ways to manage a retirement portfolio

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Feb 11, 2020

To access the 'No retirement for investments' white paper, please click the download now button above. Important notice: a previous version of this whitepaper incorrectly stated the ASFA comfortable retirement standards for a couple as $43,787/year and superannuation balance of $545,000. These figures relate to the comfortable retirement standards of a single not a couple. The standards for a couple are $61,786/year and $640,000 in superannuation balance. The duelling forces of retirement It is normal for retired investors to need to manage their portfolios for a stable income, a level of growth and capital protection, but current market conditions are making this particularly challenging. Faced with globally low interest rates on one hand as a threat to their income, and market volatility from geopolitics like corona virus and tensions in Iran affecting growth assets, how should retired investors manage their portfolios? ETF Securities recommends three options summarised below: product selection, income diversification and portfolio construction. You can read the full paper by downloading above. 1. Product Selection In retirement, investors need to be conscious of the quality, flexibility and costs of the products they use for their investments. One product type investors may consider are ETFs which hold characteristics such as lower costs compared to active funds, typically high liquidity allowing investors greater flexibility and are easy to use with less administration compared to shares or bonds. 2. Income diversification Investors have traditionally looked to Australian fixed income for their key yield option. In the current environment, they should consider diversifying their income,such as looking at fixed income internationally where there may be higher yields available or through dividend streams. Dividend streams can be a riskier option, and where some retired investors may use high yield shares and offset the risks in other ways, others can look to options in more stable, less cyclical industries like infrastructure. 3. Portfolio construction Retired investors should consider the overall construction of their portfolios and ensure they are diversified across assets and regions for growth and income, after all, the portfolio still needs to grow and support the lifespan. One area retired investors may wish to look at incorporating as part of the overall construction is alternatives, in the form of commodities like gold which can assist with stability and diversification. For more information on the solutions ETF Securities offers, please speak to your financial adviser or contact us on: 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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The conflicting challenges of retirement

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Feb 11, 2020

To access the 'No retirement for investments' white paper, please click the download now button above. Important notice: a previous version of this whitepaper incorrectly stated the ASFA comfortable retirement standards for a couple as $43,787/year and superannuation balance of $545,000. These figures relate to the comfortable retirement standards of a single not a couple. The standards for a couple are $61,786/year and $640,000 in superannuation balance. Managing a retirement portfolio for income and growth Retirement portfolios offer a particular challenge in advice, given their more complex needs. They need to generate a stable income, preserve capital and still offer some level of growth to allow investors to manage inflation and longevity risks, along with a reasonable standard of lifestyle. In the paper No retirement for investments, ETF Securities considers how assets, portfolio construction and product selection can be used to manage retirement in the current market environment. You can download the full paper above, or read the summary following. Part of the solution comes down to diversification of the assets used for income. Retired investors have traditionally relied on domestic fixed income to support their yield needs but are now forced to consider other options. Fixed income can still play a role, for example, diversifying to international sources such as US fixed income which currently offers a higher interest rate may be part of the answer. Commonly, investors are being forced into riskier income approaches, such as through dividend streams. High yield equities may work for some retired investors, pending their risk tolerance along with overall portfolio construction. For example, they may consider how to offset the higher risks of high yield shares in other parts of their portfolio. Using alternatives in the form of commodities like gold may assist with offering stability and diversification to manage the volatility which could occur in high yield shares. Alternatively, looking to investments in more stable, less cyclical industries may be more suitable. Infrastructure is one option. It includes many essential services areas like utilities, telecommunications, industrials and transport which tend to be less vulnerable to market movements and cycles. Finally, product choice can be part of the solution to market conditions. Flexibility is important in this environment, but retired investors also need to be conscious of costs, risks and quality. Bearing these in mind, ETFs may be a suitable option due to characteristics such as low costs, ease of use, liquidity and a wide range to assist in meeting specific portfolio needs or gaps. For more information on the solutions ETF Securities offers, please contact us on: 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 7 February 2020

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Feb 11, 2020

This week's highlights Healthcare and technology sectors had a strong week as repercussions on markets as a result of the Coronavirus were more subdued than first thought. The Australian Dollar continued to weaken having a positive effect on unhedged international ETFs. ETFS S&P Biotech ETF (CURE) was the best performing equity ETF over the week returning 6.8%. BetaShares Asia Technology Tigers ETF (ASIA) was up 5.3% and ETFS Battery Tech & Lithium ETF (ACDC) was up 4.5% as Tesla and Orocobre had strong weeks. The worst performers were Chinese equity ETFs, with VanEck Vectors ChinaAMC A-Share ETF (CETF) down 5.4%. Oil and Mining ETFs also had a negative week. VanEck Vectors Gold Miners ETF (GDX) was down 3.6% and BetaShares Crude Oil Index ETF - Ccy Hedged (OOO) was down 2.4%. The best flows were into fixed income products. VanEck Vectors Australian Floating Rate ETF (FLOT) topped the weekly inflows with A$25m. ETFS Physical Gold (GOLD) also had a strong week with A$13m in inflows. The biggest outflows were seen in BetaShares Australia 200 ETF (A200), which had outflows of A$119m. Total inflows over the week were A$296m and total outflows were A$148m.

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Weekly ETF Monitor for week ending 31 January 2020

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Feb 03, 2020

This week's highlights Safe haven assets bounced back last week as global uncertainty surged around the global pandemic of the Coronavirus. ETFS Physical Gold (GOLD) was up 3.3% over the week and ETFS Physical Silver (ETPMAG) was also up 2.3%. Currency ETFs also had a good week as the Australian dollar weakened against global majors. BetaShares British Pound ETF (POU) was up 2.9% and ETFS Enhanced USD Cash ETF (ZUSD) was up 2%. Asian Equity ETFs saw mostly red last week. The iShares MSCI South Korea Capped ETF (IKO) was down 6.5% and iShares Asia 50 ETF (IAA) was also down 5%. Further drops were seen throughout Asia with the BetaShares Japan ETF (Hedged) (HJPN) down 4.1%. One month into the new year sees precious metals and technology ETFs as the best performers. ETFS Physical Palladium (ETPMPD) is the best performer YTD up 25.5%. Net flows for the week were down but still positive. Inflows totalled $228 Million whilst outflows were $76 Million. The biggest outflow was in SPDR S&P/ASX 200 Fund (STW) with $51 Million redeemed. The biggest inflows were into iShares S&P/ASX 200 ETF (IOZ) $25 Million and iShares Global High Yield Bond (AUD Hedged) ETF (IHHY) $23 Million.

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Weekly ETF Monitor for week ending 24 January 2020

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Jan 29, 2020

This week's highlights Defensive equity funds were the flavour of the week with gold miners (GDX and MNRS), infrastructure (VBLD and CORE) and real estate (DJRE) topping the performance tables. Asia and emerging markets funds (IZZ, CETF, CNEW, IAA and VGE) were amongst the poorest performers. Energy company fund (FUEL) also suffered on falling crude prices. Precious metals all gained, with the exception of silver. GOLD returned 1.2% for the week, while palladium (ETPMPD) touched new all-time highs before pulling-back. Crude oil dipped below US$54/bbl and oil ETF OOO declined 7.5% for the week. Total flows into domestically domiciled ETFs were $364m, while outflows totalled $15m. SPDS S&P/ASX 200 Fund (STW) saw the largest inflows for the week, followed closely by a range of domestic equity (MVR and A200) and fixed income (AAA, QPON and CRED) funds. Emerging market equities (IEM) and gold (GOLD) also saw strong flows. IOZ was the most traded fund last week, followed by VAS and STW. VHY and QPON saw above average volumes. ETFS Global Core Infrastructure ETF (CORE) returned 1.6% last week and is up 5.8% year-to-date. CORE provides exposure to 75 listed-infrastructure firms from global developed markets that exhibit low volatility relative to their peers.

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2020 Trends in Robotics, AI, and Healthcare Innovation

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Jan 28, 2020

This is an extract of the ROBO Global paper 2020 Trends in robotics and AI innovation. To access the ROBO Global white paper, please click the download now button above. Companies around the globe are revising and rethinking their strategies to cement their futures in a world that is dictated by robotics, automation, and AI (RAAI). Deep learning, 5G, and computer vision are among the trends to watch in 2020 and beyond. 1. Computer vision Computer vision is the technology that gives computers and machines the sense of sight and the ability to analyse and understand the content of digital images. It is increasingly used throughout the manufacturing process to enhance product quality, reduce waste, and improve productivity in a variety of endmarkets, including consumer electronics, automotive, pharmaceuticals, and many more. 3D vision, a type of computer vision which has long been prohibitively expensive and complex, is set to accelerate with the help of Isra Vision in manufacturing, Koh Young in semiconductor and electronics inspection, and FARO and Hexagon in metrology and surveying. Computer vision is also enabling collaborative robotics and advanced driver assistance. Ambarella, the video processing technology provider, is rapidly morphing into an AI computer vision company. The company has received design wins for its CV chip in the professional security camera market and is engaged in several use cases in the automotive market. 2. Deep learning A subfield of machine learning, deep learning uses algorithms that strive to mimic the deep neural networks of the human brain. Reinforcement learning (RL), an aspect of deep learning, refers to goal-oriented algorithms that are the key to enabling autonomous robots, improving personalization, and accelerating drug discovery. RL will be used to dramatically improve the personalization of news and other content—a shift that will transform the massive data sets available to the advertising industry into practical, usable information— and to revolutionize myriad processes that can be simulated, including fraud detection and credit loan processes in the banking industry. 3. 5G The fifth generation of mobile wireless communications—5G—boasts features that have the potential to supercharge everything from business processes to how we engage with the Internet. Once it is fully deployed, 5G is expected to deliver up to 100x faster connection times than 4G and is expected to enable download speeds of 500-1500 Mbps in a matter of seconds. Major carriers are expected to roll out some type of 5G services in late 2020 and into 2021. Consumers will soon be able to choose 5G-compatible mobile devices from leaders like Apple, Samsung and Xiaomi, powered by Qualcomm’s latest 5G Mobile Platform Snapdragon. This best-in-class RF System provides peak speeds that promise to surpass most wired connections and transform the mobile experience. The Internet of Things (IoT) currently includes about 30 billion devices. The power of 5G will be more crucial than ever as this figure accelerates thanks to investments in autonomous vehicles, smart cities, smart factories, big data, and AI. ETFS ROBO Global Robotics & Automation ETF (ROBO) helps investors capture these trends across robotics, automation and enabling technologies. Find out more about ROBO here. 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: capitalmarkets@etfsecurities.com.au

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2020 Trends in Robotics, AI, and Healthcare Innovation

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Jan 27, 2020

This is an extract of the ROBO Global paper 2020 Trends in robotics and AI innovation. To access the ROBO Global white paper, please click the download now button above. Companies around the globe are revising and rethinking their strategies to cement their futures in a world that is dictated by robotics, automation, and AI (RAAI). Deep learning, 5G, and computer vision are among the trends to watch in 2020 and beyond. 1. Computer vision Computer vision is the technology that gives computers and machines the sense of sight and the ability to analyse and understand the content of digital images. It is increasingly used throughout the manufacturing process to enhance product quality, reduce waste, and improve productivity in a variety of endmarkets, including consumer electronics, automotive, pharmaceuticals, and many more. 3D vision, a type of computer vision which has long been prohibitively expensive and complex, is set to accelerate with the help of Isra Vision in manufacturing, Koh Young in semiconductor and electronics inspection, and FARO and Hexagon in metrology and surveying. Computer vision is also enabling collaborative robotics and advanced driver assistance. Ambarella, the video processing technology provider, is rapidly morphing into an AI computer vision company. The company has received design wins for its CV chip in the professional security camera market and is engaged in several use cases in the automotive market. 2. Deep learning A subfield of machine learning, deep learning uses algorithms that strive to mimic the deep neural networks of the human brain. Reinforcement learning (RL), an aspect of deep learning, refers to goal-oriented algorithms that are the key to enabling autonomous robots, improving personalization, and accelerating drug discovery. RL will be used to dramatically improve the personalization of news and other content—a shift that will transform the massive data sets available to the advertising industry into practical, usable information— and to revolutionize myriad processes that can be simulated, including fraud detection and credit loan processes in the banking industry. 3. 5G The fifth generation of mobile wireless communications—5G—boasts features that have the potential to supercharge everything from business processes to how we engage with the Internet. Once it is fully deployed, 5G is expected to deliver up to 100x faster connection times than 4G and is expected to enable download speeds of 500-1500 Mbps in a matter of seconds. Major carriers are expected to roll out some type of 5G services in late 2020 and into 2021. Consumers will soon be able to choose 5G-compatible mobile devices from leaders like Apple, Samsung and Xiaomi, powered by Qualcomm’s latest 5G Mobile Platform Snapdragon. This best-in-class RF System provides peak speeds that promise to surpass most wired connections and transform the mobile experience. The Internet of Things (IoT) currently includes about 30 billion devices. The power of 5G will be more crucial than ever as this figure accelerates thanks to investments in autonomous vehicles, smart cities, smart factories, big data, and AI. ETFS ROBO Global Robotics & Automation ETF (ROBO) helps investors capture these trends across robotics, automation and enabling technologies. Find out more about ROBO here. 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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Top five ETF trends in 2020

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Jan 24, 2020

To access the ETF Trends 2020 whitepaper, click here. The ETF landscape has expanded rapidly from the straight index replication of the past to more tailored offers covering themes, specific industries or sectors and even using alternative weighting. Advances in technology has allowed ETFs to become more sophisticated to meet with investor needs and demands. The value of the Australian ETF market is currently $A60.24bn[1] and is anticipated to continue to grow both in size and available options. Here are five trends likely to continue in 2020. 1. The search for yield Continued globally low interest rates means investors are seeking alternative sources of yield. Some are still looking at fixed income, but focusing on international options like the US, which has higher interest rate compared to its counterparts. Others are considering using equity dividend streams to help provide an income. Investors concerned about volatility risks for an equity approach might look towards infrastructure ETFs. The infrastructure sector includes many essential services areas like utilities, telecoms, industrials and transport which tend to be less vulnerable to market cycles and movements. Investments in gold tend to be popular with investors in times of low yield and market volatility. Holding appeal for both consumption purposes and investment, the performance of gold tends to have low correlation with other asset classes and tends to offer stability in times of market volatility. 2. Investing to offset Australian exposures Australian investments have been influenced over several years now by factors like slowdown in resources and residential property, along with a weaker Australian dollar. This has meant investors have needed to focus more on investing internationally to diversify the local risks and access growth and income opportunities. For example, investors are looking at particular growth themes like the middle class in Asia or at sectors not widely available in the Australian market, like technology. Currency ETFs are also becoming more popular, particularly those exposed to the US dollar which continues to be stronger than many developed nation currencies. 3. Thematic investing ETFs are becoming a cost-efficient and transparent way for investors to express their specific market opinions, growth themes, moral and ethical views or to target niche areas of growth. Concerned about UK post-Brexit? You might choose a European ETF which excludes UK companies. Passionate about new technology? A robotics or tech focused ETF might be for you. There is a movement towards ethical investing, with environmental investing a particular focus at the moment. As a quickly developing space with investor demand, there is likely to be continued growth in ETFs supporting this space, such as in alternative energy like battery technology. 4. Bespoke and smart beta strategies There has been a rise in ETFs using sophisticated rules or algorithms (smart beta) to ‘beat’ the market while still remaining passive. This might mean the exclusion of certain factors or using a different way of weighting investments compared to the index. For example, excluding companies in a particular industry. Or rather than weighting the investment based on company size, it might be weighted based on how volatile the companies are to market movements. Some ETFs like this are designed bespoke to large-scale institutions looking for both cost-efficiencies as well as the ability to match strategic or philosophical needs but still available to retail investors on the stock exchange. 5. Active ETF investing Active ETFs are an emerging area and typically track the strategies of active investment managers. ASIC lifted its suspension of new active ETFs in December 2019 and released new admission guidelines. Given international activity in this space as well, there is likely to be further growth in the available active ETFs in the Australian market. These may appeal to self-directed investors looking for active and liquid solutions with greater ease of use compared to many other active managed funds. 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 __________________________ [1] https://www.asx.com.au/documents/products/ASX_Investment_Products_November_2019.pdf

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ETF Trends 2020

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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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LONG FORM - ETF Trends for 2020

Jan 22, 2020

The ETF landscape continues to rapidly expand beyond the replication of major stock market indices such as the S&P/ASX 200 and S&P 500. Today’s investor can choose ETFs across different sectors, based on certain themes or even offering alternative weighting schemes, like yield or value, captured by the phrase smart beta. The value of the Australian ETF market is currently $A60bn[1] , only a small portion of the overarching $A3,680bn assets of the managed funds industry[2] and a fraction of the global ETF market valued at $US5tr[3] . The vastly larger U.S. and European ETF markets offer some indication of the direction the Australian industry may take. In 2020, ETF Securities expects a number of trends to influence the ETF landscape, including economic drivers, changing investor dynamics and newer investment styles courtesy of improving technology. Economic drivers for the ETF landscape Investments generally are being influenced by three key economic themes: the low interest rate environment globally, continuing challenges in the Australian economy and ongoing growth in Asia. 1. The global low interest rate environment After a period of tighter monetary policy between 2016-2018, the U.S. Federal Reserve switched course and decreased rates in mid-2019. This tied in with a year of increasingly accommodative monetary policy globally. The European Central Bank (ECB) announced it would resume quantitative easing and decreased its already negative bank deposit rate to -0.5%, while domestically, the Reserve Bank of Australia (RBA) decreased rates three times. This environment is likely to continue into 2020 as the global economy continues to manage sluggish growth and inflation, as well as provide a buffer for potential risks which may arise during the post-Brexit adjustment period for the UK and Europe, the escalation in activity with Iran, the typical market volatility associated with a US Presidential Election year or any changes in the current ‘cease-fire’ in the US-China trade war. Lower interest rates continue to place pressure on traditional sources of yield like fixed income. Australian investors will need to look beyond domestic holdings to access yield in fixed income. Given this scenario, investors may be more likely to look at using riskier asset classes like equities, as well as ‘safe haven’ assets like gold. What this means for ETFs? Commodities ETFs, in particular gold and silver, should continue to benefit from this environment due to a low opportunity cost. Gold has both consumption and investment appeal so has low correlation to equity markets and other assets. This means it tends to perform in a range of markets and offer stability when share markets are volatile. Investors may look towards ETFs targeting dividends as an alternative source of yield. Investors still looking at fixed income, either for diversification or as a low risk asset, may look at the US as it holds higher yield compared to Australian and European counterparts. 2. Challenges in the Australian economy On the whole, performance has been positive for the Australian market across 2019 but has lagged peers and this is likely to continue in 2020. The Australian economy has been challenged over the past few years by a slowdown in the resources sector, falls in the residential property market, along with stagnant wage growth and employment numbers. Corresponding to this, the Australian dollar is low relative to recent history – $US0.70 as at 31 December 2019[4]. While these issues have affected investment, there have also been domestic themes taking a dominant role. For example, the ramifications of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry both in terms of regulation and penalties, along with damaged consumer trust, continues to influence the stock prices of many financial companies. The extent of the devastating fire season in Australia is as yet unknown but will be felt heavily in the financial sector, especially in the insurance industry. Investors may consider a few options from this scenario. One aspect is sourcing opportunities overseas or focusing on more niche areas both within and external to Australia which are less likely to be influenced by the current dynamics. A second is considering the impact of currency, given the low Australian dollar. What this means for ETFs? Investors may look to currency-based ETFs offering exposures outside Australia, particularly to the US dollar which continues to be stronger than many developed nation currencies. ETFs in themes or markets to offset the financials exposure in Australia, for example, in technology and medical sectors or in emerging markets. 3. Growth in the Asian region The growth of the middle-class across Asia has been a market theme for more than a decade, despite concerns over Chinese slowdown. Investors are becoming increasingly aware of the opportunities for countries outside of China such as India, Malaysia or South Korea. India, for example, is expected to see the percentage of households in poverty drop from 15% to 5% by 2030 representing a huge opportunity in terms of consumption[5] . Even as the Chinese economy slows and the trade war with the US continues to drive uncertainty, it still represents opportunity for growth. A number of companies are starting to emerge as global power players from the Asian region, with massive and growing client bases and the ability to leverage to other regions. Chinese based company Alibaba and Indian multinational Infosys Ltd are some examples. External to Asia, a number of companies and sectors have spent the past decade developing strategies and positioning to take advantage of this growth. Luxury consumer discretionary brands like LVMH are already reaping the benefits[6] , while healthcare and vitamin companies like Blackmores are discovering consumers who are focused on their health needs and have the finances to pay for it[7]. What this means for ETFs? ETFs specific to the Asian region including those focused on individual countries like India, along with ETFs covering themes that benefit from Asian growth will continue to be of interest. ETFs targeting sectors like healthcare or even focused on medical advancements such as ETFS S&P Biotech ETF (ASX Code: CURE) are also positioned to take advantage of a growing customer base in Asia who seeks out and can afford the latest and best. This is also supported by the growing medical tourism industry in Asia, targeting those tourists wanting to take advantage of the lower cost bases for treatment. Changing investor dynamics and ETFs Investor needs and demands have been responsible for change across much of the investment industry, with transparency and costs, along with ethical and social concerns, becoming a key focus. 1. Demand for greater transparency and cost-effective investments Influenced by the Global Financial Crisis and the more recent Royal Commission, investors are taking a greater interest in where and what their investments are. Transparency over investments and the investment approach is becoming important. Investors are also becoming more conscious of fees and aware that costs can erode returns. This is having a flow-on effect to investment managers and financial advisers, requiring them to not only justify their own fees but be more conscious of fee budgets within portfolios. What this means for ETFs? The trend towards transparency and cost focus is supportive of ETFs, which typically offer these characteristics and can be easily traded should they no longer meet an investors’ strategy and needs. A tighter focus on fee budgets in managed funds and portfolios make ETFs an attractive option to access specific themes, offer broad exposure or tilt a portfolio. 2. Ethical and social concerns Linking to a greater interest in transparency, investors are also starting to consider incorporating their ethical and social values within their investments. Many companies are starting to be vocal about their Environmental, Social and Governance (ESG) policies. To some extent, this is a basic expectation for investors – even the greatest polluters have an ESG policy. In recent times, investors have started to look at incorporating specific themes, like climate change or socially responsibility, within their investments. This is still emerging in the Australian market and is more developed in the US market, which even offers impact investment style ETFs. What this means for ETFs? Growth in ESG and ethical ETFs will continue in response to investor demand and innovation in a quickly developing segment. This may also support more bespoke ETF strategies, for example, some dealer groups have started to consider broad based indices with an ethical overlay for core exposures in their clients’ portfolios. A maturing market with new technology, more choice and investment styles As the market has matured, the choices available to investors are becoming more sophisticated to match with changing needs and demand. This has also been supported by improving technology allowing for greater tailoring of strategies or even active management. 1. Thematic investing Investors have become increasingly aware of how to use ETFs in their portfolios and their demands have become more specific. ETFs have become a tool to express specific market opinions, moral and ethical views or to target niche areas of growth. For example, an investor who believes that the UK is likely to struggle post Brexit, might select an ETF that covers top European companies, while excluding UK ones. Or alternatively, an investor interested in growth in India might choose to increase their exposure through an Indian specific ETF. ETFs have also opened access to newer investment spaces, which may previously have been restricted to private capital in the past, such as artificial intelligence and robotics. 2. Bespoke and smart beta strategies Improving technology has allowed the rise of more tailored ETFs, using sophisticated algorithms or rules (smart beta) to ‘beat’ the market while still remaining passive. This may mean alternative weighting compared to the index, or the exclusion of certain factors to minimise risks. Some ETFs of this type are also specially designed for larger scale clients to meet their needs and cover exposures they specifically want. While this kind of ‘customisation’ is generally exclusive to large scale institutions looking for cost efficiencies, there is a link back to the broader retail trend for personalised goods and services[8]. It’s not a great leap to consider that consumers who are used to personalised service at no extra cost in most areas of their lives may come to expect it from their investments too. The backend technology may not be to that retail level yet, but demand may see it come to pass. 3. Active ETF investing Active ETFs are an emerging area and typically replicate the strategies of active investment managers, such as Magellan or Fidelity. ASIC recently conducted a review, suspending the creation of such funds for six months and lifting this in mid-December 2019[9]. The release of admission guidelines, along with international activity (the US relaxed regulations around disclosure in 2019[10]), is likely to see further growth in this area. Active ETFs transforms the traditional view of ETFs as a passive, index-following and transparent investment. They tend to be more opaque, given active managers prefer not to provide all their IP explicitly. They are likely to appeal to self-directed investors looking for active solutions with greater ease of access and liquidity. in managed portfolios due to characteristics like liquidity. It is a time of change and transformation generally for the Australian investment landscape, and opportunities are rising from newer attitudes, technology or even regulations. Across 2020 and the coming years, ETFs are likely to increasingly evolve to fill the gaps in investor needs and demand. Using the US and European ETF markets as a template, there’s further to move and grow for the ETF landscape. Influenced by the current environment, Australian investors, like their international peers, are making more deliberate efforts to seek ETFs for their portfolios. 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 _____________________ [1] https://www.asx.com.au/documents/products/ASX_Investment_Products_November_2019.pdf [2] https://www.abs.gov.au/ausstats/abs@.nsf/mf/5655.0 [3] https://www.statista.com/topics/2365/exchange-traded-funds/ [4] Bloomberg [5] http://www3.weforum.org/docs/WEF_Future_of_Consumption_Fast Growth_Consumers_markets_India_report_2019.pdf [6] https://www.lvmh.com/investors/profile/key-figures/#groupe [7] https://www.blackmores.com.au/about-us/investor-centre/annual-and-half-year-reports [8] https://www.retail-insight-network.com/features/personalisation-retail/ [9] https://www.morningstar.com.au/etfs/article/asic-lifts-pause-on-active-etf-listings/198188 [10] https://www.moneymanagement.com.au/news/funds-management/relaxed-disclosure-regulations-could-see-active-etf-market-soar

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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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