AN INTRODUCTION TO ETFS www.betashares.com.au
BetaShares is an Australian-based specialist provider of Exchange Traded Funds (“ETFs”) An ETF is a managed fund or unit trust that is quoted and traded on a stock exchange such as the ASX. ETFs are built like managed funds, but trade like shares, meaning that pricing is transparent and that the products can be bought and sold throughout any trading day just like ordinary shares. ETFs generally aim to track as closely as possible the performance of a given index or asset class. They are transparent, liquid, cost-efficient and flexible investment tools – designed to be attractive to both individuals and institutional investors. ETFs are one of the fastest growing categories of investment products in the world, with over US$2 trillion of assets managed in ETF products globally. One of the primary reasons for their popularity is that they have all the advantages of stocks, such as being easy to trade and liquid, along with the benefits of index funds, such as diversification and lower costs. With ETFs, it is possible to get a diversified exposure to a large number of securities or an otherwise difficult to access asset class via a single trade and at the same time avoid ‘active manager’ fees.
The Global Market for ETFs Globally, the market for ETFs has grown exponentially. The graph below shows the growth of the ETF industry in the largest two geographies for ETFs globally, the United States and Europe. Growth of European ETP Industry (US$b)
Growth of US ETP Industry (US$b)
02 – 12 CAGR 29%
02 – 12 CAGR 42%
$800 $200 $543
CAGR: Compound Annual Growth Rate Source: Blackrock
The Australian ETF industry, while comparatively small, has recently grown dramatically. We expect this to continue due to new product innovation and increasing acceptance of ETFs as an asset class in the Australian marketplace
Australian ETP Market Cap: July 2004- December 2012 (A$b) Market Cap 7000 (A$m) 6000
04 – 12CAGR 28%
CAGR: Compound Annual Growth Rate Source: ASX
AN INTRODUCTION TO ETFS www.betashares.com.au
What are BetaShares ETFs? BetaShares ETFs are a powerful set of investment tools designed specifically with Australian investors in mind. All BetaShares ETFs are Australian domiciled funds that trade on the ASX just like shares. BetaShares ETFs are designed to expand the universe of investment possibilities open to Australian investors by delivering transparent exposure to a broad range of market indices and asset classes. These can be ETFs based on equity indices (e.g., providing exposure to a particular segment of the Australian equity market), or they can be ETFs that offer exposure to alternative asset classes (e.g., providing exposure to a foreign currency or commodity). BetaShares ETFs are constructed to provide the closest possible return to the performance of the underlying index or asset being tracked.
What are the key benefits of BetaShares ETFs? Depending on the asset class or index that is being tracked, ETFs can be an ideal long term or short term investment tool. ETFs are widely used globally by both individual and institutional investors.
Simplicity BetaShares ETFs help investors gain exposure to a range of investment strategies that can be implemented as simply as buying a share.
Liquidity BetaShares ETFs are open-ended funds, meaning the number of units on issue can be increased or decreased in response to daily demand. Units can be bought and sold at any time throughout the trading day. Dedicated market makers and Authorised Participants enhance this daily liquidity and provide robust bid-offer spreads. BetaShares ETFs have similar liquidity characteristics to the underlying shares that comprise the relevant index.
Transparency BetaShares ETFs aim to closely track the performance of a specified index or asset class. They have a transparent fund and cost structure. Information is published on the BetaShares website, giving investors an up-to-date view of the ETF’s portfolio.
Cost-effectiveness Because ETFs aim simply to track the performance of an index or asset class, there are no in-built “active management” fees and ETFs therefore have significantly lower fees than actively managed mutual funds.
ETF structure BetaShares ETFs are regulated unit trusts whose units trade on the ASX much like shares. They have the same legal structure as traditional managed funds and are subject to the highest form of investor protection regulation available in Australia. The assets underlying our ETFs do not form part of BetaShares’ assets. Rather, they are held on trust for the benefit of unitholders. BetaShares has appointed an independent, third party custodian to hold the assets of each exchange traded fund, which are kept separate from the assets of BetaShares, the custodian and any other fund.
AN INTRODUCTION TO ETFS www.betashares.com.au
How do investors use BetaShares?
BetaShares ETFs can be used by investors for a wide range of investment strategies. Set out below are some of the most common:
BetaShares is a specialist provider of fund products that are traded on the Australian Securities Exchange. Our objective is to expand the universe of investment possibilities for investors in Australia.
Portfolio Construction & Asset Allocation BetaShares ETFs can be used as core holdings in a portfolio and as building blocks for portfolio construction. For example, sector ETFs offer diversified exposure to a particular industry sector that could otherwise only be achieved by buying all the stocks in the relevant index. As another example, commodity ETFs provide exposure to this alternative asset class in a simple, cost-efficient manner.
Core/Satellite Strategy ETFs are often used in active investment strategies to improve the risk/return of a portfolio. ETFs can be used to build a core portfolio of broadly diversified indices or asset classes. Single individual stocks can then be added as alpha generating ‘satellites’.
BetaShares is part of the Mirae Asset Global Investment Group, one of the largest asset managers in Asia. Currently, Mirae manages in excess of US$50B, including over US$8B in ETFs.
www.betashares.com.au T: 1300 487 577 (Australia) T: + 61 2 9290 6888 (ex Australia) [email protected]
ETFs can be used as a substitute for cash pending individual stock selection. This is used to avoid ‘cash drag’ and as an efficient place to ‘park’ cash while investment decisions are being made.
Pairs Trading BetaShares ETFs offer a number of opportunities for pairs trading e.g. going long an index and shorting some of the constituents.
Alternative to Sector Swaps Investors can use BetaShares Sector ETFs as an efficient alternative to a sector swap. Using Sector ETFs will mean that investors are not tied to one counterparty for exit and entries and have limited counterparty risk, and they are easier to trade and administer than swaps.
Hedging Since our products are traded on the ASX, investors can short the ETFs as they would any stock, subject to availability of stock lending.
How to Invest in BetaShares ETFs BetaShares ETFs are traded on the Australian Securities Exchange. As such, they can be bought or sold like any share through a stockbroker, financial adviser or online broker. There is no need to open a separate trading account. BetaShares ETFs can be traded at any time during normal market hours, using all the trading techniques applicable to shares (e.g., market orders, limit orders, stop orders).
An investment in any BetaShares Exchange Traded Fund (‘ETF’) is subject to investment risk including possible delays in repayment and loss of income and principal invested. Neither BetaShares Capital Ltd (“BetaShares”) nor BetaShares Holdings Pty Ltd guarantees the performance of any ETF or the repayment of capital or any particular rate of return. Past performance is not an indication of future performance. This information is prepared by BetaShares Capital Ltd (ACN 139 566 868 AFS License 341181) (“BetaShares”), the product issuer. It is general information only and does not take into account your objectives, financial situation or needs so it may not be appropriate for you. Before making an investment decision you should consider the product disclosure statement (‘PDS’) and your circumstances and obtain financial advice. The PDS is available at www.betashares.com.au or by calling 1300 487 577 (within Australia) or +61 2 9290 6888 (outside Australia). Only investors who are authorised as trading participants under the Australian Securities Exchange (ASX) Operating Rules may invest through the PDS. Other investors may buy units in the ETF on the ASX through a stockbroker, financial adviser or online broker. This document does not constitute an offer of, or an invitation to purchase or subscribe for securities.This information was prepared in good faith and to the extent permitted by law BetaShares accepts no liability for any errors or omissions or loss from reliance on any of it. Standard and Poor’s® and S&P® are registered trademarks of The McGraw-Hill Companies, Inc. (“McGraw-Hill”), and ASX® is a registered trademark of the ASX Operations Pty Ltd (“ASX”). These trademarks have been licensed for use by BetaShares. BetaShares ETFs are not sponsored, endorsed, sold or promoted by S&P, McGraw-Hill or ASX, and S&P, McGraw-Hill and ASX make no representation, warranty or condition regarding the advisability of buying, selling or holding units in BetaShares ETFs. BetaShares® and Back Your View® are registered trademarks of BetaShares Holdings Pty Ltd..