In association with
ETF providers panel: A discussion of advisor experiences Moderator: Jonathan Morgan, ASX Panelists: Mark Oliver, BlackRock Amanda Skelly, SSgA Peter Harper, Betashares Paul Chin, Vanguard Australia McGraw-Hill
S&P Dow Jones ETF Masterclass - 2013 October 2013
ETFs & The Advisor Experience What s the research saying? What are the providers seeing? What are advisors experiencing?
SMSFs have been early adopter of ETFs Confidential may not be distributed without the consent of BetaShares Capital A Member of Mirae Asset Financial Group 4
SMSF ETF Usage Not at the expense of managed funds Confidential may not be distributed without the consent of BetaShares Capital A Member of Mirae Asset Financial Group 5
Most commonly citied reasons for using ETFs Confidential may not be distributed without the consent of BetaShares Capital A Member of Mirae Asset Financial Group 6
SMSF ETF Usage Opportunity for Advisers Confidential may not be distributed without the consent of BetaShares Capital A Member of Mirae Asset Financial Group 7
ETFs & The Advisor Experience What are advisors experiencing?
ETFs & The Advisor Experience Yield Int l Exposure Execution Cash & Alternatives
Dec - 12 Jan - 13 Feb - 13 Mar - 13 Apr - 13 May - 13 Jun - 13 Jul - 13 Aug - 13 Yield % 9.0% Desperately seeking yield: - ETFs can play a role! Yields of common asset classes, as at Aug 2013 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% High Yield (forecast grossed up): 7.9% High Yield forecast yield: 5.8% Aus Listed Prop : 5.4% Aus EQ : 4.4% TDs: 3.5%, Aus Fixed: 3.5%, Aus Govt: 3.4% Aus Bank Bills: 2.6% 1.0% 0.0% Sources (as at Aug 2013): FactSet, RBA and Vanguard. Definitions: Bank Bills: UBS Bank Bill Index, TDs: Average 1yr rate, Aus Govt Bonds: UBS Government Bond Index, Aus Fixed: UBS Composite Bond Index TM, Aus Listed Prop: S&P/ASX 300 A-REIT Index, Aus EQ: S&P/ASX 300, Aus High Yield: FTSE ASFA Australia High Dividend Yield Index. > 10 Confidential
High Yield ETFs - Teasing out the main issues - a practice case study Implementation considerations: Construction of income streams Creating diversity of income streams Being sensitive to chasing yield Being in control of active risk Combining ETFs: -High Yield -Listed Property Securities -Fixed Income Choice of ETF vehicle: outcome preferences Range of outcomes, style biases, volatility, turnover Intelligently employing ETFs can improve risk-adjusted returns High Yield: Vanguard Australian Shares High Yield ETF Listed Property Securities: Vanguard Australian Property Securities Index ETF Fixed Income: Vanguard Australian Fixed Interest Index ETF > 11 Confidential
Important information Past performance is not an indication of future performance. In preparing the above information, individual circumstances, for example tax implications, have not been taken into account and it may, therefore, not be applicable to an individual s situation. Before making an investment decision, you should consider your circumstances and whether the above information is applicable to your situation. Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) ( Vanguard ) is the issuer of the Vanguard Australian ETFs. Vanguard ETFs will only be issued to Authorised Participants. That is, persons who have entered into an Authorised Participant Agreement with Vanguard ( Eligible Investors ). Retail investors can transact in Vanguard ETFs through a stockbroker or financial adviser on the secondary market. Investors should consider the Prospectus and Product Disclosure Statement in deciding whether to acquire Vanguard ETFs. Retail investors can only use the Prospectus and Product Disclosure Statement for informational purposes. You can access the Product Disclosure Statement and Prospectuses at vanguard.com.au. All rights in the FTSE ASFA Australia High Dividend Yield Index (the Index ) vest in FTSE International Limited ( FTSE ) and The Association of Superannuation Funds of Australia ( ASFA ). FTSE is a trade mark of the London Stock Exchange Group companies and is used by FTSE under licence. ASFA is a trade mark of ASFA. The Vanguard Australian Shares High Yield ETF (the "Product") has been developed solely by Vanguard Investments Australia Ltd. The Index is calculated by FTSE or its agent. Neither FTSE nor its licensors are connected to and do not sponsor, advise, recommend, endorse or promote the Product and do not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Product. Neither FTSE nor ASFA make any claim, prediction, warranty or representation either as to the results to be obtained from the Product or the suitability of the Index for the purpose to which it is being put by Vanguard Investments Australia Ltd. Standard & Poor s and S&P are trademarks of Standard & Poor s Financial Services LLC ( S&P ) and ASX is a registered trademark of the Australian Securities Exchange Limited ( ASX ). These trademarks have been licensed for use by The Vanguard Group, Inc. Vanguard ETFs are not sponsored, endorsed, sold or promoted by S&P or ASX and S&P and ASX make no representation, warranty or condition regarding the advisability of buying, selling or holding units/shares in the Vanguard ETFs. The marks and names "UBS Government Bond Index", "UBS Composite Bond Index " and "UBS Bank Bill Index " are proprietary to UBS AG ("UBS"). Any use of these indices or the index names must be with the express written consent of UBS AG acting through its Australia Branch. UBS has agreed to the use of, and reference to the "UBS Government Bond Index", "UBS Composite Bond Index " and "UBS Bank Bill Index " ("Indices") by us in connection with the Vanguard funds and ETFs and the website material but no Vanguard fund or ETF is in any way sponsored, endorsed or promoted by UBS. UBS assumes no responsibility for this website material or the ETFs. Vanguard assumes sole responsibility for producing this website material, which has not been reviewed by UBS AG. 2013 Vanguard Investments Australia Ltd. All rights reserved. Vanguard, Vanguard Investments and the ship logo are trademarks of The Vanguard Group, Inc. > 12 Confidential
ETFs & The Advisor Experience Int l Exposure
Return Illustrative example one: Use ETF allocation to improve portfolio outcomes Blending an ETF with a top quartile active manager: 3 year risk/return 18% 16% ishares S&P Global Consumer Staples (ASX Ticker: IXI) 14% 50/50 blend 12% 10% Example topquartile manager 8% 6% 4% 2% 0% 0% 2% 4% 6% 8% 10% 12% Risk Source: MPI Stylus Pro, Morningstar, BlackRock; 3 years to end August 2013; Past performance is not an indication of future performance. Example is strictly for illustrative and educational purposes only. This is not a recommendation to purchase or sell any security or financial product. FOR FINANCIAL ADVISER USE ONLY NOT FOR PUBLIC DISTRIBUTION 1
Illustrative example two: Using ETF liquidity to rebalance portfolios Existing International Equity Allocation New Allocation using 20% ETF rebalancing/liquidity sleeve Manager 3 20% IOO 10% IEM 6% IXI 4% Manager 2 30% Manager 1 50% Manager 3 16% Manager 2 24% Manager 1 40% Example is strictly for illustrative and educational purposes only. This is not a recommendation to purchase or sell any security or financial product. FOR FINANCIAL ADVISER USE ONLY NOT FOR PUBLIC DISTRIBUTION 2
Disclaimer FOR ADVISER USE ONLY NOT FOR PUBLIC DISTRIBUTION IMPORTANT INFORMATION Before investing in an ishares exchange traded fund, you should carefully consider whether such products are appropriate for you, read the applicable prospectus or product disclosure statement ( PDS ) available at ishares.com.au and consult an investment adviser. Issued by BlackRock Asset Management Australia Limited ABN 33 001 804 566, AFSL 225 398 ( BAMAL ) and BlackRock Investment Management (Australia) Limited ABN 13 006 165 975 AFSL 230523 ( BIMAL ). BIMAL and BAMAL are wholly-owned subsidiaries of BlackRock, Inc. (collectively BlackRock ). BlackRock believes the information in this document is correct at the time of issue, but no warranty of accuracy or reliability is given and no responsibility arising in any way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock. This information is general in nature, and has been prepared without taking into account any individual s objectives, financial situation, or needs. Transaction costs are incurred when buying or selling shares or units (as the case may be) of an ishares fund on the Australian Securities Exchange ( ASX ) and brokerage commissions if such trades are done through a broker. Neither the performance nor the repayment of capital or any income of an ishares fund is guaranteed by any BlackRock entity. Past performance is not a reliable indicator of future performance. Shares or units of an ishares fund trade on ASX at market price (not, net asset value ("NAV")). Shares or units may only be redeemed directly from an ishares fund by persons called Authorised Participants. An ishares fund is not sponsored, endorsed, issued, sold or promoted by the provider of the index which a particular ishares fund seeks to track. No index provider makes any representation regarding the advisability of investing in the ishares funds. Australian ishares funds: BIMAL is the Responsible Entity for the managed investment scheme Australian ishares funds quoted on ASX, and is the issuer of units in hose ishares funds. Each fund constitution provides that the liability of each unit holder is limited to its investment in the fund. In addition to the normal risks associated with investing, there may be risks associated with investments in smaller companies and those narrowly focused. International ishares funds: BAMAL is the local agent and intermediary for international ishares funds issued by ishares (ishares, Inc. ARBN 125632 279 formed in Maryland, USA; ishares Trust ARBN 125 632 411 organised in Delaware, USA. The liability of shareholders is limited). BlackRock Fund Advisors ( BFA ) serves as an advisor to the ishares funds that are registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940. BFA is a subsidiary of BlackRock Institutional Trust Company, N.A ( BTC ). BTC is a wholly-owned subsidiary of BlackRock, Trades on ASX in the shares of an international ishares fund are settled using CHESS Depositary Interests (or CDIs"). An investment in an international ishares fund has different risk, performance and return factors compared to investments in other listed securities that do not have international exposure. The marks and names UBS Treasury Index, UBS Composite Bond Index and UBS Government Inflation Index are proprietary to UBS AG ( UBS ). UBS has agreed to the use of, and reference to the UBS Treasury Index, UBS Composite Bond Index and UBS Government Inflation Index (the Indices ) by BlackRock in connection with the ishares UBS Treasury Index Fund, ishares UBS Composite Bond Index Fund, ishares UBS Government Inflation Index Fund, but the funds are not in any way sponsored, endorsed or promoted by UBS. The key symbol and UBS are among the registered and unregistered trademarks of UBS. UBS Treasury Index, UBS Composite Bond Index and UBS Government Inflation Index are services marks of UBS AG. BlackRock alone has produced this material, which has not been reviewed by UBS AG. UBS AG assumes no responsibility for this marketing material. Any strategies or examples discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective. The information provided is not intended to be a complete analysis of every material fact respecting any strategy and has been presented for educational purposes only. 2013 BlackRock, Inc. All rights reserved. ishares and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries. All other marks are the property of their respective owners. FOR FINANCIAL ADVISER USE ONLY NOT FOR PUBLIC DISTRIBUTION 3
ETFs & The Advisor Experience Cash & Alternatives
Efficient and Competitive Access to Cash BetaShares Australian High Interest Cash ETF (AAA) Interest Rate Comparison As at 12 August 2013 BetaShares High Interest Cash ETF (AAA) (Net) Avg. 1 year term deposit (1) Avg. Online Savings Account Rate (1) Wrap Cash Savings Account (2) RBA Cash Rate/ 11AM Accounts Avg. Online Broker Cash Account (3) 3.45% 3.56% 2.63% 2.60% 2.50% 1.75% Annualised Interest Rate earned by BetaShares Australian High Interest Cash ETF (ASX: AAA) after deducting Management Expense Ratio: Inception to 22 July 2013 6.0% 5.0% 4.0% 95bps 3.0% 2.0% 1.0% 0.0% Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Rate earned on AAA s bank account deposits. Excludes AAA s fees and expenses. Rate is variable. Current rate available at www.betashares.com.au (1) Average rate offered by major Australian banks (2) Average of current rate offered by three major provider (3) Average of rate offered by Comsec and E*Trade s Source: Bloomberg, BetaShares Source: Bank websites, wrap websites Past performance is not an indicator of future performance Confidential may not be distributed without the consent of BetaShares Capital A Member of Mirae Asset Financial Group
Inclusion of Alternatives in Balanced Portfolios Example: van Eyk Balanced Investor Profile Balanced Profile - 65% Grow th Assets Asset Class Strategic Asset Allocation (%) Australian Equities 28 International Equities 17 REITs/Infrastructure 12 Fixed Interest 18 Alternatives 20 Cash 5 Commodities Basket ETF (ASX:QCB) Agriculture ETF (ASX:QAG) Gold Bullion ETF (ASX:QAU) Confidential may not be distributed without the consent of BetaShares Capital Source: van Eyk Strategic Asset Allocation 2011 A Member of Mirae Asset Financial Group 19
ETFs & The Advisor Experience Execution
Execution with ETFs Broad market Aussie equity ETF via platform Wanted to minimise total cost to client, preference to do this at one price via planners preferred platform MM agreed on offer, arranged for match with platforms broker. Market maker Client Planner ETF Provider Heavy allocation to direct Aussie equities, was a looking for a way to fill potential gaps, with minimal investment cost. Wrap platform Settled delivery vs payment Broker p. 21
Execution with ETFs Variations on implementing a broad market equity ETF allocation Rebalancing Move broad market equity allocation to ETF, maintain 2 concentrated Aussie equity managed funds. Needed to transact $2.5mn over 35 client accounts on 1 day. Management fees reduced from 0.90% to under 0.60%. Ongoing rebalancing trade costs reduced from 0.20% to less than 0.05%. Leverage Under Section 67A(3) of the SIS Act, an ETF meets the criteria to be treated as a single acquirable asset Planner with $500,000 client allocation sought to trade in one line item, needed order to be filled within a reasonably short time frame. p. 22
Concluding Remarks Research is showing ETFs are now mainstream Advisor experience is showing that ETFs are being used effectively across; Single & multiple asset classes Across single and multiple client portfolios Significant amount of online tools & resources available for advisers and your clients Speak to the ETF issuers!
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