All ETF Portfolio investing?

Transcription

1 All ETF Portfolio investing? 2016 AGM Sydney 12 July 2017 Dr Doug Turek Managing Director

2 About this presentation About Doug Turek This is general information not advice I don t know you and by law I can t give you advice until I do and only in writing and not via a lectern Please do your own research, or speak to a licensed financial advisor, before making any investment decisions. Products referred here aren t here recommended Please respect our of this presentation MD Professional Wealth -Independently owned wealth advisory and money management firm Passionate about financial literacy via (ABC, Eureka, AIA, ASA, Wealth benchmarks) Former industry consultant with The Boston Consulting Group Australian by birth - 1 -

3 Questions to answer What is an ETF? Why should you care? What types are there? What portfolio(s) could you build using (just) them? - 2 -

4 Exchange Traded Fund is a multi-investor fund holding investable assets legally a unit trust o Investors have beneficial ownership of investments owned in (by a) trust o Trustee of the trust is the Fund Manager o Assets held with a 3 rd party Custodian investors buy/sell trust units on the stock exchange ASX via Comsec, e*trade, nabtrade, open-ended so value of assets held closely matches unit price unit price = $ assets / # units not closed ended like LICs and REITs where price <> value don t match nearly all are passive, low turnover investors tracking an investable index Unlike many active style funds (most unlisted except LICs and which are higher cost and follow investment manager s view on stocks and markets) - 3 -

5 not an EFT Electronic Funds Transfer - 4 -

6 Indexing is a popular strategy More than US$10 trillion of global assets invested following an index US$2t alone following the S&P 500 Top 500 US companies traded, as tracked by Standard & Poors About $1 in each $5 (~ 20%) equities worldwide invested follow an index Index investing means Buy all assets in the index in the proportion usually to market weight, relative company value Buy and hold, don t trade, buy only after IPO, sell after delisted/merged Low cost, low turnover Index funds been around since 1975 Exchanged traded index funds been around since 1993 First in the US tracking the S&P in Australia (first, still biggest is State Street SPDR STW tracking top 50) Now nearly A$30b invested across 157+ funds - 5 -

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8 Many reasons why you might use an ETF (and index) Simple and cheap way to invest in a diversified manner (MER bps or %) especially for offshore investing Want to complement holdings (eg. buy mid or small caps to compliment top 10 holdings) Believe asset allocation drives most portfolio returns not stock picking or market timing view ETFs as building blocks of a portfolio Want to back a region or country (eg. Asia, Korea!) or sector view (eg. tech, infrastructure) Simple/cheap way to invest in gold, other precious metal, commodity, currency, Simpler way to buy bonds (not over the counter (OTC) and in large $$$ amounts) Speculate/trade, not just invest Hedge risks (eg. buy currency ETF to protect from falling A$, buy currency-hedged fund) Access strategies (eg. high dividend, value, smart beta, low vol, buy/write, dynamic protection, short/bear, geared, ethical and active ) Trade a listed ETF or buy/sell an unlisted index fund? Minor fee differences, brokerage vs buy/sell spread, portfolio management,

9 and why not? Belief you or someone you hire can beat the market Think the index is flawed (eg. small ordinaries, concentrated ASX, for bonds, ) Feel can build own index with local stocks Prefer direct ownership (eg. shares, commodity) Legacy holdings that would incur tax to replace Concerns with specialist, derivative, synthetic ETFs (eg. geared, short, ) - 8 -

10 Most professional actively managed funds underperform Perhaps only Australian small company investing best not done via indexing - 9 -

11 even darling fund managers don t always outperform

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13 ~ 50%

14 You prefer? or No not another coffee order

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16 Australian ETF categorises 157 at last count on 30 June Australian share ETFs 8 broad based (following ASX20,50,200,300, RAFI-weight, ) 8 small or mid cap (Midcap50, Small Ordinaries 100+, dividend payers ) 10 high dividend payers (focused on biggest dividend payers) 9 sectors (financials, resources, REIT,..) 8 strategies (value, equal-weight smart-beta, ethical ) See also:

17 and 71 to help you invest offshore 38 Global share ETFs 10 broad based companies (World, Global100, EAFE, A$-hedged, x-listed ) 16 sectors (tech, property, energy, cybersecurity, healthcare, consumer staples, telco, gold-miners, banks, agriculture, infrastructure ) 12 strategies (managed risk, sustainability, minimum volatility, multi-factor/smart beta, active) 33 Country/region ETFs 12 USA (SP500, NASDAQ (tech), both, small, mid, RAFI-smart beta, ethical ) 5 Europe (include or exclude Britain, currency hedged, ethical ) 12 Asia Pacific (Japan, China, Singapore, South Korea, Asia50, hedged ) 4 Emerging Markets (3 multi-country, BRIC)

18 5 funds to speculate on market direction (down or up) BEAR strong bear BBUS returns inverse to Australian share market (less 1.2% fee) with leverage returns inverse to US S&P500 shares GEAR geared US invest in 200 large Australian companies enhance with borrowing or investing in the US

19 18+ ways to invest in local and offshore bonds 13 local bond funds (cash, broad-bond index, treasuries-only, semi-governments only, companies-only, inflation linked floating rate bonds (new post 1 July) 5 overseas bond funds all A$-hedged (corporate, high yield (non-investment grade), emerging markets, government, non-government credit) Returns = f(interest rate/bond price moves, credit risk, duration, ) Not all competitive with TDs and high yielding deposits

20 11 ways to speculate on prices of 4 gold (in US$ or A$, without or with right to redeem into physical) 4 other precious metals (palladium, platinum, silver, precious metals) 1 agricultural commodities in A$ 1 commodities in A$ (esp. energy) 1 crude oil in A$

21 7 ETFs to profit/protect from movement of currency US dollar (2) and leveraged (2) Renminbi British-pound Euro New A$-currency hedged funds also added for investing in foreign equities and commodities which take currency effect out

22 and only 2 multi-asset funds, dynamically allocated 2 funds managed by AMP ( DMKT ) and Schroder ( GROW ) which seek to dynamically change mix of assets (varying % of local and overseas shares, bonds ) or just build your own (eg. Blackrock i-shares suggested Model Portfolios)

23 ETFs can be building blocks in (all?) your portfolio

24 Five years ago I proposed the first all ETF portfolios in Australia then there were 81 ETFS, so what now?

25 1) A simple balanced portfolio Could now do with 3 not 4 funds VTS & VEU replace with VGS (Global) While the above portfolio is a neat illustration, I wouldn t invest in it

26 2) A more sophisticated portfolio

27 New innovations worthy of further investigation / adjustment? in order of usefulness? Simpler International ex-australia funds and hedging [WXOZ & WXHG, VGS & VGAD] Value/Quality/Momentum biased, alternative-indexing, smart beta type funds that may add value correcting for excesses in market-cap based index s [AUMF, QOZ, WDMF, QMIX] More ways to de-risk financials/large company concentration risk New midcap funds [EX20, MVE]; good diversifier to top direct share portfolio New small company funds not targeting easy to beat index [MVS, SMLL] New ways to invest in infrastructure [IFRA, GLIN,MICH] More income from buy/write and harvesting [UMAX, YMAX, HVST] more franking credits but not necessary more return trading capital for income New ethical and sustainable options [UBA, MVW,ETHI, RARI] Downside risk (for a price) management [HVST, WRLD] Quality and low volatility companies? [MVOL, WVOL, ETF]

28 Some possible alterations (equities) add EX20 or MVE to add midcaps use MVS or SMLL instead of small ordinary tracking funds Replace with new smart beta more diversified, semi-active funds like QOZ or AUMF Now more than 10 to choose from if seeking extra income Instead of US + ex-us x-listed Use all ex-australia combined like WXOZ and VGS (unhedged) and perhaps add some allocation to A$hedged depending on A$ level (WXHG, VGAD) Use instead new smart-beta tilt WDMF Add infrastructure like IFRA Dilute local /add more Int l Property DJRE

29 Some possible alterations (debt/defensives) Hold % more, 2x or 10%? Hold % more, 2x or 20%? Add new floating rate bond fund QPON? Hold % less fixed rate bonds Add Int l bonds A$-hedged IHCB global corporate Hold less? Hold direct semi-gov t or corporate? Review any commodity/gold holdings Hold physical not ETF?

30 In summary Index funds and those traded on the exchange (ETF) deserve consideration Offer low cost diversification; most simply, cheaply and transparently May suit those willing to implement their more sophisticated portfolio design and others with conviction about which asset classes to back or avoid With so many ETFs on offer important you must have a framework for selection Detailed research about the index, holdings and provider important

31 Dr Douglas Turek Managing Director Professional Wealth Pty Ltd AFSL No /350 Collins Street GPO Box 4975 Melbourne VIC 3001 Australia p e dturek@professionalwealth.com.au w