Fund Review BetaShares Global Sustainability Leaders ETF

Transcription

1 Fund Review BetaShares Global Sustainability Leaders ETF P 1-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: MICHAEL ELSWORTH ISSUE DATE Key Information INVESTMENT EXCHANGE TRADED FUND (ETF) LISTED ON THE TYPE AUSTRALIAN SECURITIES EXCHANGE ASX CODE PDS OBJECTIVE ETHI PROVIDE AN INVESTMENT RETURN THAT TRACKS THE PERFORMANCE OF THE NASDAQ FUTURE GLOBAL SUSTAINABILITY LEADERS, BEFORE TAKING INTO ACCOUNT FEES AND EXPENSES FUND INCEPTION FUND SIZE $34.4M (7 MARCH 2017) PROVIDER UNDERLYING FUND MANAGER RESPONSIBLE ENTITY OWNERSHIP NASDAQ NASDAQ FUTURE GLOBAL SUSTAINABILITY LEADERS BETASHARES CAPITAL LTD BETASHARES CAPITAL LTD 55% OWNED BY MIRAE ASSET GLOBAL INVESTMENT GROUP, 42% OWNED BY BETASHARES MANAGEMENT TEAM, 3% OWNED BY PRIVATE INVESTORS. DISTRIBUTION FREQUENCY SEMI-ANNUAL DERIVATIVE USE ALLOWED IN LIMITED CIRCUMSTANCES BUT CANNOT BE USED TO LEVERAGE THE FUND SECURITIES LENDING Fees MANAGEMENT FEE EXPENSE RECOVERY FEES THE FUND DOES NOT USE SECURITIES LENDING 0.49% P.A. UP TO 0.10% P.A. Top 10 holdings (at ) FACEBOOK INC 4.5% APPLE INC 4.3% HOME DEPOT INC 4.0% INTEL CORP 3.8% ROCHE HOLDING AG 3.7% VISA INC 3.5% MASTERCARD INC 2.3% 3M CO 2.3% MEDTRONIC PLC 2.3% CVS HEALTH CORP 1.8% Portfolio Information (at ) INFORMATION TECHNOLOGY 33.1% CONSUMER DISCRETIONARY 20.3% HEALTH CARE 19.3% FINANCIALS 8.3% UNITED STATES 72.1% JAPAN 7.2% SWITZERLAND 4.1% IRELAND 2.8% What this Rating means The Investment Grade Index rating indicates that Lonsec has conviction the financial product can generate risk adjusted returns in line with relevant objectives. However, if applicable, Lonsec believes the financial product has fewer competitive advantages than its peers. Strengths The Fund offers investors passively managed exposure to a portfolio of stocks that have passed a fairly strict and pragmatic ethical and socially responsible investment screening process. Compared to purely market capitalisation weighted ESG-focused indices, the Underlying Index promotes and up-weights investment into companies that are deemed to be Climate Leaders. Weaknesses The Fund s portfolio is reconstituted on an annual basis. A more regular reconstitution process would be preferred by Lonsec to ensure holdings remain consistent with the strategy. The engagement of a Responsible Investment Committee to implement some of the rules of the Underlying Index contains a greater level of subjectivity than most passive index products. Some of the ESG screening considerations may be difficult to calculate and quantify objectively. Fund Risk Characteristics BUSINESS SUSTAINABILITY RISK CAPITAL VOLATILITY FOREIGN CURRENCY RISK SECURITY CONCENTRATION RISK LOW MODERATE HIGH Risk categories are based on Lonsec s qualitative opinion of the risks inherent in the financial product s asset class and the risks relative to other financial products in the relevant Lonsec sector universe. BIOmetrics Aggregated risks STD RISK MEASURE A Standard Risk Measure score of 6 equates to a Risk Label of High and an estimated number of negative annual returns over any 20 year period of 4 to less than 6. This is a measure of expected frequency (not magnitude) of capital losses, calculated in accordance with AFSA/FSC guidelines. Features and benefits COMPLEXITY ESG AWARENESS LOW MODERATE HIGH We strongly recommend that potential investors read the product disclosure statement or investment statement. Lonsec Research Pty Ltd ABN AFSL. No This information must be read in conjunction with the warning, disclaimer and disclosure at the end of this document. This report supersedes all prior reports.

2 P 2-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: MICHAEL ELSWORTH ISSUE DATE Fee profile FEES VS LONSEC UNIVERSE FEES VS ASSET CLASS FEES VS SUB SECTOR LOW MODERATE HIGH Fee BIOmetrics are a function of expected total fee as a percentage of expected total return. What is this Fund? BetaShares, ( The Manager ) adopts a passive investment strategy in managing the BetaShares Global Sustainability Leaders ETF ( ETHI or the Fund ). The Fund is designed to track the performance of the Nasdaq Future Global Sustainability Leaders Index (or the Underlying Index ) before fees and expenses. The Underlying Index aims to provide an exposure to 100 global (ex Australia) companies which are climate change leaders and which are not materially engaged in activities deemed inconsistent with responsible investment considerations. The Manager will generally employ a full replication strategy of the Underlying Index. A full replication strategy invests in all securities and at the same weights as they are held in the Underlying Index. The Fund s portfolio as at 31 January 2017 comprised 95 stocks listed across the eligible 22 developed markets defined by Nasdaq ( the Index Provider ). Approximately 33% of the portfolio is in the top 10 holdings. Sector bias is tilted to companies within the Information Technology (33%), Consumer Discretionary (20%) and Health Care (19%) industries. Regional exposure is weighted to USlisted equities (72%). The Fund is unhedged and its assets are denominated in a variety of global currencies. The capital and income component will therefore be impacted directly by fluctuations between these currencies and the Australian dollar. As an Exchange Traded Fund ( ETF ) strategy, ETHI trades intra-day at prevailing market prices in a similar manner to other securities on the ASX. With the exception of voting arrangements, investors generally have the same ownership rights as investors in shares. All economic benefits such as dividends, bonus issues, rights issues etc. flow through to investors. Responsible investment checklist LONSEC RESPONSIBLE INVESTMENT (RI) RATING INTERNAL OR OUTSOURCED RI RESEARCH NEGATIVE SCREENING OF EXCLUDED INDUSTRIES POSITIVE SCREENING OF COMPANIES ON RI CRITERIA BIG MINING TOLERANCE MEMBER OF UNPRI PORTFOLIO SUSTAINABILITY MONITORED ACTIVE ENGAGEMENT WITH COMPANIES ON RI ISSUES DOES THE FUND ADHERE TO AN ESG CHARTER DOES THE MANAGER EMPLOY RESPONSIBLE INVESTMENT PERSONNEL MODERATE EXTERNAL NO NO NO Using this Fund This is General Advice only and should be read in conjunction with the Disclaimer, Disclosure and Warning on the final page. The Fund is a long-only, global equity product investing in large and mid-capitalisation stocks and as such, will generally sit within the growth component of a balanced portfolio. As a broad sector focused fund, Lonsec considers the Fund suitable for blending with value, growth, core, style neutral and/or other sector focused funds. The Fund screens stocks for a broad range of ethical factors and considers broader environmental and governance factors. Lonsec believes the Fund may suit investors seeking a portfolio of global equities (ex Australia) that is passively managed to replicate the performance of a RI-aware Index. The Fund does not vote in any corporate governance issues based on ESG factors. Suggested Lonsec risk profile suitability SECURE DEFENSIVE CONSERVATIVE BALANCED GROWTH HIGH GROWTH For guidance on appropriate asset allocations and risk profiles, refer to the latest Lonsec Strategic Asset Allocation Review and Risk Profile Definitions on our website. Lonsec RI Classification Lonsec s Responsible Investment sector includes funds adopting a variety of intensity in their responsible investment philosophy including Ethical, Socially Responsible Investing and ESG (Sustainability) approaches. Lonsec applies the following definitions to differentiate funds in the universe: Ethical: Negative screening of companies in certain industries deemed to have a harmful societal impact. Avoiding investments in bad companies is the overarching investment motivation. Socially Responsible Investing (SRI): Generally negative screening of certain sectors in line with above but may also include a positive screening element seeking to include socially responsible companies. Rewarding good corporate citizens is a partial investment motivation. Sustainable investing (ESG): A belief that those companies with advanced approaches to environmental, social and governance risk management will exhibit superior performance than companies with sub optimal approaches. While it is likely that these companies will tend to rank highly on corporate ethics, unlike ethical investment, financial performance is the overarching investment consideration. The Fund s Moderate Ethical classification is not an investment rating or recommendation. This classification is an indication only of Lonsec s assessment of the level of Ethical / Socially Responsible Investing (SRI) / Environmental, Social and Governance (ESG) criteria applied to, and evident in, the Manager s investment process. Investors must make their own assessment as to any trade-off between investment merit and the

3 P 3-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: MICHAEL ELSWORTH ISSUE DATE Manager s / Fund s degree of ethicalness that may be applicable. Changes Since Previous Lonsec Review This is Lonsec s initial review of the Fund. Lonsec Opinion of this Fund Established in 2009, BetaShares is a specialist provider of ETFs with approximately $3.7 billion in funds under management (FUM) across 38 exchange traded products as at February As a majority-owned subsidiary of Mirae, a large global asset management entity that operates a global ETF business, the Manager benefits from access to distribution, research and infrastructure of its parent. Lonsec considers technology and systems infrastructure to be an important factor in establishing a scalable index business. Relative to larger index managers, Lonsec notes that the technology and systems infrastructure at BetaShares is less well-developed. Given the returns of index tracking funds are driven by a mostly rules-based investment process, the active management decision that often rests with an individual portfolio manager is significantly reduced. As such, key person risk for the Fund is lower compared to that of an actively managed fund. That said, in the case of ETHI, some of the rules of the Underlying Index are enforced by a Responsible Investment Committee (RIC). The key person risk identified by Lonsec for ETHI is therefore somewhat higher than what is typically associated with a passively managed fund. The RIC meets monthly and presently consists of three members; Adam Verwey, David Nathanson, and Conor Platt. Lonsec believes that, in aggregate, the RIC is suitably qualified and skilled to apply the ESG screening methodology and process. In Lonsec s opinion, the credibility of the RIC may be further enhanced if a professional with a direct day to day involvement in the responsible investment of ex-us global equities was appointed. Importantly, Verwey and Platt will be compensated for their involvement on the RIC, which may mitigate some of the risk of the Fund becoming a set and forget portfolio. Furthermore, Lonsec notes that Verwey is a Founder and Executive Director of FutureSuper; a super fund which does not invest in fossil fuel companies. FutureSuper currently invests their global equities allocation in to the Fund (circa $15m). Lonsec believes Verwey s connection to FutureSuper acts as added motivation to be a pro-active Committee member and promotes an alignment of interests between the RIC and the Fund s investors. Lonsec considers the external research and data providers utitlised by Nasdaq and the RIC to be reputable sources of carbon emissions, ESG ratings, and responsible investment information. Lonsec notes that both the Underlying Index and the Fund are new to market and will monitor their returns as meaningful track records develop. The Fund is yet to demonstrate an ability to minimise performance differential and Tracking Error to the Underlying Index. The Fund charges a MER of 0.49%p.a. plus an additional 0.10%p.a. in Expense Recovery Fees. Relative to the Fund s most comparable peer, the Fund s baseline fee is significantly higher. That said, Lonsec considers the screening process and focus on ESG considerations to be materially more robust for this Fund. Relative to actively managed products with a responsible investment focus, Lonsec believes the Fund to be competitively priced. Due to the Fund s recent inception, no meaningful Bid / Ask Spread data is currently available. Lonsec views implementing a ethically and socially responsible investment strategy in the structure of a passively managed ETF to represent a distinct challenge. In this context, Lonsec believes the Manager has made a credible effort to provide investors with a portfolio that tracks a fairly transparent Index comprised of logical and robust RI considerations and rules. Lonsec believes that the RI aspects incorporated in the Underlying Index are considerably more rigorous and far-reaching relative to its closest peer. That said, Lonsec sees it is an area of weakness that the Underlying Index is only reconstituted formally once a year. Most indices tracked by ETFs reviewed by Lonsec adopt either a quarterly or semiannual reconstitution. In Lonsec s view, the annual reconstitution increases the likelihood that the Fund may continue to hold investments between rebalance dates in companies that violate the ethical investment rules of the Underlying Index. Inclusions in the Underlying Index are subject to a degree of subjectivity. Lonsec encourages prospective investors to visit the BetaShares website and access the portfolio holdings to make their own determination whether the Fund s holdings meet their understanding of socially responsible investing. Lonsec has initiated coverage of ETHI with an Investment Grade rating. Lonsec believes the Fund offers a credible entry-point for investment in ethically responsible global companies within a passively managed investment vehicle. Lonsec commends the depth and scope of the responsible investment (RI) considerations incorporated in the index rules of the custom-built Nasdaq Future Global Sustainability Leaders Index. That said, Lonsec holds reservations concerning aspects of the product s structure; in particular, the annual reconstitution. As part of future reviews, Lonsec will seek to gain greater comfort that the constituents of the Fund will consistently reflect the ethical investment mantra. People and Resources Corporate overview BetaShares Capital Ltd (BetaShares) is the Fund s Responsible Entity and is accountable for the ongoing management of the Fund s underlying assets. It is a wholly-owned subsidiary of BetaShares Holdings Pty Ltd (BetaShares Holdings). BetaShares Holdings was established in 2009 as a specialist provider of exchange traded products. It is 55% owned by Horizons, 42% owned by BetaShares s management team and the remainder owned by private investors.

4 P 4-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: MICHAEL ELSWORTH ISSUE DATE Horizons is a fully controlled subsidiary of the Mirae Asset Global Investments Group. Mirae is a Korean based asset management entity with over $100bn of FUM. Mirae is particularly active in emerging market equities and is currently expanding its ETF platform globally. The Horizons family of ETFs has over $11 billion in assets in ETFs listed across 6 countries. BetaShares has over $3.7bn of FUM across 38 ETF products as at February Size and experience NAME LOUIS CROUS POSITION SENIOR PORTFOLIO MANAGER & CIO EXPERIENCE INDUSTRY / FIRM 15 / 6 THONG HGUYEN PORTFOLIO MANAGER 11 / 5 DON HOANG CHAMATH DE SILVA ASSISTANT PORTFOLIO MANAGER ASSISTANT PORTFOLIO MANAGER 5 / 2 6 / 0 The BetaShares business currently employs 31 dedicated financial service professionals. More broadly, BetaShares benefits from access to the broader distribution, research, infrastructure and risk management systems and resources of its strategic partners. Investment Process Overview As an index-based ETF provider, the Manager does not employ analysts and portfolio managers to actively seek stocks expected to outperform a particular benchmark. The approach can be described as full replication, whereby the Fund will generally invest in all securities in the Underlying Index in the same weights they are held in the Index. The process is designed on maintaining and enhancing index tracking efficiency. UNDERLYING RETURN OBJECTIVE RISK OBJECTIVE STYLE NASDAQ FUTURE GLOBAL SUSTAINABILITY LEADERS REPLICATE THE RETURNS OF THE UNDERLYING MINIMISE TRACKING ERROR FULL REPLICATION Replication of the index BetaShares receive price feeds, corporate actions adjustments, and Underlying Index constituent information from Nasdaq on a daily basis. Nasdaq notifies BetaShares of any structural changes to the Underlying Index on an annual basis, and BetaShares portfolio construction models are used to ensure that constituent securities are optimised by the Fund at close to their Underlying Index weight. Derivatives Exchange traded derivatives will only be used in limited circumstances and will not be used to leverage the Fund. The value of such derivatives is not expected to exceed 5% of the Fund s Net Asset Value. Underlying index The Underlying Index was custom-built for BetaShares by NASDAQ OMX Group, Inc. ( Nasdaq ) and launched in November BetaShares had significant input into the design of the Underlying Index. Within their index business, Nasdaq calculates over 40,000 diverse indices. The starting universe comprises approximately 6,000 securities for which greenhouse gas emissions data is available from Trucost. This is then filtered to include only companies from 22 developed (ex Australia) markets as defined by Nasdaq. Nasdaq adopts a similar developed market universe as per the more widely recognised MSCI World Index; the difference being that MSCI considers Israel a developed market whereas Nasdaq does not, and includes Luxembourg instead. Free-float market capitalisation (min $3bn USD) and three-month average daily trading volumes screens (min $1m USD) are then applied. From here, a Responsible Investment Committee (RIC) is engaged by the Manager and the Index Provider to to act as an external advisory board responsible for determining the list of securities that pass a three-part responsible investment checklist. The RIC currently comprises of three investment professionals; Adam Verwey, David Nathanson and Conor Platt. The ethical investment considerations are listed below; 1. Carbon impact: A company must have a carbon efficiency that is at least 60% above the average for its industry. Carbon efficiency is based on the greenhouse gas emissions from a company s operations, fuel use, and supply chain, and divided by its market capitalisation. 2. Scope 4 (or avoided) carbon emissions: Superior performers in relation to Scope 4 carbon emissions are those companies involved in commercialising technologies that have net positive climate benefits through substantial greenhouse gas emissions reductions ore sequestration. Companies that qualify typically include those with primary business activities in renewable energy, energy efficiency, sustainable agriculture and land use, and carbon sequestration. All data relating to carbon emissions is provided by Trucost. Trucost provides sustainability data and insight to drive resilient, profitable business models and investment strategies. Trucost have been recently acquired by well-known index provider, Standard & Poor s (S&P). 1. ESG: The remaining universe is screened to remove companies which are exposed to activities that carry significant negative ESG risk (subject to certain materiality thresholds). Activities and their maximum exposure limit (as % of total revenue) is listed below: Fossil Fuels direct (0%). Companies which have fossil fuel reserves, fossil fuel infrastructure, or involved in the mining, extraction, burning of fossil fuels. Fossil Fuels indirect (5% for products and services; not applicable for financing). Companies which provide products, services, or finance which is specific to and significant for the fossil fuel industry, as well as companies with very high use of fossil fuels.

5 P 5-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: MICHAEL ELSWORTH ISSUE DATE Gambling (0% for casinos and manufacture of gaming products; 5% for distribution of gambling products). Tobacco (0% for production or manufacture; 5% for sale of tobacco products). Uranium and Nuclear Energy (0% for uranium mining and nuclear energy; 5% for products and services to nuclear energy). Armaments and Militarism (0% for manufacture of armaments and weapons; 5% for specific and significant services to military and armaments manufacture). Destruction of Valuable Environments (0%). Companies which have direct negative impact on recognised World Heritage and High Conservation areas. Animal Cruelty (0%). Companies involved in live animal export, animal testing for cosmetic purposes, factory farming, or controversial animal products (ivory, foie gras etc.) Chemicals of Concern (0%). Companies which produce or use chemicals of concern recognised by UN Environmental Program; Gold and Silver miners. Mandatory Detention of Asylum Seekers (0%). Companies which operate detention centres. Alcohol (20%). Companies which produce or sell alcohol. Junk Foods (33%). Companies which produce or sell junk foods. Pornography (0% for production of pornography; 5% for sale of pornography). Fines and Convictions Fines or convictions equal to or above $10m USD over the last 3 years. Human Rights Evidence of human rights violations including child labour, forced labour, sweatshops, bribery and corruption. Initially, GICS industry classifcations are used to process exclusions for the above ESG factors. For example, stocks classified under a range of specified GICS categories (i.e. Oil and Gas Drilling, Casinos and Gaming, Tobacco, Brewers, Distillers and Vintners, etc) are disregarded. Companies may then be removed based on revenue contribution considerations. This data is generally sourced from company financial reports. A degree of qualitative assessment is required to apply some of the remaining ESG screens. In relation to human rights and supply chain issues, information is predominately sourced from the Ethical Consumer Guide, Know More, the Business and Human Rights Resource Centre, Behind the Barcode and Human Rights Watch. Companies which receive a fail grade from such groups (to the extent they produce reports that include rankings or grades) are excluded. Company websites, company annual reports, EIRIS Global Database and Thomson Reuters Eikon are also consulted. A list of eligible securities is passed onto Nasdaq from the RIC at the annual reconstitution (and updated as per necessary throughout the year). Nasdaq ranks the globally sustainable companies identified by the RIC by market capitilsation and the largest 100 are selected. That said, five of the 100 securities in the Underlying Index must be Climate Leaders based on Scope 4 carbon emissions. At the time of Lonsec s review, there was only the minimum five in the Index. According to the Manager, this is to be expected, as companies that qualify as being superior performers in relation to Scope 4 carbon emissions generally have lower market caps and therefore do not make the Index without specific rules to up-weight them. The Underlying Index is rebalanced annually in April (using end of March data) at which time constituents are given a minimum Index weighting of 0.5% and capped at 4.0%. Index changes are enforced as at the last Business Day of April. Buffers are in place (i.e. if stock falls between in market cap ranking and/or between 50-60% on carbon emissions, it is maintained) at the annual rebalance. The RIC is due to hold monthly meetings to monitor Index constituents to ensure they have not violated the above ethical investment considerations. There is an automatic deletion clause so if at any time during the year, a constituent no longer meets the eligibility criteria, it is removed from the Index and not replaced. Standard index rules also apply i.e. a company must be not currently in bankruptcy proceedings. METRIC PROVIDER / OWNER DATA NASDAQ OMX GROUP (CUSTOM BUILT IN LIAISON WITH BETASHARES) LAUNCHED 23 NOVEMBER 2016 RESPONSIBILITY FOR CALCULATION CONSTITUENCY DETERMINATION MARKET COVERED NASDAQ 22 DEVELOPED MARKET (EX AUSTRALIA) COUNTRIES LARGE & MID-CAP EQUITIES TYPICAL NUMBER OF HOLDINGS 100 WEIGHTING METHODOLOGY REBALANCING FREQUENCY RECONSTITUTION FREQUENCY MARKET CAPITALISATION (MIN 0.5%; MAX 4.0% AT TIME OF REBALANCE) ANNUALLY ANNUALLY (UNLESS OTHERWISE REQUIRED) Transparency BetaShares website is both comprehensive and user-friendly. It is designed as a self-service website with information relating to performance and current holdings for all BetaShares ETFs. Liquidity The constituents of the Fund comprise predominantly large-cap stocks listed on global developed market stock exchanges. Investors should be aware that during normal market conditions, liquidity for these securities will not be a concern. However in times of market stress, some securities, particularly those smaller companies (by market cap) that are included for being Climate Leaders, may experience more challenging liquidity conditions. Liquidity is further supported by Market Makers and Authorised Participants. The Fund had $34.4m in FUM as at March 2017 making it small in terms of size relative to broad based global equity ETF peers. All else being equal, ETFs with higher levels of FUM are generally more liquid than ETFs with lower levels of FUM. Lonsec acknowledges that the Fund only recently came into inception and will monitor

6 P 6-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: MICHAEL ELSWORTH ISSUE DATE growth in FUM, average daily trading volumes, and the average premium / discount to NAV in future reviews. Fees and Indirect Costs Fee Comparison FUND NAME BETASHARES GLOBAL SUSTAINABILITY LEADERS ETF (ETHI) UBS IQ MSCI WORLD EX AUSTRALIA ETHICAL ETF (UBW) MER (% P.A.) BID/ASK SPREAD (%)* 0.59 N/A * Source: ASX. Average daily bid/ask spread over 12 months to January The Bid / Ask Spread represents an average over a one year period and does not reflect the actual spread incurred. ETF investors incur both direct and indirect costs / fees. Direct fees include the management expense ratio (MER) and brokerage incurred when buying and selling units. Indirect costs include Bid / Ask spreads when buying or selling units. The Fund has a higher fee base, comprising a MER of 0.49%p.a. and Expense Recovery Fees of up to 0.10%p.a., relative to its comparable peer. No meaningful average Bid / Ask Spread comparison is able to be made due to the Fund s recent inception. Lonsec notes there are limitations to the use of these measures as an indication of the total cost of transacting ETFs. The Bid / Ask spread represents an average observed spread over a one year period but may not reflect the actual spread incurred. Investors can use limit price orders which allow them to nominate a price at which they can buy and sell. Performance The Fund commenced in January As Lonsec prefers to consider performance over longer time periods, it will continue to monitor the performance of the Fund as a more significant track record develops. Risks An investment in the Fund carries a number of standard investment risks associated with domestic and international investment markets. These include economic, political, legal, tax and regulatory risks. These and other risks are outlined in the Fund Prospectus and should be read in full and understood by investors. Lonsec considers the major risks to be: Equity market risk Investments in equity markets are subject to numerous factors which may have an impact on the performance of an investment (both positive and negative). Unexpected changes in economic, technological, structural, regulatory or political conditions can have an impact on the returns of all investments within a particular market. Tracking Error risk The Fund seeks to minimize the Tracking Error against the Underlying Index it aims to match. There is no guarantee that this objective will be met. Derivative risk The Manager may utilise derivative instruments, including futures to equitise cash, and risk management purposes. Derivatives will not be used to leverage the portfolio. Liquidity risk The Fund s shares trade intra-day at prevailing market prices in a similar manner to other securities on the ASX. Listing or trading on a stock exchange does not guarantee that a liquid market exists for an ETF. Foreign exchange risk Returns from any investment in the Fund may be eroded or enhanced due to the effects of movements in the AUD relative to the local currencies of the securities in the Fund. Taxation Lonsec advises investors to consult a taxation specialist before making a decision to invest (or not to invest). Investors should refer to the PDS for further information. Further information Further information can be obtained by calling BetaShares on or visiting Quantitative Performance Analysis The Fund commenced in January As Lonsec prefers to consider performance over longer time periods, it will continue to monitor the performance of the Fund as a more significant track record develops.

7 P 7-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: MICHAEL ELSWORTH ISSUE DATE Glossary Bid / Ask Spread The amount by which the ask price exceeds the bid price. Average % Spread = (ask-bid / midpoint as measured daily from 10.30am pm). Absolute Deviation from NAV (daily) The average absolute difference between the Fund s market price and its NAV. It is a measure of liquidity and market efficiency. The market price is determined by using the last price of the day on the listed exchange. The valuation time for NAV ETFs is generally the close of trading on each trading day, but may vary depending on ETF product provider. Premium / Discount to NAV (daily) The amount that the Fund s market price is above the reported NAV is called the premium. The amount that the Fund s market price is below the reported NAV is called the discount. The market price is determined by using the last price of the day on the listed exchange. The valuation time for NAV ETFs is generally the close of trading on each trading day, but may vary depending on ETF product provider. Lonsec Implied Cost Indicator An indicative measure of the cost of transacting in the fund, taking into account the Management Fee, additional fees such as expense recoveries and the Bid / Ask Spread. Net Asset Value (NAV) The per share dollar amount of the fund calculated daily by dividing the closing market value of all securities in the fund, less any liabilities, by the number of fund shares outstanding. Performance Top line actual return, after fees. Standard Deviation Volatility of monthly Performance. Time to Recovery The number of months taken to recover the Worst Drawdown. Tracking Error Volatility of monthly Excess Returns against the benchmark (the Standard Deviation of monthly Excess Returns). Tracking Difference (Excess Return) Difference in return between the Fund and the benchmark. Worst Drawdown The worst cumulative loss ( peak to trough ) experienced over the period assessed. Responsible Investment definitions Light / Moderate / Substantial A relative measure of the depth of RI consideration within the Fund s investment process: Light small number of excluded industries, little positive screening of companies on RI factors. Moderate moderate number of excluded industries, consideration of positive screening and occasional evidence of investment on those grounds. Substantial large number of excluded industries significantly reducing investible universe, extensive positive screening and regular evidence of investment. Internal or outsourced RI Research Whether the Manager utilises the services of a specialist external research specialist provider for provision of Responsible Investment research or performs this aspect of the investment process in-house. Negative screening of excluded industries Whether the Fund employs negative screening of the investment universe to avoid investing in companies in certain sectors (eg. alcohol and gaming). Positive screening of companies on RI criteria Whether the Fund employs positive screening to identify companies making a positive contribution to the community or society. Big Mining tolerance Whether the Fund can invest in large cap mining stocks (eg. BHP Billiton and Rio Tinto). Member of UN PRI Whether the Manager is a signatory to the United Nations backed Principles for Responsible Investment (PRI). Portfolio Sustainability Monitored Whether the Manager regularly monitors the ethical / SRI / ESG attributes of the overall portfolio either against internal benchmarks (such as in comparison to the Manager s mainstream core Australian equity fund) or externally (eg. compared to a sustainability index or via the input of an ESG ratings provider). Active Engagement with companies on RI issues Whether the Manager takes an active approach to its investment holdings and seeks to engage with companies to improve perceived areas of weakness on ESG issues (eg. poor environmental risk management, workplace culture, reputational damage or executive remuneration practices). ESG Charter A policy document outlining the Fund Manager's ESG approach including how ESG criteria are taken into account within the investment process.

8 ISSUE DATE P 8-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: MICHAEL ELSWORTH About Lonsec Lonsec Research Pty Ltd (Lonsec) is an investment research house with specialist areas of expertise, that was originally established in 1994 and the current entity was registered on 23 June From 1 July 2011, Lonsec became a fully owned subsidiary of Lonsec Fiscal Holdings Pty Ltd, a privately owned entity with a multibrand strategy of providing leading financial services research and investment execution. Lonsec believes that professional financial advisers need informed opinions on the best investment strategies and financial products to provide real value for their clients. To meet this need, Lonsec has in place an experienced research team, which draws on a robust research process to undertake in-depth assessment of managed fund products. Analyst Disclosure and Certification Analyst remuneration is not linked to the research or rating outcome. Where financial products are mentioned, the Analyst(s) may hold the financial product(s) referred to in this document, but Lonsec considers such holdings not to be sufficiently material to compromise the rating or advice. Analyst holdings may change during the life of this document. The Analyst(s) certify that the views expressed in this document accurately reflect their personal, professional opinion about the matters and financial product(s) to which this document refers. LONSEC STRONGLY RECOMMENDS THIS DOCUMENT BE READ IN CONJUNCTION WITH THE RELEVANT PRODUCT DISCLOSURE STATEMENT OR INFORMATION STATEMENT IMPORTANT NOTICE: This document is published by Lonsec Research Pty Ltd ABN , AFSL No (Lonsec). Please read the following before making any investment decision about any financial product mentioned in this document. Disclosure at the date of publication: Lonsec receives a fee from the fund manager or product issuer(s) for researching the financial product(s) set out in this document, using objective criteria. Lonsec may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec services. Lonsec s fee is not linked to the rating(s) outcome. Lonsec does not hold the product(s) referred to in this document. Lonsec s representatives and/or their associates may hold the product(s) referred to in this document, but details of these holdings are not known to the Analyst(s). Disclosure of Investment Consulting services Lonsec receives fees for providing investment consulting advice to clients, which includes model portfolios, approved product lists and other financial advice and may receive fees from this fund manager or product issuer for providing investment consulting services. The investment consulting services are carried out under separate arrangements and processes to the research process adopted for the review of this financial product. For an explanation of the process by which Lonsec manages conflicts of interest please refer to the Conflicts of Interest Policy which is found at: Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to General Advice (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs ( financial circumstances ) of any particular person. It does not constitute a recommendation to purchase, redeem or sell the relevant financial product(s). Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If our advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Investment Statement or Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product. Lonsec s research process relies upon the participation of the fund manager or product issuer(s). Should the fund manager or product issuer(s) no longer be an active participant in Lonsec s research process, Lonsec reserves the right to withdraw the document at any time and discontinue future coverage of the financial product(s). The rating in this publication relates to the fund outlined in the publication which may have related funds or be associated with other funds and platforms. The rating may only be applied to the fund outlined in this publication at first instance and whether it applies to related or associated funds and platforms should be investigated by your financial adviser before you make an investment decision in relation to the related or associated funds and platforms. You should be aware that the mandate, fees, underlying investments, the issuers of the related and associated funds and platforms may be different from the fund specified in this publication. You should satisfy yourself that the related and associated funds and platforms meet your financial circumstances, needs and objectives before making an investment decision. Disclaimer: This document is for the exclusive use of the person to whom it is provided by Lonsec and must not be used or relied upon by any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by Lonsec. Financial conclusions, ratings and advice are reasonably held at the time of completion but subject to change without notice. Lonsec assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. Copyright 2017 Lonsec Research Pty Ltd (ABN , AFSL No ) (Lonsec). This report is subject to copyright of Lonsec. 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