Category: ETFs

Exchange Traded Funds (ETF’s) are one of the fastest growing category of investments. ETF’s offer transparent, low cost and simple to use investment option. ETF’s can be used as core holdings in a portfolio and building blocks in portfolio construction. They can also be used to build a core portfolio of broadly diversified indices or asset class. Buying and selling ETF’s is exactly like shares , they can be bought and sold at any time during the ASX trading.

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ETFs ETFs

BetaShares ETF to allow investors to invest in Companies identified as Climate Leaders

Investment Objective

ETHI aims to track index performance (before fees and expenses), which includes a range of large global stocks that have also passed screens to exclude firms with direct or significant exposure to fossil fuels or which have been engaged in activities that are considered inconsistent with responsible investment considerations. ETHI is responsible for the monitoring of the index.

Investment Strategy

  • The fund offers investors the chance to link their ethical values with their interests. 
  • ETHI integrates a wide range of ESG criteria with positive climate leadership screens, providing an authentic ethical investment approach.
  • ETHI holds a diversified portfolio from a range of worldwide locations of major, sustainable, ethical enterprises.

Portfolio Objective

  • Provide diversified exposure to globally listed ethical shares.
  • Prefer companies classified as “climate leaders”.
  • True to designate the methodology of ethical investment.

Positives 

  • Shares, currencies, and markets are all used to diversify.
  • Exposure to international ethical shares at a low cost
  • Distributions are made on a semi-annual basis.

Negatives 

  • Share market volatility may cause the portfolio value to fluctuate during the holding period. 
  • It is more concentrated in comparison and it excludes major market sector that may experience strong returns. 
  • Fund may changes their cost and fees. 

Company Profile 

BetaShares is a well-known manager of ETFs and other funds traded on the ASX.  The company was founded in 2009 and now has over 60 products available, all of which can be bought and sold on the ASX.  The company seeks to offer investors simple, liquid, and cost-effective access to Australian and global shares, cash and fixed income, currencies, commodities, and active and alternative strategies. 

ETF Performance…

Figure 1: Fund performance as at 31 July 2021

(%)FundBenchmark
1-month+3.74 %+3.79%
3-months+11.26%+11.44%
6-months+21.98%+22.25%
1-year +35.34%+35.89%
3-year (p.a.)+25.60%+26.21%
Since Inception (p.a.)+23.43%+23.92%

Source:BetaShares

ETF Positioning…

Figure 2: Top ten holdings

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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ETFs ETFs

Vanguard MSCI ETF gives exposure to companies to deliver long term growth

Investment Objective

Vanguard MSCI Index International Shares ETF seeks to track the return of the MSCI World ex-Australia (with net dividends reinvested), in Australian dollars Index, before taking into account fees, expenses and tax.

Investment Strategy

The fund provides exposure to many of the world’s largest companies in major developed markets and countries. The fund seeks to deliver this exposure efficiently by keeping the costs low. There fund offers diversification through number of securities, sectors, and markets and gives exposure to companies with the potential to deliver long term capital growth. The fund offers investors exposure to economies other than just Australia’s. The fund is also exposed to various currencies and their fluctuating prices, though the fund will not hedge foreign currency volatility against Australian dollar.  

Portfolio Objective

  • Provide diversified exposure to internationally diversified global shares.
  • Capital growth over the long term.
  • Currency exposures and diversification away from Australia.

Positives

  • Diversification by sectors, securities, regions, and currencies.
  • Low cost exposure to globally diversified portfolio.
  • Quarterly distributions. 

Negatives 

  • Share market and currency volatility could cause the portfolio value to go up and down during the holding period.  
  • The index tracking capability of the fund may fail to meet the objectives of the fund.
  • The fees and costs of the fund may change.

About the Company

The Vanguard Group has been in Australia since 1996 and currently has $140billion of assets under management.  The Group manages some 82 funds with head office in Melbourne, Australia. The Vanguard Group, globally, has been operating since 1975 with $1.6 trillion of asset under management. The global group manages 400 funds with 30 million investors worldwide.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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ETFs ETFs

Vanguard Australian Shares High Yield ETF

 The benchmark leans toward the highest-dividend payers, excluding property trusts. The index provider ranks all dividend-paying stocks based on their dividend yield forecast for the next year and constructs the index using stocks that make up the top 50% of the floatadjusted market capitalization. Industries are capped at 40% and individual stocks at 10%. The index is rebalanced semiannually, and in 2018, it changed its rules around buying and selling so that stocks are added or removed more gradually. This should increase the portfolio to around 55 names from 45 and reduce stock turnover, though it will likely remain higher than market-cap-weighted index funds. Vanguard’s global presence allows the Australian team to leverage the U.S. team’s extensive indextracking experience.

Portfolio

The FTSE Australia High Dividend Yield Index is a real-time, market-cap-weighted index comprising companies with higher-than-average forecast dividends. The biggest sector exposure is financial services, at around 39%-40% of the portfolio. The fund’s exposure to materials has historically been volatile. Following dividend cuts in the sector, exposure dropped to 4% in 2016 from 20%. However, a fall in Rio Tinto’s share price and corresponding increase in yield saw the stock return to the portfolio in June 2017, increasing the fund’s exposure to the sector to 21%. That came at the expense of industrials exposure, which fell to zero. As of 30 June 2021, materials exposure was at 23%. This highlights the risk of “dividend traps” in a rules-based strategy. The portfolio has an underweighting in the high-growth sectors of technology and healthcare, as these companies typically reinvest a large proportion of their cash flow into research and development to drive future earnings growth rather than focusing on high dividend payouts. Real estate investment trusts are excluded. More than half the portfolio is in giant caps, with the balance mostly in large and medium caps. The portfolio’s exposure to cyclical/sensitive names has increased over the years and currently stands at 93%, implying high dependence on the domestic economic cycle.

Performance

Vanguard has fared relatively well over the long term, but short- and medium-term results have been a drag. Moreover, the annual return track of the strategy is visibly inconsistent as compared with its category index. In 2012 and 2013, the strategy delivered 24.5% and 26.5%, respectively–incredible relative and absolute returns. But investors should be cautiously optimistic about a repeat of such performance as the fund delivered equally subdued relative performance in 2014, followed by a 4.22% decline in 2015 and category benchmark relative underperformance of negative 1.2% in 2016. Poorly timed buys into materials such as BHP and Rio Tinto hurt in 2016. Vanguard recouped some of these losses in 2017, though this was curtailed as exposure to Telstra took a bite out of returns. As the banking industry came under pressure because of falling property prices and the focus of the Royal Commission in 2018, returns were again below the broader market.

Source: Morning star

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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ETFs ETFs

Vanguard Australian Shares ETF (ASX: VAS)

Vanguard Australian Shares ETF (ASX: VAS) is an appealing and efficient alternative for investors seeking exposure to the broader Australian equities market. The strategy’s cost-value balance, in particular, is unrivalled. At 0.10 percent per year, it is one of the most affordable exchange-traded funds that provide diversified domestic equities exposure. Vanguard Australian Shares ETF seeks to provide broad Australian share market exposure in a passively managed, tax-efficient vehicle. To achieve that goal, the strategy uses an index-replication approach to track the S&P/ASX 300 Accumulation Index. The fund’s large size brings economies of scale to the effort and allows Vanguard to invest in virtually all the securities that make up the index. Security weightings are approximately the same proportion as the index’s weightings.
However, the portfolio will deviate from the index when the managers believe that such deviations are necessary to minimize transaction costs. Such strategies have helped keep annual tracking error as low as 0.20% and annual turnover below 2%. So, while the passive approach means the strategy is unlikely to depart far from the index, it offers a low-cost and reliable way to get Australian share market exposure. 		 
Vanguard Australian Shares ETF aims to track the S&P/ASX 300 Accumulation Index, a free-float-adjusted, market-cap-weighted index. It is one of Australia’s best-known stock market benchmarks and covers about 85% of Australian equity market capitalization. While the S&P/ASX 300 Index is dominated by giant- and large-cap companies, the fund has exposure to small caps, with an approximate weighting of 7.5%. The portfolio is top-heavy, with about 29% of the index in the top five companies.
The concentration in banks skews the fund’s sector weightings, with financial services forming around 26% of the portfolio. The basic-materials sector also looms large, but its dominance declined as the mining boom waned. Basic materials peaked around 31% of the portfolio in 2008 but shrank to around 18% by March 2020, while energy fell from around 8% to around 4% during the same period. Some sectors that are prominent on the global stage are underrepresented in the Australian market. Technology and to a lesser extent healthcare (thanks to the share price rise of CSL) combined make up around 17% of the index–a lower proportion than equivalent US and European indexes.		 
Company’s Performance outlook
Vanguard Australian Shares ETF (ASX: VAS) has rewarded investors well over time ahead of an average category peer. Given its exposure to small caps, which have underperformed large caps in the last 10 years, the strategy has modestly underperformed category index, S&P ASX 200 Index. On the other hand, the category relative outperformance has been led by the strategy’s higher market-cap exposure than an average category peer. More recently, when COVID-19 wrecked the market in the first quarter of 2020, Vanguard ceded 20.3% in line with the broader market sell-off and more than the category average. But the rebound was equally strong with 34.4% that ended the year for the strategy at just 20 basis points lower than its peers. In terms of risk-adjusted returns, Vanguard has delivered middling performance over long haul.		 

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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ETFs ETFs

Kotak PSU Bank Exchange Traded Fund updates

Investment goal and benchmark

The fund’s investment objective is “The scheme’s objective is to offer total returns that correspond to the total returns of the Nifty PSU Bank Index.”The NIFTY PSU Bank Total Return Index is used as a benchmark.

Portfolio Structure & Asset Allocate

The fund’s asset allocation is roughly 99.98 percent equities, 0.0 percent loans, and 0.02 percent cash and cash equivalents.The top 10 equity holdings account for roughly 96.27 percent of assets, while the top three sectors account for around 99.98 percent.The fund invests mostly in companies with a substantial market capitalisation, with 64.86 percent in giant and large cap companies, 33.04 percent in mid cap, and 2.1 percent in small cap companies.

Implications for Taxation

1. If units are surrendered within one year of purchase, gains are taxed at a rate of 15% (Short-term Capital Gains Tax – STCG).

2. Gains of up to Rs. 1 lakh accruing from units redeemed after one year of investment are free from tax in a financial year.

3. Gains of more than Rs. 1 lakh would be subject to a 10% tax rate (Long-term Capital Gain Tax – LTCG).

4. Dividend income from this fund will be added to an investor’s income and taxed according to his or her tax slabs for Dividend Distribution Tax.

5. In addition, for dividend income in excess of Rs 5,000 in a financial year, the fund house is required to withhold a TDS of 10%.

Source: Economic india

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
ETFs ETFs

Schwab US Large-Cap Growth ETF

The index weights stocks by market cap, which channels the market’s view on the relative value of each holding. This is an efficient approach. Large-cap stocks attract widespread investor attention, so they tend to be priced reasonably accurately. Market-cap weighting also helps curb turnover and the associated transaction costs, with help from comprehensive index buffers. Index buffers improve diversification as well, allowing stocks to wander into value territory without trading them immediately. So, although this portfolio does not overlap with its value counterpart like most style index funds, it holds blend stocks like Home Depot HD and Costco COST that aid diversification. Its value-growth tilt mirrors the large-growth Morningstar Category average. The fund’s sector allocation approximates the category average as well. Market-cap weighting gives the fund a slightly larger-than-average market-cap orientation, but that shouldn’t affect performance much. Overall, this portfolio mimics the contours of the category norm, which accentuates the fund’s cost advantage and should help it outstrip its category peers. Mimicking the category average portfolio has caused this fund to look somewhat concentrated. At the end of April 2021, its 10 largest holdings represented more than half the portfolio. Tech stocks comprised about 44% of the portfolio. Investors may pause at this concentration, but it reflects the state of the large-growth market and shouldn’t translate to volatile category-relative performance.

This fund has posted terrific returns, outpacing the category average by 2.21 percentage points annually over the 10 years through April 2021, with comparable volatility. A low cash drag, best-in class fee, and favorable exposure to communications stocks have driven much of the outperformance. This fund relies solely on the market’s sentiment to weight its portfolio, so it does not shy away from stocks its active peers may consider overvalued. That has worked out well in the communication services sector, where the most richly valued firms have performed among the best.

Taking larger than-average stakes in Netflix NFLX and Alphabet GOOG, for example, proved to be a winning approach, as the companies have continuously exceeded steep expectations over the past decade. Unlike many of its active peers, this fund is always fully invested. This aids performance during market rallies but can hinder it in turbulent stretches. The fund has held up well, though, capturing only 94% of the category average’s downside and 104% of its upside over the past decade. This fund’s greatest performance edge is its fee. At 0.04%, its expense ratio ranks among the cheapest in the category, and low turnover leads to low transaction costs.

Source:Morningstar

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.