Alex Vynokur

A growing number of investors are looking to capitalise on a potential further decline in the Australian dollar with trading data from BetaShares, a leading exchange traded fund (ETF) provider, showing significant inflows into its US Dollar ETF in September.

With the Australian dollar hitting seven month lows against the US dollar, BetaShares has seen approximately $30 million of net inflows into the BetaShares US Dollar ETF (ASX code “USD”) since the start of September. The fund is designed to provide exposure to the performance of the US dollar relative to the Australian dollar, meaning the value of the fund will go up as the US dollar appreciates, and vice versa. The fund now has over $200 million in assets under management.

BetaShares’ Managing Director, Alex Vynokur, said the rise in inflows into the USD ETF indicates that many investors expect the Australian dollar to continue its recent decline.

“We are currently seeing a sharp increase in the level of interest in the USD ETF, both in terms of incoming enquiries and net inflows, which seems to reveal an undercurrent of pessimism regarding the Australian dollar,” said Mr Vynokur. “With growing expectations around a potential US interest rate rise, as well as Reserve Bank modelling indicating the AUD is overvalued, investors are taking the opportunity to position themselves to capitalise on a potential long-term decline in the local currency.”

Commenting on the broader take up of exchange traded products in Australia, Mr Vynokur concluded: “As the ETF landscape continues to mature in Australia, there has been significant growth in the number of investors using exchange traded funds to execute tactical positions across asset classes as diverse as currency, commodities and international equities. It’s encouraging to see investors start to fully utilise the low-cost, transparent access that ETFs can provide.”

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Alex Vynokur

BetaShares, a provider of Australian exchange traded products (ETPs), yesterday announced the launch of a new ASX-traded fund, aimed at boosting income over a portfolio of US equities.

The BetaShares S&P 500 Yield Maximiser Fund (managed fund) will trade under the ASX code UMAX and aims to provide investors with exposure to the stocks comprising the benchmark US Index, the S&P 500 Index, while providing regular income that exceeds the  dividend yield of the stocks alone. It also aims to provide lower overall volatility than the Index.

The Fund’s investment approach is to hold an investment portfolio providing exposure to the S&P 500 Index and at the same time, to sell some of the upside share price potential of the Index in return for additional income.  The Fund does not aim to track the Index.

The launch of the Fund comes after the success of BetaShares’ yield-focused Australian equities product, the BetaShares Australian Top 20 Equity Yield Maximiser Fund (managed fund) (YMAX), which employs a similar strategy and has attracted more inflows than any other equities exchange traded product on ASX in 2014.

The launch of the Fund comes at a time of increasing demand from ETP investors for international equities-focused funds, with around 40% of the ETF industry’s $12.4 billion in funds under management currently allocated to global equities products.

BetaShares Managing Director, Alex Vynokur, said the launch of UMAX would provide investors with further potential to enhance portfolio yields, as well as offering the additional diversification benefits of exposure to an overseas market.

“After such a strong response to the equity income strategy BetaShares introduced with YMAX, we believe there is great appetite for investors looking for a similar approach over US equities.

“This fund may suit not only SMSFs and investors who are seeking increased yield and reduced volatility over their share portfolio, but also those looking for exposure to the US market as a potential way to diversify out of Australian shares,” said Mr Vynokur.

The Fund will be the first Australian-domiciled ETP on the ASX to provide US-specific equity exposure, offering significant administrative benefits for Australian investors.

“Recent research conducted by Investment Trends indicated that the number one problem associated with exchange traded products that offer exposure to international equities, as identified by investors and their advisers, was the need to fill out US tax forms, known as W-8BEN forms, in order to qualify for reduced withholding tax on distributions received. UMAX has been designed to solve this problem. Because it’s an Australian domiciled fund, investors don’t have to worry about this paperwork as the forms are completed at the Fund level. They also have no need to be concerned about any potential US estate tax implications that may arise when investing in US-listed products.”

“UMAX fills a gap for investors looking for US shares exposure that comes with the potential for greater yield, lower volatility and reduced downside risk compared to an investment in the shares alone. For BetaShares, it also represents our first international equity offering and our 15th product overall,” Mr Vynokur concluded.

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Alex Vynokur

Leading exchange traded fund provider BetaShares has been awarded two additional ‘Recommended’ ratings from research house Zenith for the Australian Top 20 Equity Yield Maximiser (managed fund) (YMAX) and the FTSE RAFI Australia 200 ETF (QOZ).

YMAX aims to provide investors with exposure to a portfolio of 20 blue-chip Australian shares, along with attractive quarterly income and a lower level of volatility. The Fund has become one of the most popular products in the exchange traded fund market, having grown to over $250m since its launch approximately 18 months ago. As of end August 2014, the Fund’s gross distribution yield was 10.5% p.a.[1] The Fund was awarded a ‘Recommended’ rating by Lonsec in February 2014.

QOZ, Australia’s first fundamental index ETF, provides exposure to the 200 largest Australian equities, weighted in a way that is reflective of the economic footprint rather than the market capitalisation of its constituents. QOZ has also been awarded a ‘Recommended’ rating by Lonsec.

Alex Vynokur, BetaShares’ Managing Director, said the new ratings were testament to the effectiveness of the methodology in both funds, as well as the growing importance of ETFs in general as low-cost portfolio construction tools for advisers.

“Both QOZ and YMAX have enjoyed considerable success among self-directed investors and with advisers because they present cost effective and transparent ways to access strategies more commonly seen in high-cost managed funds,” said Mr Vynokur.

“Exchange traded funds are an important tool by which advisers can access a diverse range of asset classes at a low cost and in a simple, transparent way that their clients can understand.

“As adviser take-up has grown, research houses like Zenith and Lonsec have taken a much more active interest in analysis and ratings of exchange traded funds,” Mr Vynokur concluded.

The five BetaShares Funds now holding ‘Recommended’ ratings from Zenith are:

• BetaShares FTSE RAFI Australia 200 ETF (QOZ)
• BetaShares Australian Top 20 Equity Yield Maximiser Fund (managed fund) (YMAX)
• BetaShares Australian High Interest Cash ETF (AAA)
• BetaShares US Dollar ETF (USD)
• BetaShares Gold Bullion ETF – Currency Hedged (QAU)

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Alex Vynokur

The growth of the Australian exchange-traded fund market continued in August to reach a new record high of $12.4B in assets under management according to the BetaShares Australian ETF Review – August 2014.

Total funds under management increased by around $200 million, the growth particularly striking as it was almost entirely attributable to new money flows during a month in which the Australian share market did not grow at all.

In what has been a recurring theme in the industry , investors continued to be attracted to high yielding Australian equities, with that product sector receiving the highest level of inflows for the month, with the BetaShares Equity Yield Maximiser managed fund (YMAX) receiving the largest amount of inflows in that category. ETFs focusing on broad Australian equities were also well supported.

In a month in which Australian stocks performed in a lacklustre fashion, the exchange traded products which delivered the best returns to investors were those that focused on natural gas and emerging markets equities.

“ETFs provide a convenient way to build sensibly diversified portfolios that include a wide range of asset classes. Their attraction is independent of the fluctuations in the Australian share market. As it happens, though, many ETF investors continue to seek yield – as they have done for much of the last year,” Mr Vynokur said.

Looking ahead, Mr Vynokur noted that that the growth in funds under management was expected to continue. “The recent development of the ETF market suggests that larger numbers of investors are becoming involved, investing money into established products. We expect continued inflows into existing products, however, we additionally expect industry growth to be assisted by new and innovative investment solutions that are anticipated to become available on the ASX through the last four months of 2014.”

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Alex Vynokur

BetaShares has announced a strategic alliance with WisdomTree Investments, Inc. a leading exchange-traded product sponsor and asset manager.

Under the terms of the agreement, BetaShares has been granted exclusive rights to market the full range of WisdomTree US listed ETFs in Australia and New Zealand to institutional investors.

In addition, BetaShares and WisdomTree will explore the development of products on the Australian Securities Exchange (“ASX”) with the aim of providing investors in Australia and New Zealand access to some of the innovative investment strategies pioneered by WisdomTree.

Alex Vynokur, Managing Director of BetaShares said: “Our collaboration with WisdomTree is an important milestone, opening up a large range of innovative investment solutions for investors in Australia and New Zealand.”

WisdomTree is the fifth largest ETF provider in the US, with funds under management of approximately US$35B and over 65 ETFs listed in the US covering a broad range of asset classes and exposures. WisdomTree is a leader in active ETFs and fundamentally weighted ETFs through products including the US-listed Emerging Markets Local Debt Fund, Japan Hedged Equity Fund and the Global Equity Income Fund.

Commenting on the relationship, Jonathan Steinberg, CEO and President of WisdomTree said: “As ETF adoption increases in Australia and New Zealand, we look forward to working with BetaShares to serve this growing ETF market with new investment solutions.”

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Alex Vynokur

The growth of the Australian exchange-traded product (ETP) market accelerated in July to break through $12B in assets under management, reaching a new record high of $12.2 billion, according to the BetaShares Australian ETF Review – July 2014.

Funds under management increased by over $500 million – or 4.6% – during the month; driven by $300 million of new net inflows as well as the strong performance of Australian and global stock markets in July.

Alex Vynokur, Managing Director of BetaShares, said: “The rise in funds under management of about $500 million over the course of July needs to be considered in the context of the increase through the first half of 2014, which was $1.7 billion. The rate of growth has accelerated.”

Local investors are increasingly realising that ETFs provide access to diverse asset classes, and not just Australian equities. During July, developed global equities was the sector that received the most inflows – more than $130 million. Cash and high yield equities were the next most supported sectors.

The most popular product by inflows in July was the BetaShares Australian High Interest Cash ETF (AAA), which has been the product experiencing the highest level of inflows in the calendar year to date.

 “Several trends are evident,” Mr Vynokur said. “As was the case through the first half of the year, investors continue to seek yield. It is also likely that some investors saw the general softness of stock markets outside Australia during July as a buying opportunity. Most crucially, though, investors are increasingly using ETFs as a flexible and cost effective solution to diversify their portfolios across different asset classes.”

As the attractiveness of ETFs is becoming more widely recognised, the trading values are increasing. Trading value increased by 19.2% in July relative to June – representing the highest level of ETF trading (by value) for 12 months.

Looking ahead, Mr Vynokur noted that that the growth in funds under management was expected to continue. “Over the last few weeks, we have seen the pace of expansion accelerate, and this has been largely driven by increased investment in existing products. Looking forward, we anticipate that this growth will be bolstered as new and innovative products are brought to market through the remaining months of 2014.”

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David Bassanese

BetaShares, a leading provider of Australian exchange traded products, announced yesterday the appointment of David Bassanese as Chief Economist. In the newly formed role, Mr Bassanese will be responsible for developing economic insights and portfolio construction strategies for adviser and retail clients.

Mr Bassanese has an accomplished background in financial services spanning over 25 years, with his most recent role being an economic columnist for The Australian Financial Review (AFR) for over a decade. His regular “Bassanese Column” was published three times per week and looked at local and international economic trends, equity markets, interest rates, exchange rates and commodities.

Prior to the AFR, Mr Bassanese spent several years in the financial markets as a senior economist and interest rate strategist at Bankers Trust and Macquarie Bank. He started his career as a Commonwealth Treasury official, after which he spent three years as a research economist at the Organisation for Economic Cooperation and Development (OECD) in Paris, France.

Alex Vynokur, Managing Director of BetaShares said: “We are excited to have someone of David’s calibre join BetaShares in this newly formed role. As a leading Australian manager of exchange traded products, we are committed to enhancing investor education, and David’s appointment is a significant milestone in that regard,” he said.

Mr Bassanese is the author of two online investment books, including Australia’s most comprehensive book on the local ETF market.  He graduated with first class honours from the University of Adelaide, and a Master in Public Policy from the J.F. Kennedy School of Government at Harvard University.

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ETFs offer flexibility as they can be traded during the day like a share: Betashares

Exchange traded products are worthy of consideration for use as a core building block of managed accounts and can provide multiple benefits to managed account providers, according to BetaShares.

Speaking at the Institute of Managed Account Providers (IMAP) event in Sydney last week, Vinnie Wadhera, BetaShares’ Director of Institutional Business and National Accounts discussed the multiple applications of exchange traded funds for managed accounts.

“We are seeing three methods of exchange traded fund implementation across managed account providers being core exposures, access to specific strategies or asset classes and dynamic asset allocation,” Mr Wadhera said.

For core exposures, exchange traded funds can be used alone to create balanced portfolios or can be blended with active managers. Such blending can serve to reduce portfolio cost and improve liquidity without the adviser needing to dramatically change the investment portfolio.

“There’s often a misconception of having to choose between active managers and exchange traded funds. As an ETF Fund Manager, we believe there is room for both in providing optimal outcomes for portfolios,” he said.

Another key use of exchange traded funds by managed accounts is as a means of widening choice and offering strategies or asset class exposure to investors which may otherwise be difficult to implement.

“A key advantage of exchange traded products is their ability to give investors simple to access, low-cost exposure to asset classes or strategies in a single trade. For example, we’ve seen advisers adopt exchange traded products which seek to provide enhanced equity yield performance or portfolio hedging exposure, which would be difficult to obtain via other means. We’ve also seen interest in specific asset classes such as currency and commodities, for the same reason.”

Perhaps one of the most effective ways to use exchange traded funds in managed accounts is to use the flexibility of the exchange traded fund structure to implement dynamic asset allocation strategies:

“We believe exchange traded funds offer tremendous flexibility as they are traded on exchange and can be purchased or sold during the day like a share. This offers managed accounts flexibility to tailor portfolios dynamically, tilting to investment views as required,” he said.

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Alex Vynokur

While Australian equities are trading near six year highs, trading volumes in BetaShares exchange traded products (ETPs) reveal that a growing group of investors are positioning their portfolios for a potential pullback in the market.

According to BetaShares’ data, the average daily value traded of BetaShares Australian Equities Bear Hedge Fund(ASX Code “BEAR”) has increased by 40% in the last month. The BEAR fund trades on the ASX and is designed to go up when the market declines, and vice versa.

Alex Vynokur, Managing Director of BetaShares said the increased trading in BEAR appears to indicate that sentiment may be turning more cautious in certain pockets of the Australian investor community.

“Currently, we are seeing great interest in the BEAR fund, which seems to reveal an undercurrent of nervousness in the domestic equities market following the federal budget announcement and its impact on consumer confidence”, Mr Vynokur said. “In addition, we have had a continual stream of mixed data from key economies such as the United States, Europe and China which is causing investors to consider protecting their portfolios from downside risk.”

Commenting on the broader take up of ETPs in Australia, Mr Vynokur concluded: “It’s encouraging to see investors taking positions across different asset classes, an indication of a maturing user base in exchange traded products. The Australian ETP landscape has broadened significantly over the past few years, providing investors with convenient and cost effective access to a range of asset classes, and allowing more opportunities to generate returns in every market condition.”

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Alex Vynokur

Australian exchange traded fund investors are favouring defensive cash and yield-oriented funds, with approximately $135 million flowing into these products in April, according to the monthly BetaShares Australian ETF Review.

Another record month saw the Australian exchange traded product (ETP) market break through the $11 billion barrier in funds under management at the end of April. The market grew by 4.3% in the month, and has now grown approximately 50% over the last 12 months. Total monthly market growth amounted to $452 million with approximately $300 million of growth coming from new money inflows.

Highlighting investor appetite for yield, Australian high yield equities products were the most popular product category by inflows during April, while the top individual product for net inflows was the Cash ETF.

“Exchange traded products in Australia are increasingly becoming mainstream, with assets under management expanding rapidly. Growth is being driven by an increase in confidence around global markets as well as familiarity by investors with exchange traded funds. Growth continues to be strongest in domestic and international equities, high yield and cash oriented products,” Mr Vynokur said.

Net outflows were virtually non-existent in April, with small outflows recorded in gold exposures.

“ETPs make it easy for investors to access a range of targeted exposures, and to implement portfolios strategies consistent with their views on the market. April’s outflows were minimal suggesting a bullish sentiment towards exposures across most asset classes,” said Mr Vynokur.

In terms of performance, two of the top five products for the month were commodities based while A-REITs also rallied.

“Commodities-based exposures have consistently been amongst the best performing asset class each month this year to date, despite trading activity in these funds being low. This suggests investors are missing out on potential opportunities available from the commodities asset class,” he concluded.

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