Blair Hannon

Global X ETFs (Global X) has launched the Australia ex Financial & Resources ETF (ASX: OZXX) on the Australian Securities Exchange, enabling investors to gain greater exposure to Australia’s largest companies while avoiding doubling up on bank, mining and energy shares.

The newly launched exchange traded fund (ETF) offers investors more effective portfolio diversification by investing in Australia’s top 100 companies, but specifically excluding those in the financial (including REITs), energy and mining sectors which dominate the Australian share market. OZXX will track the Solactive Australia Ex Financials Materials and Energy Capped Index. The management fee is just 0.25% per annum.

“OZXX will offer investors exposure to midcap and smaller capitalisation companies, and this potentially offers greater growth opportunities than those offered by the big banks, which operate in more mature markets,” said Blair Hannon, Global X Head of Investment Strategy.

“The ETF can be used as a core Australian equites holding or as a sector diversification tool which allows investors to compliment existing blue-chip portfolio holdings in the big four banks, major mining and energy companies, avoiding a concentration in these sectors which would occur if investors instead opted for a broad-based Australian equites fund,” Hannon said.

“This fund offers an effective solution particularly for Australian retirees and pre-retirees who generally hold a higher concentration of direct shares, as it allows them to either complete or diversify their portfolio in one simple trade.”

OZXX offers exposure to a broad range of companies and sectors, including healthcare, with CSL a top holding, the telecommunications sector through Telstra, consumer staples companies Wesfarmers and Woolworths and infrastructure such as toll road company Transurban.

“It is yet another innovation from Global X, which is quickly expanding its ETF offerings to Australian investors, with 31 ETFs now listed on the ASX, up from 20 a year ago. We are listening to investors to understand their needs and this launch further shows our commitment to Australian ETF market,” Hannon said.

Incidentally OZXX has been launched in direct response to client demand. Global X was approached by a leading asset consultant, managing up to two billion dollars on behalf of financial advisers, to develop the ETF. Upon developing the product, Global X identified that OZXX would also meet the need of many Australian investors keen to avoid concentration in big banks and mining shares in their investment portfolios.

“Although OZXX was initiated by a client request, we surveyed the market and believe that OZXX will deliver value to our clients and fill a gap in many Australian investors’ portfolios for greater exposure to relatively higher growth shares. The management fee of just 0.25% per annum will add to the appeal of this ETF, which will mark Global X’s 32nd ETF listed in Australia,” Hannon said.

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Blair Hannon

As demand for fixed income assets rise, Global X ETFs (Global X) has launched the Global X USD Corporate Bond ETF (Currency Hedged) (ASX: USIG) in Australia, which provides investors with access to the world’s largest corporate bond in a cost-effective, highly liquid and currency hedged vehicle.

The fund has a management fee of 30 basis points and tracks the Bloomberg USD Liquid Investment Grade Corporate Hedged to AUD Index, which offers exposure to US investment grade corporate bonds, with bond maturities of at least three years and a minimum amount outstanding of US$750 million per bond and US$2 billion per issuer. This is the fourth product launch for Global X this year and brings its product range to 31 ETFs as it expands its business in Australia.

Blair Hannon, Head of Investment Strategy at Global X, said USIG is designed to provide investors with a steady income from US investment grade corporate bonds, which generally deliver higher yields than US Treasurys, but still offer attractive risk-adjusted returns.

“There has been a significant sentiment shift in a very short space of time that is heavily impacting fixed income markets, especially those in the US. As we’ve seen the Silicon Valley Bank collapse and persistent interest rate hikes from the Fed, many investors are consequently looking to bonds as a safe haven,” Hannon said.

“Only a month ago, US 12-month treasuries were paying more than 5% for the first time since 2001, yet with the recent market dislocation we’ve seen these rates compress back towards 4.50%. This is where US investment grade bonds can shine because they have a low correlation to equity markets – for instance a 28% correlation to the S&P 500, according to Bloomberg.

“Additionally, fixed income strategies can act as a ballast in times of distress – such as the market conditions the US and beyond are currently experiencing – as well as diversifying a portfolio’s risk profile and income potential.”

When it comes to yield, US investment grade bonds are the middle ground in comparison to other types of US bonds, according to Hannon. Still, as with all investments USIG is exposed to potential market, credit and interest rate risks.

“Investment grade bonds strike a balance between risk and reward – offering proportionately higher yields than US treasuries, but lower yield potential than riskier high yield bonds. Therefore, to build up your portfolio’s resilience and yield potential you could consider having multiple US bond ETFs in your investment mix.” Hannon said.

The US corporate bond market is the world’s largest, with more than US$1.2 trillion worth of investment grade bonds being issued in 2022 and over US$10 trillion in outstanding debt.^[1] Despite its scale, Australian investors have had limited access to this fixed income asset. Hence, the launch of USIG will provide an easily accessible, cost-effective solution for local investors.

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Notes:
[1] (SIFMA Research, 2023) https://www.sifma.org/resources/research/us-corporate-bonds-statistics/

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In conjunction with the Australian Securities Exchange (ASX), Global X has released the Global X S&P/ASX 200 Covered Call ETF (ASX Code: AYLD) which will track the S&P/ASX BuyWrite Index.

Graham O’Brien, ASX Head of Equity Market Sales and Equity Derivatives says buy-writes are the most popular options strategy amongst Australian investors, combining the flexibility of listed options with share ownership.

“AYLD aims to enhance income potential and reduce portfolio volatility compared with outright share ownership. As the first options strategy ETF listed over an index, investors can access a long back history of performance by reviewing the index history supplied by S&P,” O’Brien says.

Global X has also launched the Global X Nasdaq 100 Covered Call ETF (ASX Code: QYLD), which will track the Cboe Nasdaq-100 BuyWrite V2 Index; and the Global X S&P 500 Covered Call ETF (ASX Code: UYLD), which tracks the Cboe S&P 500 BuyWrite Index. Both funds are already listed in the US and represent the two largest covered call ETFs in the world, measured by assets under management.^[1]

A covered call (also called a buy-write) involves selling call options over stocks an investor already owns. Selling a call option generates income in the form of a premium. Investors selling call options are still eligible for dividends and franking credits from their shareholdings. The premiums can be a source of a substantial amount of alternative equity income, depending on market conditions.

Blair Hannon, Head of Investment Strategy at Global X says the three funds can help investors balance portfolio growth and income.

“We consistently hear how important income is to investors across all age groups. We see options strategies, incorporated in ETFs, as a great entry point for investors to supplement existing income sources like dividends or coupons from bonds.”

“Used as a core equity holding, the options premiums of a covered call ETF can smooth the impact of market falls. In this way, it provides investors with potential protection against drawdowns,” Hannon says.

“Alternatively, a satellite portfolio holding can be used to generate an alternative source of income, especially in times of heightened volatility or rising interest rates. This was evident when QYLD and UYLD generated high yields above 12 per cent in the second half of last year.”

Using covered calls is a well-established income generation and downside protection strategy among sophisticated investors.

Hannon says the suite of covered call funds enables more Australian investors to access this type of strategy in a simple and cost-effective form that provides efficient options execution.

“A covered call strategy accessed through an ETF can save investors the time, potential expense and complexity of doing it themselves,” Hannon adds.

All three funds invest in their indexes on a fully replicated basis. In the case of AYLD, the fund invests in the S&P/ASX 200 and then sells quarterly exchange traded call options against the index, worth roughly 100% of the value of the portfolio. Options are rolled to the next quarter the day before expiry.

The income generated by selling call options can help portfolios maintain performance during period of falling markets or sideways trading. In addition, call option premiums usually rise during periods of higher interest rates and market volatility. The trade-off is that upside potential may be capped, as the options may be “called” if markets move higher.

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Notes:
[1] (ETF.com, 2023)

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GCO2 tracks the ICE Global Carbon Futures Index to provide access to the world’s largest carbon markets covering the European Union Emissions Trading Scheme, Regional Greenhouse Gas Initiative, Western Climate Initiative (California cap and trade program) and the UK Emissions Trading Scheme.

The fund is currently the lowest-cost carbon ETF in the country, with a management fee of 0.45% per annum.

Global X Head of Investment Strategy, Blair Hannon says international political pressure, capital expenditure and built-in supply declines will contribute to the growing investment case for carbon allowances.

“We are witnessing a watershed moment as investors seek out climate-focused investment opportunities, but do not want to compromise on potential returns. GCO2 is an innovative way to leverage the global transition to net-zero, which has significant tailwinds, thanks to government backed climate change targets,” Hannon says.

“Carbon emissions are front of mind for governments and the public alike, so as global decarbonisation and clean energy initiatives become more ambitious, demand for carbon allowances will likely increase – which we expect to push up the price of carbon over the medium to long term.”

Carbon allowances are traditionally a difficult, illiquid asset to access, so adding them to a portfolio works as a diversification tool as well as a growth opportunity.

In an effort to support domestic climate change initiatives, Global X is also contributing 10% of GCO2’s annual management fees towards the Yarra Yarra Biodiversity Corridor ‘Plant-a-Tree’ program, which is creating a green corridor to reconnect coastal regions with drier inland habitats.

Trees will be planted in Western Australia’s wheatbelt region, which is importantly one of only 36 biodiversity hotspots in the world.

“Global X is supporting the Yarra Yarra Biodiversity Corridor ‘Plant-a-Tree’ program because we understand how important climate-related issues are for investors and this is our way of acknowledging the fight against climate change is a community effort,” Hannon says.

GCO2 is the fourth product launched by Global X ETFs Australia since it rebranded from ETF Securities in September 2022 and is the 27th addition to Global X’s growing stable of future-focused funds with almost $5 billion in assets under management in Australia.

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The appointment of Mr. Hannon marks a major step in building Global X’s presence in Australia, ahead of the firm’s formal launch of its Australian ETF product lineup – expected later this year.

Mr. Hannon most recently served as NSW State Manager at BlackRock, where he spent the past four years driving ETF adoption. His key focus was the investment advice market segment of brokers and private bankers, providing market analysis linked to trade ideas, educational content and thought leadership. Prior to working at BlackRock, Hannon spent 12 years at Commonwealth Bank, where he was a Senior Investment Adviser offering investment advice to high and ultra-high net wealth clients on equities, derivatives and funds. He has a Bachelor of Finance from Newcastle University, an MBA from the Australian Graduate School of Management at the University of New South Wales and an Advanced Diploma of Financial Planning.

“I am excited to be joining Global X as Head of Investment Strategy, Australia, at a thrilling time in the company’s development within the Australian market,” says Mr. Hannon. “Global X has an impressive range of quality financial products, particularly thematic and income ETFs, and I look forward to working with clients to draw on those resources to build their portfolios in today’s dynamic environment.”

Kris Walesby, Head of Global X in Australia, welcomed Hannon, commenting: “We are excited to have an experienced investment expert join our team in Sydney. As we get ready to launch a wide range of ETFs in Australia, Blair will work closely with the research, marketing and sales teams to facilitate understanding and trust in our funds. Given his vast knowledge of the Australian investor landscape, he will be instrumental in consumer adoption of Global X’s ETF lineup in Australia.

“The addition of Mr. Hannon represents Global X’s strong commitment to building a presence in Australia to offer local investors access to its innovative product lineup.”

Global X has established itself as the global leader in thematic investing, with more than 30 Thematic Growth ETF strategies offered across the US, Europe and Asia, representing over US$20 billion in AUM.^[2] Global X’s Thematic Growth ETFs bring investors access to a broad set of companies around the world with pure-play exposure to paradigm-shifting themes that reflect long-term, structural trends across geographies and across sectors.

While Global X is a pioneer in thematic investing, the firm also offers an impressive lineup of word-class ETFs spanning Income, International Access, Commodity and Risk Management solutions.

Over the past several years, Global X has worked to develop the infrastructure to be a leading ETF issuer, not just in the US, but in key global ETF markets.

“Global X is one of the most trusted and admired ETF brands in the world as shown by the confidence of more than a million clients in 95 different countries,” said Luis Berruga, CEO of Global X ETFs. “Blair is joining Global X alongside Kris Walesby at a key moment in the firm’s Australian expansion, and I am thrilled to be able to offer our growing product lineup to investors in the Australian market in the near-term.”

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[1] Source: Global X, as of 1 March, 2022
[2] Source: Global X, as of 1 March, 2022

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