4 megatrends that will define the coming decades with Kanish Chugh | ASX Week

HOSTS Alec Renehan & Bryce Leske|2 June, 2021

Meet your hosts

  • Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

Welcome to the third of our episodes celebrating the ASX Investor Day. If you weren’t lucky enough to be there in person, this is where we bring you the best of the live sessions held around the country. Thanks to our partners at the ASX, we speak to some of the best experts who gave the most interesting presentations.Today is all about investing in megatrends with Kanish Chugh from ETF Securities. Kanish Chugh is the head of distribution at ETF securities and talked about how to define a megatrend, what exactly is thematic investing, using this in your own portfolio, and then went into detail with examples of thematic exposure.

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Bryce Leske: [00:01:38] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status, our aim is to help break down the barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy Ren. How are you going? [00:01:53][14.9]

Alec Renehan: [00:01:53] I'm very excited for this episode. Excited for this week. We have been to the ASX Investor Day. Yes, we saw some epic presentations, and not, unfortunately, not everyone could go this year because of covid, but also only so many people can go in person. So we're bringing it to the equity markets community. [00:02:12][19.1]

Bryce Leske: [00:02:13] That is right. This week is all about the ASX Investor Day, as Ren said, in case you missed it, the live sessions were awesome and they were held around the country, [00:02:21][8.1]

Alec Renehan: [00:02:22] around parts of the country. [00:02:23][1.1]

Bryce Leske: [00:02:25] Yes, we've partnered with the ASX to bring you some of the best sessions and experts from the conference. And today we're going to be covering investing in megatrends with Kanish Chugh from ETF Securities. Welcome. [00:02:37][12.6]

Kanish Chugh: [00:02:38] Thank you for having me. [00:02:39][0.5]

Bryce Leske: [00:02:39] So Kanish, as I said, is from ETF Securities. He's the head of distribution there and presented on megatrends and the sematic ETF at the ASX Investor Day conference. So we're going to be covering your presentation, which is defining megatrends. What is sematic? Investing, using sematic in a portfolio, and also finishing off with some examples of how we can do that to cover up that. [00:03:07][27.9]

Kanish Chugh: [00:03:08] Yes, but, you know, I reckon this is a really exciting session because people love automatic ETFs in the equity markets community. And more generally, I mean, I don't need to tell you this, but I'm excited to get stuck into this one. Before we do, though, we do like to start with the same question for every expert we get on. Can you tell us the story of your first investment now? [00:03:31][22.9]

Kanish Chugh: [00:03:31] I'm thinking about this. The first investment for me was actually a property because I saved up a lot of money and, you know, similar to yourselves, I didn't know much about investing sort of prior sort of before getting into this industry. And I think for me, was working during uni, save some money. Parents helped out as well and was able to buy a sort of investment property. But the actual first investment fund would have been when I was at Fidelity and I worked at Fidelity prior to working at ETF Securities and actually invested in one of the managed funds. So sort of that sort of not in the listed space, but it's still an investment in that one. [00:04:12][40.8]

Alec Renehan: [00:04:13] Investing in property is your first investment. That is the young Australians dream. Yeah, yeah, exactly. Yeah, I think so. [00:04:20][7.2]

Kanish Chugh: [00:04:20] It's one of those things isn't it, sort of. When you bought up in Australia, what do you invest in properly. [00:04:24][3.7]

Bryce Leske: [00:04:24] Yeah, well we're trying to change that mentality that it would have been good. So let's start at the top. Your presentation at the conference was all about megatrends in somatics. So what is a mega trend? Let's start there and define it. [00:04:39][14.4]

Kanish Chugh: [00:04:39] Yeah, so I think that's a key point of the term and megatrend. It's coined by a man named John Naisbitt. He actually authored a really interesting book around megatrends back in the nineteen-eighties, sort of disrupted megatrends at that time. It's a term that we get loosely bandied about at the moment, but essentially it defines a megatrend. You're wanting to have to define something that's a long-term structural trend, something that's going to transform an economy. It has to be in an area of high innovation, high disruption. It has to have some form of government support, has to be intertwined in some way with demographics as well. So that's that's sort of you define OK. Well, I know I can I can define now megatrend. What are some of the megatrends. [00:05:23][43.6]

Bryce Leske: [00:05:24] That's my next question [00:05:24][0.6]

Kanish Chugh: [00:05:27] is Apple is OK, so [00:05:29][2.0]

Kanish Chugh: [00:05:29] there's a lot of examples, depending on who you speak to at the University of Sydney recently, did some research last year and it's on their website. And they've actually got some interesting views on what are some of the megatrends that we currently face. I've sort of broken down into four of what I believe, and that is transformative technology. So the fact that most of the listeners will be listening to this probably on the iPhone smartphone or an iPad or some form, that's an example of the transformative technology we've moved beyond just radio. We're now doing this as a podcast, for example, on-demand. Society and lifestyle is another megatrend. So changing demographics, I think about emerging markets as a growing middle class. We look at here in Australia, there's an aging population, there's a connectivity that we all have with social media, etc. So the society in lifestyle, health and health care is a third megatrend. So that was a megatrend pre-covid-19 was always been a focus. It's had a magnifying glass probably placed on it because of it. And I think it will continue on. And we've seen really big innovations in the biotechnology space. So if you consider. A name like Moderna two years ago who would have known about Moderna, probably some experts, some real sort of people following that area. Now everyone knows about it. And a third is climate and sort of sustainability. And that is I think, you know, Australia is unfortunately placed in an area where we've experienced the bushfires of sort of twenty, nineteen, twenty twenty and the sorts of things that, you know, there's a big focus on green, big focus on. It's not going to affect my kids. It's going to affect my kids, kids. And that's a megatrend in itself. And all those for, if you consider it, their long term structural trends. So that's sort of how we've broken it down. [00:07:13][103.2]

Alec Renehan: [00:07:13] And it's interesting that all four of those megatrends are entwined or intersect in different ways. [00:07:19][6.0]

Kanish Chugh: [00:07:20] Yeah, definitely. And even when you think about, you know, exposures or stocks or investments in that area, they've all got overlaps. So something that, you know, when you're thinking about it domestic, it's one of those things you need to be aware. You may get multiple exposures to one of those to those four megatrends. [00:07:37][17.4]

Alec Renehan: [00:07:38] So though those are the big, I guess, disruptive trends that are going on in our society where investors here and where we're investing podcast. So then the question becomes, once you're aware of those big trends, how do you invest in them? And that that leads to a conversation about thematic investing. So, again, let's start at the top. Let's start with some definitions. What do we mean when we talk about systematic investing? [00:08:01][22.6]

Kanish Chugh: [00:08:01] So to break it down at the magic exposure essentially is giving you exposure to some form of investment strategy. And it's probably going to be linked to a megatrend. That's how we see thematic investing. So if you want exposure to a megatrend, the best way to do it is through a thematic exposure. Now, this is part and parcel of the idea of the evolution of indexing or passive is in the evolution of ETFs. So if you were to ask that first investor looked at ETFs 20 years ago in Australia when they first launched twenty one years ago, they would have said, I'm only going to buy this because it gives me the market. Now, as ETFs have evolved, you've got ETFs now that give you exposure to focus on yield, focused on single countries, focused on, you know, small caps, midcaps. Now you've got the medics and it's just this evolution. So for those investors, I want megatrend exposure, whether it's one multiple, whatever it may be, the matics is the easiest way to do that. [00:08:59][58.0]

Bryce Leske: [00:09:00] What is you know, we've seen investors like Kathy Ward and and the like, you know, really starting to play in this space and build ETFs around disruption and those sorts of things. From your point of view, you know, how big is the opportunity to invest in disruption and megatrends going forward? [00:09:18][17.3]

Kanish Chugh: [00:09:18] So Kathy would very famous. She's she's the Warren Buffet of the 20, 20 years of our time. In a lot of ways, everyone will look up to her and say, well, you're basically the investing. God got us in a lot of ways. And everything she touches turns to gold. [00:09:34][15.6]

Alec Renehan: [00:09:34] We are trying to get her on the podcast, you know, like, OK, fair enough. [00:09:38][3.2]

Kanish Chugh: [00:09:39] Well, I guess she with the innovation funds and their range, one of the reasons why I think people are considering looking at the matics and especially as a core in their portfolio is because of people like her. And I sort of am grateful for that because it allows us to have this conversation. What I would say is the marketable opportunity. So she's come and said in terms of disruptive technology, it's about 60 trillion US dollars by 20, 30 [00:10:05][26.7]

Kanish Chugh: [00:10:06] trillion US dollars. [00:10:10][3.5]

Kanish Chugh: [00:10:11] Oh, no, it's even bigger from where we sit. So for a lot of reasons, there needs people need to look at the magic investing. What I would say is when you're looking at the magic investing, there's probably things that you need to consider. You need to make sure that a particular theme that you're looking at is linked to one of those four megatrends that I discussed. And as I said, it could be linked to one or many, but it has to be linked to one. You want to make sure it aligns with your views and values. So if, for example, you're an avid user of Netflix and most of us, especially because of code, you're more likely to say, well, why don't I invest in Netflix? You know, I along with many millions of people and watching Netflix, if your got a particular bent towards I really want to look at, you know, sort of being sustainable, being looking at renewable technology will may be better. Technology could be something that you're considering so aligned with your views and values. Most of people's investment portfolio should do that anyway. But that's probably something just to remind ourselves of, because I think we get lost in terms of I'm just going to buy the market or whatever it may be. [00:11:10][59.4]

Alec Renehan: [00:11:12] The challenge is when does a trend become a megatrend? And, you know, I think about some of, you know, like we're talking on a podcast now is the rise of podcasting. When does that become a megatrend? [00:11:20][8.1]

Kanish Chugh: [00:11:21] I think it's also taking it a step back as well. When does when does a trend become a mega trend or when does it become a fad? [00:11:28][6.2]

Kanish Chugh: [00:11:29] Yeah, yeah, yeah. It can go online comment. But an example. There is so let me consider last year in twenty twenty in the US, we don't have a lot of the domestic exposures in Australia on the ASX at the moment are very much long term. They represent long term structural trends. So investors here don't be afraid of what's available right now on the ASX. All of the domestic exposures from what I've seen are representing long term structural trends. So that's good. But what I've seen in the US and their market ETF markets a lot bigger. You can see some FADH ETFs, as I call them. So there was an ETF launched work from home. Those are covered ETF. Now, I don't disagree with, say, the WSJ had Zoome had Microsoft had sales or really good names, but the theme of working from home, it may not be something that will be there in 10 years time. It may be something there for the next two years. So really good short term theme covid. I hope that it's not there in two or three years, but again, it's not a long term theme, so that's something there. So when you're talking about when does a trend or when does it then become a long term? I think the two points there is governments policy or government support and it's intertwined with demographic changes. So if it doesn't have either of those, then it's short term. Yeah. Yeah. So battery technology for me is an example of that. We had that product in 2017, 2018. So when we launched the fund, AC DC hasn't done much for in terms of asset gathering for quite a while. You start to see this big shift in twenty, twenty, twenty, nineteen government policies looking at lowering carbon emissions. So they're now saying we want to ban petrol vehicles, production and then corporate start coming on board and saying, hey, we're going to stop building petrol vehicles, we're going to shift electric, Volkswagen, BMW, Mercedes, et cetera, Land Rover, Jaguar. That move starts to then have this big underlying shift in terms of investments. And we saw great returns on that particular fund year to date and for the one year. But also people start to invest in it. So that's the sort of thing that's got government support. It's got intertwining with demographic changes. It's a long term structural trend now. It's not shorter. [00:13:44][135.7]

Alec Renehan: [00:13:45] And I think for people who are thinking about this idea of megatrends, it's this isn't something that we're now like megatrends aren't new. Like the concept may be new, but if you look through history, like the rise of the automobile or like the rise of airplanes, we're all megatrends in their day, supported by governments, supported by demographic change. [00:14:03][17.9]

Kanish Chugh: [00:14:04] Yeah, exactly right. That's the thing. I think what you do see here is none of these revolutions is new. It's just for us it's this this new revolution that that's occurring at the moment. So the Industrial Revolution 4.0 or whatever you want to call it, this is where we sit. And the idea of technological adoption is also rapidly increasing. So technology in itself is evolving quite quickly from when the first automobile to now where we sit in terms of the electric vehicle and even autonomous vehicles. But in terms of adoption, we're very quick to learn. We're very quick to adopt these things and then evolve them even further. So that tends to lend itself towards, okay, well, these megatrends are going to be here to stay. [00:14:54][49.9]

Alec Renehan: [00:14:55] Now, one one thing that's great about these thematic ETFs that are really you know, they're relatively new in the world of investing, at least I think they are. Maybe I just wasn't aware of them. But when you have a strong conviction on an industry like, let's say, electric vehicles or something, but you don't have any idea about who's going to win in a particular industry, you can take an industry level view rather than a company specific level view. [00:15:22][26.8]

Kanish Chugh: [00:15:23] Yeah, and that's, I guess from an ETF standpoint, know for what we're trying to do at security. Just give people the tools to take trade, their conviction, trade their view. You know, we're not saying you should buy battery technology. And that is your theme. We're saying we believe it is a long term structural thematic and it's worthwhile considering, but it gives people the opportunity to say, well, if I want that, I've got an opportunity to invest in it. And to your point, really hard to pick the winners and losers. So I want to take to an example where if you looked at the performance of CSL, one of the largest companies here in Australia has had some up and down performance. And as a single stock, there's volatility that's inherent within that. And as an investor, do I want to be exposed completely to that volatility? Probably not. Do I want to be exposed to the theme of biotechnology? Well, I think biotechnology is going to go somewhere. So let me buy a basket of stocks in that area. I don't know who's going to win, who's going to lose, but I've got exposure to the theme. So we sometimes I don't invest in the winner or loser, invest in the team. And if you're wanting to overweight your view on that team, well, then yes, do your research by that. Stuff that you think this is really going to win out of them, out of that basket or whatever it may be, but that's how we see it. It's this will it as a core in that view? And then if people want to go over that view with a single stock [00:16:48][85.3]

Bryce Leske: [00:16:50] just on sematic, it's one of the challenges that a lot of our audience face is the concept of being true to label. It's very easy for providers to come out and say, you know, this is a climate change ETF or a cyber security ETF, but then you open the lid and have a look at what's inside and you're following the S&P 500, for example. How do you think about that as a beginner investor? How should we navigate that? [00:17:17][27.7]

Kanish Chugh: [00:17:18] So, OK, really quick way to do it. Most of the ETF providers will have their fund holdings on their website, download them and take a quick glance. And if you can pick out the theme from the stocks, well, then, you know, it's getting close to where it needs to be. That's a really good, quick, quick way to do it if you need to. And I do suggest this look beyond that. You know, read the documentation that's available. So read the index, you know, understand what is the index that and how that index created. Because the idea of you mentioned the S&P. Five hundred. So a lot of investors will say, oh, you know what, I've got exposure to the you know, the mega-cap. You know, I've got exposure to some of the fang names, for example, and that gives me exposure to some of these transformative technology and society and lifestyle. So I've got exposures on megatrend because I invest in the S&P 500 or invest in the NASDAQ. One hundred. And you say, yep, fair point. You probably do, but how much exposure? So we did some analysis. So that FANG ETF that we launched, which gives you exposure to the Fang stocks plus, you know, Tesla, Twitter, BITOU, etc. last year in March, that has a 40 percent overlap, stock overlap with the Nasdaq 100. That's not a complete overlap. Only 40 percent has a 19 percent overlap to the S&P 500. So if you really want that particular theme or that particular view or that megatrend, well, then you're going to have to look at some of these sort of thematic exposures or sector exposures in that way, you won't get it through. Investing in a broad index is probably what I would say. And that's sort of so you look at the holdings, look at the methodology on the index, understand who's behind it. Something that we're really conscious of is that particular point. You know, you know, I can say that, you know, even in the product development, when we've launched some of these products and even when we're looking at some new products that we're launching right now or going to be soon, we're really conscious of does the methodology on the index represent the theme? Because we don't want the last thing I want to do is go buy robotics and automation ETF and you invest in a company that has robots listed on their website that's actually not generating revenue from it. So like the robo ETF we have has experts, they've got like this active element to it. They've got revenue scores on each of the stocks and they've got to be at a high level revenue or innovation. They've got to be working in the same. They can't just be saying they we do a little bit. Robots at Amazon as an example, Amazon used robotics in all their warehouses. They didn't generate revenue from it. Yeah. So should Amazon feature in a, you know, robotic and automation ETF? [00:19:57][158.9]

Alec Renehan: [00:19:58] Well, you tell us. [00:19:58][0.4]

Kanish Chugh: [00:19:59] what to me, if you're not generating revenue from a team, you shouldn't be anything. [00:20:02][3.3]

Bryce Leske: [00:20:02] Yeah, I agree because we've seen plenty of examples where they'll say, you know, generate 50 percent of revenue or whatever it may be. But then there are others that, like, benefit from. Yeah, yeah or like thinking about or investor presentation. [00:20:16][14.0]

Kanish Chugh: [00:20:19] And that's one of the things. That's what you do. Is it the true exposure for the same? [00:20:23][4.7]

Alec Renehan: [00:20:24] Let me play devil's advocate with this Amazon example, though. What if they're not deriving any revenue from it, but they're creating like crazy supply chain robots that heaps some other people are starting to use and they're cutting their costs meaningfully. So they're increasing their profit from it. Like, surely there's a tipping point where you're like, okay, they're driving the industry. [00:20:43][18.9]

Kanish Chugh: [00:20:44] So within the medicates, generally not investing in just the production of the theme. So, you know, we talk about robotics and automation. So you think about the actuation of the sensing software that goes into the robots? Well, the product that we have actually invest in the value chain of the theme of robotics, automation, AI. It's not just the end product. So it again, it comes down to the point of opening up the Bonnar, lifting the lid, whatever the catchphrase you want to use, but really understanding what's underneath the ETF and understand how that index at the ETF is tracking is built. Yeah. [00:21:19][35.6]

Alec Renehan: [00:21:20] So I want to ask a little bit more about thematic investing and specifically around sector and country exposure and how we should think about that. [00:21:28][7.9]

Alec Renehan: [00:22:40] So in your Investor Day presentation, you mentioned that four thematic investors, they should be sector or country agnostic. Can you explain what you mean by that and how we should be thinking about, I guess, the split of geographic split when we're thinking about thematic investing? [00:22:57][16.8]

Kanish Chugh: [00:22:58] So what I meant by that was when you're thinking about the magic investing, it's either going to be sector and or country agnostic. So, for example, when I'm looking at our act, it's agnostic to sector and country. So you could be a automobile company. You may feature in the portfolio, you could be a technology company, you could be in the portfolio, you could be a mining company. You could be featuring the portfolio. You could be based in Australia, a rock band [00:23:26][28.2]

Kanish Chugh: [00:23:28] potentially go with a car like that. Potentially. But yeah, but [00:23:37][9.3]

Kanish Chugh: [00:23:37] to the point where that particular ETF is agnostic to country and sector it only by country, it looks at developed markets. So it is constrained in that way. But that's the two elements to it. It's sort of irrelevant of where the stock sits, which is good for some thematics. [00:23:54][16.5]

Alec Renehan: [00:23:55] Yeah, it means it can be purely focused on the thematic. [00:23:58][3.1]

Kanish Chugh: [00:23:59] It can be. But then our tech product is a sector only product list looks at deep tech. So that's I by the way, I differentiate our fēng product as big tech and our tech products as Detec. [00:24:09][9.7]

Kanish Chugh: [00:24:09] I did have a question on that at some point. Let's do something about it now. Yeah. [00:24:14][4.7]

Kanish Chugh: [00:24:15] So for me, big tech is mega-cap. It's multi-thematic. It's across, you know, e-commerce entertainment. You know, it's looking across the entire gamut of what the megatrends of transformative technology and society in lifestyle. And so that's [00:24:30][15.1]

Alec Renehan: [00:24:31] so that's the ATF with the tick tick attack. [00:24:33][2.2]

Kanish Chugh: [00:24:34] No, that's the fact that's a that's one that's big, big tech. Deep tech is pure tech sector products and stocks. Sorry. So it's deep tech. So it's the idea of it's looking at the tech sector, but it's going within that. What am I getting exposure to? You're actually getting exposure to cloud computing. You're getting exposure to cybersecurity. You're getting exposure to 5G Internet of Things, big data services, software. So you're getting exposed to those broad themes. So it's the Mattick in that way, but it's sector-specific, the country agnostic, so that actually a lot of us think tech names there aren't going to be us listed. And yes, majority are know Australia's trying to do its part and wait and see what happens there. But, you know, for there are some Australian names in there and have featured in this, a car sales has been in the portfolio real estate. Com zero, been in the portfolio. Computershare has been in the portfolio. It's that's where it sits. So from that perspective, it's country agnostic but sector-specific. But what I mean when you think about the metrics, you don't want to just be focused on one sector and one country. That's the last thing you want. You want is to be agnostic in one way. [00:25:39][65.1]

Bryce Leske: [00:25:40] I think investing overall, we're always trying to say that talk about steering clear, of being country specific. [00:25:45][5.2]

Alec Renehan: [00:25:47] It's a truly global opportunity. Yes. Yes. [00:25:49][2.3]

Kanish Chugh: [00:25:50] And I guess on that point, though, if you want exposure to a country, it's OK to do that as well. It just has to fit into where does it fit into your portfolio. So it depends on the investor type. It depends on the risk profile they want to take. And what outcome like we've got in India, could ETF those that want India, they can get that. You know, for people that want US equities or Australian equities, it's OK as well. But it's got to be diversified. That should not be the only exposure here. But the idea of diversification is really important. Yeah. [00:26:17][27.5]

Bryce Leske: [00:26:18] Speaking of portfolio, we like to think about it, core and satellite approach and equity markets using that sort of a framework. How do you think sematic ETFs fit into that? [00:26:30][11.8]

Kanish Chugh: [00:26:31] So what I will do there is a lot another one, which is tilt [00:26:33][2.7]

Bryce Leske: [00:26:34] JDK is something [00:26:38][4.0]

Kanish Chugh: [00:26:38] in the water. So the idea of a core now to all of us, again, traditional view of core is the ASX 200, the S&P 500, you know, the big banks or whatever. It may be really traditional view of what is a core and a portfolio. What I'm finding with a lot of new investors coming into the market, especially over the past 12 to 18 months, is you can use it the magic as a core, because if it lines to your long term view and it's a long term structural trend, then why shouldn't it be a core? So an example of a core is the Fang ETF. Now, that particular stock ETF, sorry, it gives you exposure to 10 mega cap big tech companies. So the fang names of Facebook, Apple, Netflix, Amazon and Google, Tesla, Twitter, Alibaba, Baidu and Invidia. [00:27:25][46.5]

Alec Renehan: [00:27:26] And the other thing that's worth mentioning is it's equal weighted. [00:27:29][2.8]

Kanish Chugh: [00:27:30] Exactly right. So at each quarterly rebalance, every quarter, it gets rebounds, it gets each of those 10 stocks to get given a 10 percent allocation. And so than during the quarter. Those stocks will move up or down according to their price. So, for example, with Tesla having its rally in a sort of late Q4 20, we saw it is about sort of 15 percent of the portfolio at one stage. And then at the end of the quarter, it gets put back down to 10 percent [00:27:54][24.3]

Bryce Leske: [00:27:55] for those that have just started their investing journey. Are you able to explain why it might be more advantageous to think about equal weighting versus market cap? [00:28:03][8.4]

Kanish Chugh: [00:28:04] So the idea of market cap is you invest in the biggest name and that will take the largest chunk in your portfolio. The idea of equal weight is you give everyone an equal voice to contribute. So if I'm investing in automatic, I don't believe that the biggest company will be the winner. It could be the smallest company. It could be a midsize company. So for me, an equal weight approach, especially when you're looking at the medical molted, the ETFs because it's not a momentum move. You met with a market cap or that traditional view. Momentum generally plays into it. The bigger they are, the larger they become. It just continues to grow. But with magic, especially when you're looking at the fang names. If you said, well, Apple then should be the largest company in that portfolio. Tesla has been one of the best contributors and performance in that portfolio. And it wouldn't have been having it been market cap weighted because it was equal. It had an equal opportunity to contribute into the performance of the fund. So an example there would be you talked about the crossover and this is why I say it's a core. The reason why it's a core, as people say, well, if I want tech, I've got the S&P 500 or I've got the Nasdaq 100 or whatever it may be one year to the end of April, the FANG index that we track to return at sixty-one percent. The Nasdaq one hundred return thirty-one point three percent. So the main contributor is on performance on that. Nasdaq were some of these names. But because it's equal way and it's concentrated, you've magnified that, [00:29:32][87.8]

Bryce Leske: [00:29:32] then why would anyone ever really do market cap weighted? [00:29:37][4.5]

Kanish Chugh: [00:29:38] Because it has a place in the portfolio depending upon your risk profile. You know, again, it comes down to where do you see this position being working for you to those investors that again, because it's market, because it's equal weight and it's concentrated. It is for that particular investor that's focused on growth. You know, they will get exposure to that. You know, in the same way it's grown 60 percent. There may be days where it's down above what the NASDAQ 100 or the S&P 500 will be. So just that's the mindset to have. It's that I do diversification [00:30:08][29.6]

Alec Renehan: [00:30:09] because that's how I index funds started tracking the index. Was market cap weighted. [00:30:13][3.8]

Bryce Leske: [00:30:13] Yeah, but I move on boring. [00:30:15][1.2]

Alec Renehan: [00:30:16] Well the last fifteen years in the US would beg to differ with [00:30:20][3.3]

Bryce Leske: [00:30:21] the last fifteen years equal weighted. Oh yeah. [00:30:22][1.7]

Kanish Chugh: [00:30:23] That's the first, the first index I say or the first main index was the Dow Jones. The which is price weighted. [00:30:30][7.2]

Alec Renehan: [00:30:31] Fair. Fair. I'm more thinking bogle. [00:30:33][2.3]

Kanish Chugh: [00:30:35] exactly as indexing evolutionism. It was all market cap and that's why I think that's where even traditional finance professionals, that's where investors are. So we always say ETFs are market cap weighted. They're passive, they're boring. You know, a lot of people will say if you're an ETF investor, you're asleep at the wheel. [00:30:53][18.5]

Alec Renehan: [00:30:54] This is the headline for the ETF. Securities says, ETFs are boring. [00:30:57][3.5]

Bryce Leske: [00:31:01] We should get back to the core satellite. And though. [00:31:04][2.9]

Kanish Chugh: [00:31:04] Yes, so coming to that's a fang to me is a core. It gives you exposure in that way. A satellite is a traditional view. And that's how we see a lot of people using the ETF, especially in the financial professional space. So what they say is my core building blocks, your market cap indexes, etc. and I'm going to tilt the portfolio. I'm going to start I'm going to have satellite exposure by taking five, 10, 15 percent of my equity sleeve into a thematic and again, core and satellite, long term views. I'm not going to be sitting and changing those positions in those portfolios every month, every two months. It's going to be a long-term view on a particular theme. So that's where we see. So an example and satellites or things like Robo, which is a product that looks at robotics and automation and artificial intelligence. We spoke about it earlier a little bit. This particular ETF has you could call it active indexing because it's a passive product. It tracks an index. But to create that index, it's got active elements to it. There's a research team. There's actually a team of strategic advisors sit behind that index. And one of them created Amazon Robotics or what is now IBM's on robotics. So these guys are actively doing a lot of work to identify, you know, [00:32:15][70.7]

Alec Renehan: [00:32:16] and so he didn't put Amazon in the robotic It was called Kiva [00:32:20][4.2]

Kanish Chugh: [00:32:20] It was called Kiva Systems, and he created it and that was onboard him. But that's an area, an index where you've got a fundamental active research element to create a universe because the team is innovating and evolving ever. So you can't just take it off the shelf and go as we spoke about it can't just be this particular stock has robots and it's. On its website, it says that it's trying to do something. What is it actually doing to these guys? Go in, meet the companies, identify purity, score, and revenue, identify an innovation score. And then once that universe is created, index rules apply and it creates an index. We track that and we do it for a lower fee than what you would probably get if they were doing it actively for sixty-nine basis points or zero point six nine percent per year. You get exposure to that, said Rober. To me and to a lot of investors can be seen as a satellite tech is our Morningstar technology ETF and that's another satellite exposure. As I said, it gives you exposure to those broad themes of 5G cybersecurity, cloud computing. So to a lot of investors that don't want to go down a singular theme, taking those multi-thematic views inside the tech product could be a way to dip their toe in the water. In terms of I want exposure to those areas, I believe that they're going to be something that will grow. How do I do that? I don't want to go all in, so I do it through something like that. To me, a tilt is short to medium term view. So this is where you see an investor go. I believe it. The magic is going to perform. You know, maybe they've seen some news, maybe whatever it is, it's a one year, six month, one and a half year view that it's going to give some performance. And generally a tilt is designed to give your performance kicker in your portfolio, your alpha. [00:33:58][97.9]

Alec Renehan: [00:33:59] So this is where some of those ETFs you were speaking about earlier in America, like I work from home ETF or something like that could fit in. Exactly. [00:34:06][6.9]

Kanish Chugh: [00:34:06] Yeah. But what we've actually seen is, say, our AC DC ETF has been used by some investors as a tilt. And I would argue I don't think it's all I think AC DC battery technology and electric vehicles and lithium etc. that's all at a satellite. It's a long-term view, but to a lot of investors, this is how they ease their way into it. So it sits outside your entire portfolio and it's that additional sort of I'm willing to take a bet on this to see how it goes. And if it does go well, it's going to return really well. AC DC has returned over ninety-six percent over one year. So, yes, it's done that. But what you will find is a lot of people then start to shift it as satellites, all those people that use it as a tilt when they start to see government support on electric vehicles and battery technology and have used it ever since. My gut feeling is they'll start to actually go. This is a long term trend. It's not going away. It's not a one year to year play. It's a five, 10 year play. This could be a satellite in my exposure. [00:35:03][56.8]

Bryce Leske: [00:35:04] So we've spoken a lot about some of your ETFs. I guess it would be a good opportunity to, I guess, go a little bit deeper on some of the examples. You've got the ETF Fang plus, which we've spoken about. The ticker for those listening at home is ASX Fang. We've made mention that it's equal-weighted across ten stocks. You've got Apple, Alphabet, Amazon, Facebook, Alibaba, Nvidia, Netflix, Tesla, Baidu, and Twitter. Great range. [00:35:31][26.9]

Alec Renehan: [00:35:31] Yet before you ask a question, can I just ask what were your thoughts on Tencent and not including that? [00:35:37][5.7]

Kanish Chugh: [00:35:38] So this particular ETF, the index that we track, only looks at US listed stocks. So tencents not not listen to us [00:35:44][6.5]

Alec Renehan: [00:35:45] It is tough for an Australian investor to buy Tencent. Yeah. Yeah, it is hard anyway. Not not that you have to solve. [00:35:55][9.7]

Bryce Leske: [00:35:56] So we've spoken about the logic behind it being equal weighted, giving all of those stocks an equal opportunity to perform and contribute. Are you able to explain the logic behind the, I would say extreme concentration relative to a number of other ETFs out there that give tech exposure? [00:36:14][17.8]

Kanish Chugh: [00:36:15] Yeah, definitely. And I can even point out an example to our tech ETF, which is thirty five names. This ETF is only ten names. We launched it in March last year, literally at the bottom of the market, the peak of the volatility, but we launched off the back of client demand. Who was saying I want exposure to just those names of fang names and the thanks to our names. I don't want exposure to the four hundred ninety other names that I get with the S&P 500. I don't want exposure to the ninety other names that you get with the Nasdaq 100 or whatever it may be, or the miscue or the thousand other names. I just want exposure to that because I believe they're the ones that are be driving the growth in those particular indexes or driving performance. So for us, an ETF is a tool for investors. I mentioned before, we are giving investors an ability to invest in these exposures and that is what we are trying to do. So off the client demand, we felt that is a way for investors to just get those exposures. [00:37:05][50.1]

Bryce Leske: [00:37:06] So if the equity makes community band together and get a list of stocks that we want exposure to, are you going to make us an ETF? [00:37:12][5.9]

Kanish Chugh: [00:37:13] We can chat. . [00:37:14][0.8]

Alec Renehan: [00:37:15] Well, I the table for a while now that there should be a global waste management and recycling ETF, and I think there's one in the US. [00:37:22][7.9]

Kanish Chugh: [00:37:24] I suspect that would be one of and probably got like a ticker of junk or something. [00:37:27][3.4]

Alec Renehan: [00:37:28] And S&P, like Standard Poor's, have an index that tracks it, but there's no Australian listed ETF that tracks that index. So maybe we should tell that there's enough companies out. [00:37:39][11.4]

Bryce Leske: [00:37:41] So then there's ETF the morning Morningstar Global Technology ETF, the ticker is tech. We've already discussed, though, it is just a broader exposure to technology. [00:37:53][12.5]

Alec Renehan: [00:37:54] And I think maybe if you can explain the Morningstar element, because I'm sure a lot of people would be familiar with Morningstar, but we don't quite know how they fit into this ETF. [00:38:03][8.9]

Kanish Chugh: [00:38:04] Yes, Morningstar is known very well as a research house. They've got a team, they've got analysts around the world actively researching stocks and providing recommendations on those stocks. What people may not know as Morningstar produce indexes and using that research. So if you're familiar with Morningstar Moate methodology and Warren Buffett talks about moed and essentially for those that don't know, MOED talks about a company's competitive advantage on its peers. What Morningstar does is it rates each stock with a rating of other Nomoto, which means it doesn't have a competitive advantage on its peers for less than 10 years. What remote? It's 10 to 20 years that it's got a competitive advantage. 20 years passes wide moat. Microsoft has a wide moat, Apple has a narrow moat. Samsung has no moat. So to them, they say, you're with Apple, you're going to have the iPhone, you can have the the the Mac you and have all those things because you're on the operating system. You're going to buy the watch then as well. Or the tag. You're with Samsung. You're not locked into the Android platform. You can, but I hate to see Google. So to them, they don't say that. And so therefore, it's no. So what this index does is leverages the research that Morningstar does on those stocks within the technology sector. So we've narrowed down that only stocks in the portfolio of narrow or wide. But the next step that Morningstar does is they actually look at the valuations. So you can say, well, tech sector's overvalued. I'd argue against that. Maybe there are some names in the tech sector that I value, but on a broad level, the actual sector is not overvalued at all. But even more so, this particular index uses Morningstar valuations great. So only stocks that have fair value or undervalued will feature in the index. So Apple doesn't feature in the index at the moment? It has in the past, but it does. And because Morningstar at the moment believe that it's overvalued. So for me, in a period where people are talking about this rotation of value to growth, people talk about over valuation on the technology sector, what you will find is this particular index goes beyond just taking the tech sector. It actually applies some smarts to it and says, OK, well, it's the best valued names or undervalued names within the technology sector that have a competitive advantage. [00:40:21][137.4]

Alec Renehan: [00:40:22] So how do you think about ETF overlap with what we've just spoken about two tech products? I'm not actually sure what your top holdings in the Morningstar Tech product are. Should have done my research, but like if a lot of the names overlap between the Fang ETF and the tech ETF, how do you think about that and how should it I guess retail investors think about that. [00:40:43][21.0]

Kanish Chugh: [00:40:43] So consider the Fang for a minute. We assume Facebook, Google or Alphabet, Netflix are technology types. They're not they're actually classified as media and communication names. So they will never feature in the tech ETF. The only two names that could feature in the tech ETF is Apple. And Nvidia already said that Apple's not in there and I need to double-check, but I'm not even sure if anybody is in there at the moment. The overlap could be one name if that. [00:41:10][26.8]

Alec Renehan: [00:41:10] Yeah, right. Well, Google as a media company rather than a tech company chart. Interesting. I guess it's, [00:41:16][6.0]

Bryce Leske: [00:41:17] It's you know, we're a tech company. [00:41:19][2.3]

Kanish Chugh: [00:41:21] Well, I think they say Google's a media and commerce company. Communications company, because it generates ad revenue. I think that's how they see it. So that's how geeks and morning stars like that to run classified sectors. [00:41:32][11.0]

Bryce Leske: [00:41:35] And just to close out on this one, we have mentioned as well the AC DC ETF, which is the battery tech and lithium ETF following the lithium trend and the battery tech trend, no doubt that that's one that we're all kind of closely watching, given what's going on with electric vehicles and CO. And then there's the global robotics and automatic ETF, robo [00:41:59][23.8]

Alec Renehan: [00:42:00] automation, [00:42:00][0.0]

Bryce Leske: [00:42:00] automation, automation, [00:42:01][0.7]

Kanish Chugh: [00:42:03] global robotics and automation and artificial intelligence ETF. So you've got the two thematic products in that space, you know, with Robo. What I would say is when we talk about being true to label tech robot AC DC, find these got these companies to try to label. Yeah, I want exposure to robotics and automation as a theme. Well, you've got you know, if I told you John Deere would you go is John Deere robotics motivation. [00:42:29][25.7]

Alec Renehan: [00:42:29] No, I know it is because I'm fascinated by ag tech. So yeah, I imagine a lot of people wouldn't think of that. Tractors. [00:42:36][7.2]

Kanish Chugh: [00:42:37] Tractors. Yeah. And but they do so much in. Sensing automotive and autonomous vehicles, I said that actually is a feature in the portfolio. There's another company has a look on YouTube. Actually, it's called Intuitive Surgical. They produce what's called The Da Vinci machine. And each of these machines goes for about two million dollars a pop. Most of the hospitals, large hospitals, and the developing world will have them. They do mid-body surgeries, but the doctor can be on the other side of the room, on the other side of the world. And on YouTube, you can actually have a look. And they peel a grape and they stitch a great backup in terms. And that's why I think just with robotic arms and that's the sort of thing that you're actually investing in, 3D printing, you know, within three different you do buy retail 3D printing or do you buy commercial, 3D printing company. And that's where that expert analysis that Robair Global do, they've got that guys behind it. They're saying, no, it's the commercial industrial space we need to look at. And it's 3D Systems is a company that you would consider or things like that. [00:43:33][55.9]

Alec Renehan: [00:43:33] Mm-hmm. It's a fascinating one. One more question on this four ATFP. So we've talked about the ASX Ticker FANG, the ASX Ticketek, the ASX Ticker, AC, DC, and ASX Ticker Robo. I'm fascinated by ETF providers and their ability to come up with a good stocktake, but also how would all of these four not take an especially fang that was only released last year? Surely one of your competitors would divide that often snapped that up before you guys? Yeah, it's [00:43:33][0.0]

Kanish Chugh: [00:44:00] it's an interesting concept. It's something that, you know, as a team, we get together when we're launching a new fund and we come up with a few very different codes and we basically ask the ASX what's available. And we were lucky that some of these weren't available all the time. Yeah. So, yeah, it's one of those things. [00:44:19][18.2]

Alec Renehan: [00:45:36] So we want to thank you for taking the time today. We really enjoyed your presentation at Investor Day and we enjoyed talking about it. Now, some interesting ETFs that I'm sure people are madly Googling as we finish this episode. We do like to finish with the same final three questions before we do. If people want to learn more about you or follow you online, is there anywhere, in particular, they should be going? [00:46:01][25.2]

Kanish Chugh: [00:46:02] that they can go into LinkedIn, they can go onto Facebook as well as ETF securities, have a sort of a Facebook page as well as on Twitter as well. [00:46:12][10.1]

Alec Renehan: [00:46:12] No, tiktok [00:46:12][0.2]

Kanish Chugh: [00:46:14] No Tiktok as yet. [00:46:14][0.3]

Alec Renehan: [00:46:18] Yeah. So as I said, we do like to end with the same final three questions. The first one, do you have any books that you consider must-read? [00:46:27][8.6]

Kanish Chugh: [00:46:28] I've got two young kids and between work and kids, I actually don't have any books at the moment that I could probably recommend enough. [00:46:36][7.3]

Kanish Chugh: [00:46:36] Well, it might be a good time to remind people of the book on megatrends that you introduced at the start. What was that called? [00:46:42][6.2]

Kanish Chugh: [00:46:43] So that is a book authored by John Naisbitt. Now, I believe he has since updated because he launched he published that first in the 1980s. So if you search megatrends John Naisbitt, you probably will find the latest version of that particular book. [00:46:55][12.5]

Kanish Chugh: [00:46:56] Or you can read the 1980s one and if his predictions came off. Exactly. So second question, in 60 seconds or less, what's the best company you've ever seen? [00:47:07][11.8]

Kanish Chugh: [00:47:08] Actually, it's interesting. So it's probably hard to pick a company. What I would say is probably picking an ETF is easy for me, and it's one that I personally invest in as well within my super it's the Fang ETF, because, for me, I don't necessarily want to invest directly into the US and sort of go through that rigmarole of doing that. I can easily just invest in one ETF that gives me exposure to those sort of things, style names. So for me that would be one. For me, that big tech, it's got growth potential. It's you know, that is the next day. You know, what I say is that the New Age industrial companies. [00:47:44][35.4]

Alec Renehan: [00:47:45] And then final question, if you think back to your younger self, when you were first buying your house, before you even thought about investing in the stock market, what advice would you have for your younger self? [00:47:56][10.4]

Kanish Chugh: [00:47:57] So I think in that way, what I would say is I didn't invest because I didn't know enough and I didn't invest. So I thought I was a bit risk-averse at the time. So for me, it was just saved, save, save. And I didn't want to risk that money, knowing a lot more now, being in the industry, having studied and doing all of that. And my parents weren't investors either. They saved and bought a property. So I would say do your reading, but don't be afraid. You know, there's a lot of apps out. There's a lot of websites. You know, the fractional investing world is very big. You know, I use some of those already, and it's very easy to just get some exposure. So for me, I've actually done some for my kids and they do not even sort of four years old yet. So they've already invested in the ETF landscape through those apps and those systems. And that's what I would say is being invested for the long term rather than also trying to time the market is something really important [00:48:53][56.6]

Bryce Leske: [00:48:55] to all of you in the equity markets community who enjoyed our discussion with Kanish today. The good news is that there is another ASX Investor Day coming later in two thousand and twenty one sometime around November, which we again will be part of. And there will be more sessions along the lines of what we've discussed today, plus many, many more. So keep your eye out for that if you did miss the ones that were this year. But look, can we very much appreciate you coming on and sharing your words of wisdom around megatrends and thematic ETFs? I know it's something that a lot of our audience are very interested in. So appreciate your time. [00:49:30][35.2]

Kanish Chugh: [00:49:31] No, I thank you for having me. [00:49:31][0.0]

[2586.4]

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