ASK THE EXPERTS: ETF Q&A Special w/ BetaShares

Bryce: [00:01:28] Welcome, everybody. My name is Bryce from Equity Mates. This is Alec, otherwise known as Ren. On the show you are part of the Equity Mates community and we're joined by co-founder of Beta Shares Ela. Thank you for joining us. This is a fantastic night for all of us. And we're really excited to be having our first live virtual event for 2020. So we're looking forward to getting stuck into all things ETFs before we do intros and get into a bit of the mechanics of the night. We thought we'd start with a quiz, given that we've got so much to give away somewhere. We thought we'd throw it out to you guys some merch. [00:02:02][34.5]

Bryce: [00:02:09] So to answer the quiz, all we needed to do is talk the answer into your chat box that you'll be seeing on your screen at the moment. First person to chat through the correct answer will be the lucky winner of our shirts and ask. The question is how many exchange traded products are there currently on the ASX? We'll give you a few minutes to think about that. If you want to remember. [00:02:33][23.9]

Bryce: [00:02:36] So the agenda for tonight, as we said, this is going to be a wide ranging discussion on all things right here with the experts. We've taken in your questions from the last two weeks. And we're going to be covering a number of topics, primarily driven by what you've been sending in. We will be having a Q&A session at the end of the evening. So if you do have any questions during the night, then put them in your question box and we'll be answering some of them at the end of the evening as well. So there will be prises for people who submit questions. So shall we get into the discussion? [00:03:05][29.3]

Alec: [00:03:06] Well, before we do, we want to be driven by what you guys want to hear about your questions. And there was an overwhelming majority for building in 84, although that was a really strong thing for. So we want to kick it off. But then we want to be directed by you in terms of what we talk about, some of the other things that we talk about, Paul, in a second and we want to talk about, because this is really all about answering your questions and helping you with your knowledge. So you should say that a whole lot any second now. There are five different categories to choose from, whichever one you want to hear us talk about, namely talk about and we will define you just saw you all are going to have three key discussion points, building a portfolio and then whatever. You guys are cool. And then we'll open it up for a more general Q&A. So hopefully through the night, whatever questions you have, what you really want answered, what you want to learn about how you get a chance to discuss it. Nice. [00:04:12][66.3]

Bryce: [00:04:13] So you should say the five things in front of you now preparing acts for mechanics or things, crossing fees, distributions, international ETFs, currency hedging, tax, those sorts of things, geared and short funds, and then sematic funds that are tied to some of the key things that we're seeing in markets at the moment about marijuana also. So we'll close the poll now. And it looks like we have comparing ETFs and or just coming in international, which is good because I really can't talk about it. Now before we do get sucked into the first topic of the night, which is building an ETF portfolio after those of you who have joined us for the first time, we are Equity Mates Investing podcast. We aim to make markets accessible to the everyday investor. So please to join us on the show. And as I said at the start of the night, we have Alan here is co-founder of Radioshow. So I just want to give a quick intro [00:05:15][62.1]

Ilan: [00:05:17] My name is Ilan. Pleasure to be with you guys. Doing great work for the investment community. I really appreciate it. Show that people are understanding investing, which is really what we're all about. As mentioned, I found Peter shares the one said it's not just the ETF issue, as we have around sixty five ETFs now in the market. So we started about ten years ago and a great journey of sixty five, which all are traded on the ASX, the all out funds you can buy and sell any share. We managing about twelve and a half billion dollars in assets. So yeah, we're excited. The media love getting these types of things going and asking these types of questions and we feel that we love to share. So I'm looking forward to it. [00:05:53][36.1]

Bryce: [00:05:54] So if you do have a question for Alan, put it into your comments section and we'll get to that later on in the 90s. V4 for you tonight. So please take the opportunity to ask him anything that you like. Doesn't have to be related to that. These are big shoes, fat snake. So anyway, [00:06:11][17.4]

Alec: [00:06:12] you want to pick it up? Yeah. All right. So know there's a lot of different experience levels on this webinar tonight, so we thought we would give on softball to keep it off. So we're going to start by talking about our building portfolio. But I'm going to go back to the basics of what is amazing. [00:06:31][18.7]

Ilan: [00:06:31] Yeah, so encephalitis is not an answer. That question by talking about what stands for the ETFs exchange traded funds exchange traded the first part that made that exchange traded. You buy and sell it like a share and anything that has a few benefits to it, which is one, there's no minimum investment beyond what a broker might offer or what might offer, but it's essentially an investment that also means you can buy and sell them any time during the trading day. So very easy to buy and sell. And so that's the exchange traded component. And the fund component means for many people that it is diversified. So you're getting a single trade exposure to a diversified range of securities stocks. Whatever the case is, that's the fun component to the benefits there. That is diversified is actually also a structural benefit, which is that the fund structure is actually very friendly, that there's a lot of protection from regulators and other bodies. So that's the families and that's an exchange traded fund stands for. Now, the part that's not part of the acronym is that most ETFs passively managed index tracking the index tracking means that the best way is that example. I want to get exposure to the Australian ASX 200. I want to get exposure as simple as buying a share. I buy a single investment and on that basis I get the latest on the stocks in Australia via a single trade. So instead of choosing between the CBA or CSL, Wesfarmers, whatever the case may be, I buy the in that case, two hundred ETFs and I have exposure to the entire market, often at very low cost because we don't have to pay people to pick stocks. So that's really how I define an exchange traded fund in and around a comes out. I could say I'm going to get somebody. Well, exactly. It's not putting ETFs on the ASX and now it's a huge range. And yeah, that that's that's that's [00:08:24][112.7]

Alec: [00:08:25] what we'll say. If no one got that right, you get the Equity Mates. [00:08:28][3.0]

Bryce: [00:08:32] You did say 30, 40 and you're the first one and we'll make sure we say congratulations towards the end of the night. Now you mentioned that two hundred and forty on the ASX. This question is coming from one of our listeners and they say that given how many guests are available, it can sometimes feel like picking stocks. How do you think about starting your process in terms of where to start in the universe? [00:08:58][26.3]

Ilan: [00:08:59] It's a great question and I can understand why with 240 ETFs, you could be pretty bamboozled by choice. And in that regard, I guess it is like stocks, right? So what I would say is because they are all quite diversified, there is quite a big difference, which means that in most part, the ETF you buy will be quite safe, relatively speaking, compared to buying a single share. But when you start, I think you start always with asking yourself, why am I invested in the first place? And I imagine that for most people on this webinar tonight and in the future, you're probably trying to save up for something, maybe a deposit for a house or just a bit of a bit of a nest egg. And what that really means that most people on this podcast are not going to generalise. I'm not sure who is on there. But for those people, it might be the case that they what they're really trying to do is build asset value or build capital over time. Capital growth. We call it an investment that Bryce. So if that's the case, then there'll be certain types of ETFs that are more aligned with adding to your capital growth over time. And those are typically shares based ETFs. Shares typically are known to be those things that add capital over time. And that would also mean that, for example, you may not be that focus on generating an income out of this investment because you might be getting paid a salary. So what that means is that you'd rather give that kind of hypothetical person, you'd rather put money into something that will grow over time. So that's an example of making a decision as to why do I want to invest? Then you think about how long am I going to invest for? Is this a tactical decision? Is this something I'm trying to do over the long term? But I want to add to it every month, every fortnight, again, if that's the case. But most people you have to ask yourself, what are you doing that are you doing it to become the core of your portfolio which grows over time, or are you've actually already invested in a few shares and you want to diversify by getting some, for example, international ETFs? So with everything you have to work out why you're doing it and then it's going to be an ETF for that purpose. So, again, if I'm just looking to get started in the market, maybe I'll just buy a couple of very simple exchange traded funds that passively managed very broad market indices like Nasdaq one hundred twenty two hundred or Miski will the S&P five hundred, which is another sort of time for the US versus the world versus Australia. And then on the other hand, I might be looking to do something more tactical because I really like the particular theme or the moment of robotics. So there's enough there for everybody. And of course, we haven't even spoken about non non share rates. I know you've spoken about little bit in your hypothetical book, but the point is that there's enough there to make those decisions and I just have to know yourself and work out. Probably the only other thing I would say for people getting started is it's pretty helpful if you understand what's in the eye. And so that's why we're getting so much interest in stocks. Like it's like, for example, the Nasdaq, which is a popular one amongst the community and and the cure, because, of course, everybody knows Amazon and Facebook and Google. So when they invested in it, that kind of thing sells. I can see Amazon, Google and Facebook doing well over the next 20 years, but harder if you don't really understand what's in it. So I think, first of all, the processes understand yourself. Once you've understood yourself, work out if it's shares versus bonds versus whatever, work out whether you want Australian or international exposures, then you usually try to pick something that's quite broad unless you're trying to be tactful about it, in which case, by all means go to something more narrow and make sure you understand what's inside that look the what we call [00:12:25][205.6]

Bryce: [00:12:25] portfolio holdings super basic question, but where you actually find that information in terms of holdings for an [00:12:32][6.6]

Ilan: [00:12:32] ETF. So the thing is that with ETFs that I mentioned at the investor friendly, our regulator and the ASX force, which we're happy to do all ETF issuers to put the focus on our website. So you go to Beta Shares website or another issue with the website. Look at the fund you're looking for. Look for the portfolio on exceptional sometimes just called Inception and you'll get the Excel file of this list of the stocks. Yeah. [00:12:58][26.1]

Alec: [00:12:58] So I want to take it a step further, even once you know yourself. And you know what? I think that's great advice to help filtering it out. All the different types of data out there when you decide what you want to invest in Australia, the US specific thing, there's generally still some choice there. So for people who are still overwhelmed by the multiple ASX 200 indexes on the market or the S&P 500 index on the market, how do you decide what is right for you and what factors? [00:13:31][32.3]

Ilan: [00:13:32] I guess if we assume that we're talking about two funds that are almost identical to the first thing you have to do is even if you think that very similar to the same, make sure you look at the portfolio, because that might be a little bit different. The ethical ETFs, a classic combined and ethical ETF, but they can be a huge difference between. Right. But just assume that we are actually legitimately talking about two exactly the same or extremely similar exposures that set, for example, the Australia two hundred dollar number of funds that there offering exposure to the of stocks in that we've got. One hundred is is that that that you mentioned before. What do you look at then? Well, first of all, you should look at making sure that you've got a reputable manager behind it. I mean, the good thing is that it's sort of a few, a handful of very large managers in Australia that I think everyone can be comfortable with. We feel with one of them, but there's others as well. Definitely the number one, you make sure the managers reputable, you have to look at fees next. If we say they're identical to that, you have to look at fees and you've got to be involved in that. How very hard and some of the work you've done, because if they are truly identical, the only thing you can control is so there's not that many situations where they're identical but identical that fees really do matter. And not just the management fee, which is obviously the thing that people ask, how is the management big come out to actually pay the money down? Answer that question. You don't pay any money. It's essentially just comes out of your price every single day, a tiny, tiny amount. So you don't detect it, but it's coming out. So the lowest cost, extra to two hundred eighty four is actually zero point zero seven per cent a year, which is 70 cents for every thousand dollar invested. It's a pretty small area, so that about about two hundred sixty five comes out every day. That's timing targets. So cost costs. But don't just look at that. Management costs also have a bit of a look at what we call the bid and offer spread. Now we're getting a little more technical, but what we're talking about there is the difference between when you look at the ASX market and your brokerage accounts, between the buy the bid and the offer, the buy and sell and just check it as to how wide it is. And that will give you a because that's actually a cost that you pay. Yeah. So that's the thing. But in most cases that's, say, Ren that they don't actually have too many situations where they're identical to each other. [00:15:45][132.8]

Bryce: [00:15:46] Which brings us to the next question that often comes in. Iran is around overlap and understanding and maybe will merge through questions before moving on to the next topic, overlap of ETFs and how many ETFs is to be followed. Or I can think, for example, of the of you mentioned, but then also, which is technology technology sector, there's obviously going to be an overlap of companies between those two. How do you think about constructing a great question? [00:16:18][32.1]

Ilan: [00:16:19] And again, likely the answer is to go back to understand what's in it. So it is quite important. I think the one hundred example is that. We want to know whether or not that much of that at all, but a better example would be the US market. There's been a lot of talk about and we're calling this inevitable with the world to put a stop to it. There's been a lot of talk about how much of the US market is currently made up of those top five stuff. This massive apple probably went wrong for the Amazon, Google, Microsoft and. Right. So those five stocks now might have a bigger proportion of the US market than ever before. And they're talking about overlap buying. For example, today, an S&P five hundred ETF and the Nasdaq ETF. If you did that thing that you download a all the holdings and you add it up, you'll see you're very heavily exposed to those stocks be essentially doubling up. That would not necessarily make a huge amount of sense. And in that scenario, you might want to choose one rather than the other. Like, for example, if you want to have a more technology oriented exposure, then you choose the Nasdaq. If you just want the full US market with a whole lot of tech that goes with it, then you choose the S&P five hundred ETF. So I think you have to look pretty carefully in those cases. And it's particularly relevant in the big end of town. The big end of town is where you see a lot of overlap. As it turns out, like the Australia technology sector is actually not heavily overlap with our strategy because things like Afterpay are really big enough to make it easy to allow the company to. The Australian technology sector is actually quite small. So that's a scenario where you actually can validly buy both and get exposure to the Australian market, plus some technology to go with it. But to answer your second question, Bryce, which is around, how many is too many? I think it's a great question that I think for most people, just a few low cost, simple ETFs is actually enough. Particularly what you're trying to do is building up a really strong, low cost foundation. So if you that's your starting point. If you think about it, for somebody who's got 15, 20 years of investment ahead of them before they have to take the money out, they're probably happy to go just essentially almost all share ETFs. I mean, this is not financial advice. And I should say that, like everything I say is absolutely not going to have my lawyer you. But for most people, if you just for example, with a focus on Australian shares, US shares and global shares and emerging markets, as for at best, you probably get a pretty strong foundation. So that says that if you're trying to get started over again, it is actually probably not that helpful. However, once you've actually got a core of shares in your father, once you go to a core of those ETFs, I think it's reasonable to add that we call satellites to investment, which are tactical decisions around. I've actually got a really strong view on the Australian technology sector to use the cybersecurity sector to use tech as an example. Right. So, yeah, I really like the cybersecurity sector. I can see that what I've got on my core really does speak to that at all, because the cybersecurity sector is quite specific, I really believe is a foundation of investing in technology because you can't have technology without cybersecurity anymore, then maybe then as a satellite, one or two tactical things like that. [00:19:37][198.1]

Bryce: [00:19:38] So I think the key is really understanding what's in the in the ETFs before making those. Yeah, you can find yourself trying to be too cute in some instances. [00:19:48][9.4]

Alec: [00:19:49] So I think that leads nicely onto the next section that we want to talk about. The winner of the poll, which was comparing apps. We talked about this before, but I'm interested to not talk about management fees because we talked about that before. So other than management fees, what are some of the key factors you consider when comparing different [00:20:11][21.3]

Ilan: [00:20:12] thoughts about management fees? And I also spoke about this, making sure that you've got a strong amount of data. And I also said that most of the Australian ETF managers are quite strong, not all, but most Democrats particular, particularly top three [00:20:24][12.2]

Alec: [00:20:24] Bryce tried to launch an ETF and it didn't work out. Yeah, exactly [00:20:31][6.3]

Ilan: [00:20:32] what I would say as well, because, again, obviously we did this for 10 years. And I also know what questions asked just on that topic of a strong manager. Interestingly enough, even though it would be annoying if a manager that you invested in was to go under and actually doesn't really need to lose any money, because I mentioned that fund structure is investor friendly and that is that that the assets of the ETF are not held by beta shares or Vanguard or BlackRock that are owned by a third party custodian whose whole job it is, is to protect those assets, to ring fence it from ourselves. So that's an aside. [00:21:07][35.3]

Alec: [00:21:07] But the important point, because I think a lot of people worry about that as a provider and because a custodian who owns it and stuff like that. So that was different. [00:21:17][10.1]

Ilan: [00:21:18] What I've started, I think it's what we call that the separation of assets. So our twelve and a half billion dollars of assets are not on peterschmidt. Then on a separate area, separate accounts for acts and for the benefit of the fact that we were to go under. We would just the that custody would appoint another issue and all. Worst case, they sell the assets and you get it back at the value of the assets. So that's the issue. Look outside [00:21:45][26.7]

Alec: [00:21:46] of the area here, the [00:21:49][3.2]

Ilan: [00:21:50] drilling going on because in the Sydney CBD, the people and they use up to Tik-tok. Yes. So the issue is one that I mentioned the bit in the arse spread. Looking at the difference between the bid and the offer and comparing that to what we call the fair value is actually a concept enough so that the owner that the ticket of net asset value or the true value of the underlying exposures and those that can be seen in some cases on our website, on the ASX. So just seeing what the difference is between the price that is being offered in the market and that is a helpful component of that is another cost. But look, I think from that you understand what's in it. [00:22:37][46.3]

Alec: [00:22:37] And so just to recap everyone, so it was really for people to look for. Number one is that actually the site and the look on the website unsimilar have the actual bill. Number two, the issue, other reputable, trustworthy regulators under threat management. And number four, we can be lost. And if you get all or you can't find any difference of components that [00:23:05][28.0]

Bryce: [00:23:05] we are speaking of, I mean, looking at the spread and finding that value of it, is it possible to value an ETF like you would? Is that a process that someone should think about? [00:23:17][11.3]

Ilan: [00:23:17] Yeah, I think for most long term investors with very long time horizons and the idea to continue averaging into an investment of time, I think it's probably a little bit of overkill in many, many respects, because as it is, you said to yourself, I've got this long time horizon and I'm going to be averaging enough time. So does that mean I have to value it each time I do it? So I think for most people who have that kind of a mindset, it can be a little bit of overkill. It may not be needed. For example, if you take the most recent crash we had, like in March, you could have sat there trying to work out what the right value to to buy any particular share might be or any ETF. But the point is, if you bought it at any time during that period, you would have done so well given the huge rise we had. So getting too cute about that for most investors is a step too far. But for those who usually look at those type of things and they're used to that kind of fundamental, we call that fundamental analysis and they look at things like price to equity ratios like that, which is essentially how much you want to present yourself versus how much you've actually got in terms of your earnings reports, earnings ratios and price to book ratio. You can absolutely. Can we as be the shares and other issuers publish that information on our packets? You could do it yourself. You really feel like you can download everyone and look at the most people that can see on the factory floor price to earnings ratios, et cetera, that you can do it. I just think that the most people who aren't looking to make one single bet at a single time, it may not be that useful, but certainly the answer to your question is yes, can be done. Can be done. [00:24:50][93.1]

Alec: [00:24:51] I think another way that people might think about valuing ETFs that I'd be interested in you expanding on is some other funds are structured. So the value that you buy it out is different than net asset value. And there can be a lot of people who are familiar with them, listed investment company and HFC structured differently, and that really doesn't come into play as much. Can you explain that? [00:25:16][25.2]

Ilan: [00:25:16] That sort of. Yeah, well, that's a huge benefit of ETF. So with shares listed investment company, you've only got a certain number of shares, outstanding record like that. Anyway, you can have more shares is by either doing a capital raise and issuing more shares or by reducing the number of shares, some sort of consolidation. So that means that you're always buying and selling other people and essentially when you buy more. The price goes up and when you sell, then the price goes down. Now that does not simply occur and it's because we run. An open ended structure is not a limit to how many shares, what units we call them. There's not a limit to how many units. There are each individual ETF. So what that means is that if we have more demand, that we have supply, we simply just create more units. And so what that basically means is that the price of the ETF has no bearing on how many people buy and sell it. In other words, to put it starkly and as we've seen it, it can be a situation where everyone is selling an ETF and not let the price of oil goes up and vice versa. There's no relationship between the two because of the fact they're open ended. So I think what you're saying is some people would like to think about what if that discount to fair value and if it's not if it's very, very big money on politics will become an opportunity in the future. That doesn't work. And you just have to have a view on the underlying shares valued and hope it's going to go up. And that's essentially the way in which you making investment. [00:26:41][84.5]

Alec: [00:26:41] You might have to get the discount. But on the flip side, over time, the net asset value, you're paying for the value of the underlying assets, that's the beauty of that, [00:26:49][8.0]

Ilan: [00:26:50] is that people who buy can be really disappointed because the value of the shares, one hundred dollars and for whatever reason, it's out of favour. And so everyone's been selling it and so on the market as they try to fight it. If you have to sell it tomorrow, you're essentially taking a 20 percent loss or 20 dollar loss in that case for no real reason other than the fact there's been more selling that has been buying. And that's something that we have dealt with an ETF structure for many, many years. I have a lot of ETFs have been around. [00:27:18][28.0]

Bryce: [00:27:19] So before we move on to some of the international questions that have been coming along, it's probably worthwhile touching on some of the common risks that are associated with investing in [00:27:29][9.7]

Ilan: [00:27:29] ETFs and a lot of [00:27:30][1.1]

Bryce: [00:27:30] positives. What are some risks that we should be thinking about when investing in ETFs and perhaps some ways that we can implement and to reduce those risks? [00:27:39][9.2]

Ilan: [00:27:40] Yeah, well, first of all, the number one risk, given what I've just said about how the ETF value is very similar to the value of the underlying exposure, is that if if indeed the ETF was, for example, tracking Australian shares and a strategies crashed by 20 percent, you should expect that your investment in Australian shares ETF will also go down 20 percent. It's as simple as that. And so so the biggest risk is the risk associated with the investment in investing in shares. It will obviously be the case that will obviously be the case, that there is a risk of those shares massively dropping, as I did in that post office. And that's definitely by far beyond the number one risk. So that's the number one risk. How to mitigate that is obviously you just have to be comfortable with understanding that prices will go up and down. There's no way to mitigate if you're in the market. Unfortunately, what you can do is get diversification, which is why it's so popular, because if you think about it, if I invest by the two hundred ETFs, the whole market has to go down for the investments. But if I invest in Telstra shares and Telstra goes down on a single day, then I'm going to be one hundred percent by that. The diversification benefits that really all you can do, quite honestly, is just know your investment. I think the other thing is that some ETFs have got a particularly high exposure to, for example, a particular country, which you might not be aware of if you haven't looked carefully or might have a particularly high exposure to a sector. So, for example, again, just to use the Australian example, it's all Australia and that's clear that that's obvious. That's what it says. And we've actually got a super high exposure in Australian shares to banks and to the resources companies. So if you didn't know that and you thought I've the Australian embassy stand in the banks, have a big crash for no reason, and now you've got a high concentration to that. So, again, it comes back to just knowing what's inside and being comfortable that you have that high exposure to that sector. So, yeah, and then probably the only thing I'd say is if trading I don't know if it's a risk of ETF. It's a risk behaviour. I think it's a behaviour risk if you just continue trading on Covid brokerage each time. And so just trading it for the sake of a little small profits and losses, really eroding returns, which is why you've had people on the podcast telling about time in the market rather than timing the market again. Too much trading over trading, in my opinion, is is not advised. And you have a real particular view on something. [00:30:05][145.4]

Alec: [00:30:05] Yeah, that's why investing so great for me, because I'm notoriously wise. So, I mean, the second risk that you touch on, there's a really important one around what's actually in it and understanding it. I know that when I first looked at the MSCI World Index, I wanted to diversify away from America where I own the kind of the point of that index, and it's something like 70 percent is the US. And so for me. Diversify away from the US. I would have ended up buying a fund that was majority of US Treasuries, so I think you really got to do that. I mean, it's not a lot of. Can you you look at the website. Barry Bonds, isn't it? [00:30:55][49.5]

Ilan: [00:30:55] Like you don't actually have to do that much work. It's just you don't do no work. [00:30:58][3.1]

Alec: [00:30:58] Exactly. [00:30:58][0.0]

Ilan: [00:31:00] So, yeah, at least have a look at what the country exposure looks like and you'll be happy because the world is dominated by the US and the stock market. [00:31:07][6.3]

Bryce: [00:31:08] So I think before we move on to the final topic of the night and then into our live Q&A, just to remind you, you still can ask questions, obviously along the whole thing takes good off the hair product. Ask Ren is your hair. And we do have a winner for the quiz that we can say on the screen now, which will answer right after this final topic. So Ren you want to take off them, you? [00:31:31][23.1]

Alec: [00:31:31] Yes. Yeah, sure. Certain international flights from like a lot of people. And I think one of the best things about the number of caps on the Australian market is how easily people can access foreign markets. Now, much easier than trying to find a broker that would charge you like to buy overseas. So I guess maybe just just give us an overview of international ETFs available in Australia and what Australian investors can access. [00:32:00][28.2]

Ilan: [00:32:00] Yeah, well, look, you're right. I mean, in many ways, one of the best use cases of these global. Yes. Because as you say, it's a terribly difficult, expensive to buy overseas. [00:32:11][10.4]

Alec: [00:32:12] The markets trade, [00:32:12][0.6]

Ilan: [00:32:14] the currency, all that stuff. So it's not set up. So in many ways, the beginning of the real growth of ETFs was international ETFs. And so as a result, there's a lot out there. So there's the broad world that you mentioned. The Miski will get exposure to the Miski world if you want to. The whole world. That's country specific ETFs, the US, Japan, Europe, China. We've got to put one hundred UK ETF. So that's countries. And then of course, it's global sectors. We've spoken about some of the global sectors, things like global health care, the gold mining sector level, the consumer staples sector, the banks, the global banks, the global. But we've got cyber security companies. So there's a lot out there. And some of them, by the way, are currency hedge and some of them aren't, which we'll probably get to. But the other one as well, that is very, very relevant for Australian investors. Not be remiss not to talk about it is technology, because notwithstanding how well we are growing technology sector, we've had great with Afterpay and Ren and zero and [00:33:19][64.8]

Alec: [00:33:19] a little bit guys every time Bryce is what Afterpay you try to that. [00:33:25][6.6]

Ilan: [00:33:26] Well, that's been good. But at the end of the day, from an investor with a very small part of the market. And so you really if you would only look at a local investor, Australian shares, that you would actually not get really a truly strong technology exposure. And I know for many people, technology is such an important part of their life and the future. And so I think you want to move to a hugely disunified issue as this global technology sector, ETFs, the Nasdaq, one hundred the largest one hundred stocks on the on the Nasdaq exchange, all those big tech giants, the Asian technology kings, you know, we've got some products in that space level, robotics, Covid, cybersecurity. Exactly. So that's another example of something that's available out there. So there's a big range that we have a count of. How many of the children for them, international, but a good number, maybe a hundred. [00:34:17][51.4]

Alec: [00:34:18] I think I think this is a statistic. I just keep coming back to reduce the Australian market three percent of the global market. And he was saying earlier, a lot of it is thanks to the ability to access some of the smartest people in some of the best companies in the world. It's yeah, it's unprecedented. The access we enjoyed. [00:34:36][17.9]

Bryce: [00:34:37] Exactly. Do you think your exposure to international would be great? [00:34:40][3.6]

Ilan: [00:34:42] Yes. Yeah, it would be. It would be. I make it a rule to try and tap on the side. I try to have mobile sensor and [00:34:50][8.3]

Alec: [00:34:51] I know you'll always get 90 percent of an excellent opportunity to [00:34:57][6.7]

Bryce: [00:34:59] disappoint the market. So let's see what is available overseas. You'd be silly not to be so glad you mentioned that currency hedging. And this has come through a lot from the community over the last couple of weeks. And I noticed that you guys have also just released a couple of hedging. They do have a products. What is currency hedging and when should it be considered to [00:35:23][24.0]

Ilan: [00:35:23] currency hedging is essentially taking out currency from the investment equation. So in other words, you want to invest in something that's overseas, but you don't want to have currency to be part of your return. Because in an unhedged currency, which of which, by the way, there's nothing wrong with, you have to. Upon to return, the performance of the underlying assets used Apple shares and the US dollar against the Australian dollar. So for some people, that's actually a good thing because I want to get exposure outside of the Australian dollar. And I consider the US dollar as part of the return profile of other people who have a very strong view that I just want to invest in the Nasdaq, but I want to make sure the Nasdaq doesn't my return doesn't get affected by it, doesn't get affected by currency movements. That's why hedging comes in. So it's very much a personal choice. Again, some people play a tactical view on this. But I say, look, I remember there was a time not that long ago with the US dollar. The Australian dollar was up to US dollar exchange rate was in the 50s or 60s. And so then at that point, people thought, well, hang on a second, I'm all well and good to move on and get currency exposure. But it still was like the US dollar is going to rise again. Australian dollar's going to rise, whatever the case might be. And so you just want to make sure you some people want to use that as part of their investment tax so you can have situations where the price of the underlying international shares go up and the Australian dollar goes up at the same time. What that means, you've got to counter forces. So something will at a certain point when the US dollar is at a certain point, they might decide to currency edge. And that happened recently, which is why we have pulled out these hedge Nasdaq, etc.. So that's accounting for I think, again, studies have shown that over long periods of time, over long periods of time. Funnily enough, when we're talking about the long run, like 20 years, hedging on hedging doesn't really matter. It's fascinating. I have seen these charts down where you have like the US market hedges on edge and over time, the old kind of comes out in the wash. But of course, if you're getting in at a time where the market is in a particularly different environment like the US dollar, it's sort of very, very weak or whatever the case may be, you might need to consider currency. [00:37:33][130.2]

Bryce: [00:37:34] So it's just another thing to consider, though, that you not only have to be thinking about stocks, but also what is going to be the relationship between the currency over a period of time. [00:37:42][7.4]

Ilan: [00:37:42] And people can definitely validly say that is part of my international investing, like you said, 50 percent or more. I actually know as a fact that I have exposure beyond the Aussie dollar and I want to get some other Aussie dollars. And I'm probably going to buy a house in Australian dollars. I actually want a different exposure. It's just a question of whether that's right or wrong. But there's nothing there's no right or wrong. Some people do 50, 50, 50 percent of the portfolio at 50 percent on edge. So that's what it's all about. And there have been sort of exposures. [00:38:10][28.1]

Bryce: [00:38:12] Has there been more popular people wanting hedge funds and taking the risk out of while people happy with the option? [00:38:19][7.0]

Ilan: [00:38:19] I think unhedged is still by far the most popular because people typically do have that long term investment. But again, when the Australian dollar is in a particular range, then it can be it can be [00:38:31][11.4]

Bryce: [00:38:31] the only ones that are going [00:38:34][2.5]

Alec: [00:38:38] to wrap up the hedge fund hedge funds. I should stress whether you buy a petrol unhedged virgin, not just a fixed currency traded. The underlying holdings are exactly correct. So if Apple, Amazon and Facebook continue to run three trillion in four trillion dollar companies, if the hedge, do you still have exposure to the last one? [00:39:05][26.6]

Bryce: [00:39:05] Well, we've got a bunch of questions that have come through so we can get stuck into those. But first, I think Ren we want to get back out for the winner of the competition. Do you want to do the honours? Yes. [00:39:18][12.6]

Ilan: [00:39:18] It looks like we didn't get anyone to answer that. [00:39:20][2.1]

Alec: [00:39:20] Exactly. [00:39:20][0.0]

Ilan: [00:39:23] Think already was two hundred thirty eight and that was the name of that. Not all of it. And that is the case. Maybe somebody named Alex that congratulations. [00:39:34][11.6]

Bryce: [00:39:35] We'll reach out to you and get you details to send through some much. And we will also be sending some to gossip about some of these questions. So let's get something or anyone to take off. [00:39:46][11.2]

Alec: [00:39:47] Yes. Our first question is, I like this question because we've got all the headlines. A couple of years ago, some people have signed the Big Short. We know a lot of money during the GFC so that the risks of X and said that there was potentially a bubble also tells us a lot. What do you think of that? A big part of his portfolio. And he's a little hesitant to continue down the ATF when he gives Michael Barr or something like that. So we want to hear you got a hot microphone. We'll put it on the line up later. Shows that we've [00:40:24][37.2]

Ilan: [00:40:24] got a lot of herself. Look, I think might be my grandmother once told me that when somebody says something, you have to ask yourself why. They're saying they're saying it because they believe it when they have a vested interest in saying Michael Barry is in the business of picking. Shorting stocks like buying stocks, he makes his money by essentially telling people that he can beat the market that time makes his money. The last thing he wants is for people to not invested Get Started Investing feed invested. So he, unfortunately, is very conflicted in answering this question. I am also conflicted in answering the question because I'm an ETF guy. But the good thing about this line is that you've got you've got evidence on your side and that's really all I can say. So the most recent period was the period where the virus affected markets way and there hasn't been a cure for the virus. But what it has cured, the severity of the analogy is Michael Barry's point. That's cured it entirely because we've had a situation where it's wood traded markets were as volatile as they have ever been before in history of this crazy, volatile. And essentially people were selling ETFs like nobody's business. There was a flight to sell and there was a flight in stocks as well. But what happened, of course, is that you had a situation where people actually ended up buying ETFs at the bottom and not buying at the time that things are going down because they realised there was an opportunity to make money. Yet the market kept going down and went to the opposite direction. [00:41:57][92.7]

Alec: [00:41:58] So I think you might think [00:42:03][4.9]

Ilan: [00:42:04] the matter is that that this has been cured by the fact, like, there's no relationship between buying and buying and the way the market's so that the concept of a bubble should be that the more the more that ETFs get bigger, the more they're going to move in that direction all the time. And they always go in the opposite direction. So and the AMA's Australia net buying and ETF markets go down. How can that happen if they're a bubble? And finally, and very importantly, even if you don't take my word for that, they're actually the thing that changes price is obviously what we call buying and selling when we are buying in the market. A lot of ETF trading is between you and me, and that doesn't touch the market at all. I'm telling you, my ETF that you're buying my ETF, so there's no market movement. All that the actual amount of ETF trading that's done directly in the market is massive as the US is no more than four or five percent of the total market. So it could be a bubble that needs to get a little bigger than that. So I think the truth is, any time you see a situation where markets are going one way, an ETF, the guy in the other, you kind of know this competition [00:43:10][66.0]

Bryce: [00:43:11] alongside Mockus would [00:43:12][1.3]

Alec: [00:43:15] do [00:43:15][0.0]

Bryce: [00:43:15] what you want with it, but you have one. So it's so clear and has what are some of the ETFs data shows is looking to bring out in the next year? [00:43:24][8.8]

Ilan: [00:43:25] Yeah, you would definitely always bring on new products out of what we do at sixty five. But the larger trend in the Australian market, so we've got a very large Ren, but funnily enough we still think there's more opportunity. We still have this opportunity really to ETFs, something that moves with the times. So an example of that is actually the ethical space. We have seen really strong demand in our ethical range of ETFs, if the biggest one fair is another. So we've gone over one and a half billion dollars in that we do not share. And the truth of the matter is that we think there's more to be done in that ethical space. We'd like to see more stuff in that space of all shapes and sizes. I think it's very important for us to have to have those types of exposures. We think there's still more to be done. Yes, it's the mattocks that will keep on the frontier frontier stuff. Yeah, if I can't stop it, I mean, it's it's still very small, but it's an issue for us. For the market. Yeah. Yeah. So for us, we just have to make sure that there's demand. We don't want to have an ETF that doesn't get it and we have to shut it down. It does cost us money to have the ETFs. So you need to make sure that demand you have to make sure that it's true. Some level is really important. So we've actually walked away from many things that people thought was quite sexy thing because they're not trying to label so. So an example is block time. Yeah. So the Bruxelles influence, is that a lot of change ETF? But the problem is there's not enough companies in the world that give you exposure to the block chain as it has defined. So in the end you end up on your video and Amazon ATEC, so the label fund. And so we were almost going to launch a fund and we realised that it's just too early to the standard things. [00:45:11][106.4]

Bryce: [00:45:11] We think it is sustainability on the true label fund because I can imagine that would be one that it's still sort of a grey area for a lot of companies, [00:45:19][8.0]

Ilan: [00:45:20] but it's an area that we feel we really pioneered and actually where we really want to make sure that when an investor is looking for a sustainable investment approach, looks at that portfolio they spoke about before and sees no stock in there, that that's going to surprise. And unfortunately, there are a lot of ethical ETFs out there that are not like that, that just call. It was one long summer nightmare because one was very recently and it literally looks almost identical to the ASX 200, BHP and Rio and and stuff like that. And I think for most people, when they think about ethical climate oriented investing, they don't want to have mining in there. So we do two funds in the ethical space to begin with as we decided we really should get rid of a whole lot of things, even though the experience for an investor would be quite different to investing in one market. That's one of the things that would keep an eye on and obviously subscribe. And you'll be able to see that we launch next [00:46:13][53.3]

Alec: [00:46:15] year on the podcast a little while ago and you told us you ran out of competition to come up with ideas and you told us that the winner recommended an act of exchange alone, which I thought was a great idea because I didn't. [00:46:28][13.6]

Ilan: [00:46:29] We'll look at it. I mean, it's not that many exchanges you have to buy stocks of exchange. ASX, for example, exchanges. It is a stock. So it's not that many, but it's a great idea. And one, it's a great study. Any of your university students, anyone doubt that they should absolutely apply for the website to apply? You get a reasonable amount of money because five thousand dollars invested. [00:46:52][22.2]

Alec: [00:46:53] Yes, that's right. I mean, look, [00:46:56][3.3]

Ilan: [00:46:56] we look at all we really look at everything and but only from the view out. And listeners, please send through your ideas because we take in those ideas all the time. So you [00:47:06][9.8]

Alec: [00:47:06] got Ren. Yeah. So the next question came in from Daniel and we put it up if you need to exit. And maybe for people who aren't familiar with the term, we could maybe just a quick definition as well. Yeah. [00:47:21][15.0]

Ilan: [00:47:22] So looking at that, you can buy and sell when you want liquid like this liquid, you can buy and sell it like it moves around. You can you can do what you want with a wallet asset, that is. Yes, you are looking at an opportunity to exit the slightly longer version of that answer. That's one very important part of our ETF structure, is that if you see a certain amount of trading on the market for stock in a day, BHP Dollars billion a day, that's how much there is to buy and sell with X. If you see, for example, a new ETF has done one hundred thousand of trading the day, that doesn't mean that you can only trade one hundred thousand because of that Open-Ended structure I mentioned before. If we need more units to be offered, we simply just and this is where the market is coming off time to go into market making by the market makers who are a group that we track with what's the best possible units to the markets when they need it. So we've had situations where a brand new fund, five million dollars on day one on the second day, has had ten million dollars invested. How can that be? Because it isn't even five million, because more units are offered to the market in that case. Yeah. [00:48:26][63.4]

Bryce: [00:48:26] So this one is hot off the press from Simmern alone. And you are a big snake. The snake is worth shares. What difference is that when trading physical and the digital? So I think I actually quite recently have thirty pairs of [00:48:44][17.1]

Ilan: [00:48:44] shoes [00:48:44][0.0]

Alec: [00:48:45] on and everybody on the tragic [00:48:51][6.2]

Ilan: [00:48:51] when it comes to sneakers is probably just a fact that I'm looking back on the good old days of basketball with Michael Jordan's obviously ethically portray it in the last dance recently on that. I think that the differences between trading anything digital and physical, it's number one, usually physical things are a lot more efficient. Market is a lot more efficient. Now, the sneaker markets are actually quite efficient. What I mean by efficient is that you kind of know the price before you make the trade with exit. Digital assets like the price is incredibly discoverable. It's always there every single day. You're not going to really do a great deal with sneakers. The fact is you can still do a good deal. There is information asymmetry out there where you kind of need a lot of really smart sneaker guys. But still, some people still think of that. I say that is way too cheap and I'll [00:49:37][45.8]

Alec: [00:49:39] pick it up because I want [00:49:39][0.9]

Ilan: [00:49:40] to sell it but could because I like it. So I think that's probably the difference. I yeah, it's also obviously a lot more personal in a way. I mean, although there are now opportunities to use exchanges to [00:49:50][9.9]

Bryce: [00:49:50] sneakers, what's the biggest one or [00:49:52][1.5]

Ilan: [00:49:54] the other? The other thing about that is that physical goods have issues with Indonesia. You don't have to say that because it's shiny. So and then it's and so the question is about my recent best pick ups. I really think it hits my recent pick ups. But what I'm out of it. Let's take a look. I have lost in recent times and I think maybe Covid kept me on the solid ground because Michael Jordan definitely one guy to give the series one one. And I think this is an awesome, awesome. I've been really strong in buying on the off. Why Jordan collaboration with a lot of that sort of nerdy. But yeah, that does some really great first things that I got. [00:50:39][44.9]

Alec: [00:50:40] Maybe within an hour or [00:50:43][2.5]

Bryce: [00:50:45] so, time for a couple more before we close out, so just a shout out to those that have asked questions you will be receiving. So thank you very much for coming in so far. [00:50:53][8.3]

Alec: [00:50:53] So the next question comes in from store. And you can trust the 50 50 dollars is one dollar in each of those 50. [00:51:08][14.6]

Ilan: [00:51:09] It's a great question and know that. So know it depends what the answer is. Depends on if we use the 50. Each index uses a different approach to how it weights, what proportion of each stock is doing that particular index. And as it happens, the ASX 50 used what's known as a market cap weighting. So it takes the 50 largest stocks in Australia by market cap, not not in cap of the of the whole market was the Commonwealth Bank or CSL, I think it is today. And that this is obviously all hypothetical numbers. And it turned out that of a total of 50, CSL represented, represented 10 percent of that. Then when you actually put fifty dollars in, you're putting five Dollars. Not not one dollar is 10 percent of your 50 cents weighted according to market cap. In the case of the ASX 50, you have to look there are different ETF with different types of weighting. We will have waiting methodologies, but the vast majority are still market cap weighted. So that's which is actually a good thing because what it really means in most cases that the winners run and ultimately earning more is the smaller guys that are losing and less all. [00:52:15][65.6]

Bryce: [00:52:15] Let's talk about the downside, Chris, is how does rebalancing happen with ETFs? And we think about what is it? Twenty five percent of the S&P 500 is now tops. And so you can imagine the remaining four hundred and ninety four stocks or whatever doesn't contribute much. But how does rebalancing happen within ETFs due to a quarterly? [00:52:37][21.9]

Ilan: [00:52:38] So, again, it depends on which ETF you're what index you're tracking. And so each index has got their own. If you think about index provider, is the person giving us the instructions. Yes. So the S&P ASX two hundred or the NASDAQ, the S&P 500, they will say we've got a situation where we index rebalancing, actually looking at looking at those connected. Five hundred stocks, picking the Ladislav hundred, doing it by market cap every quarter. And if that's the case for that particular index, the ETF will simply do the same thing. Mystery on every quarter. In that example, we will buy and sell the underlying securities to make sure that we're meeting the index. What's that the index provides to us. So, yeah, so that that is actually the true trading that the ETF manager does. [00:53:24][45.8]

Bryce: [00:53:25] So I think final question, given we've hit about an hour or so, our thanks to everyone for joining tonight. And final question comes in from Neil. Touches on the core of and investing philosophy along with ETFs with a core satellite investment approach. And should you dollar cost averaging into them as regularly as standard market tracking ETF? [00:53:48][23.7]

Ilan: [00:53:49] Yeah, so the meta ETFs, for those of you that don't know what they are, ETF, which try to track a particular theme. I mentioned CareFusion on cybersecurity, robotics and artificial intelligence is a number that I believe that we have and other people have to think about the matter. It's what defines that is that they do not have a constraint on which country they invest in. And I also don't have a constraint in which sector they invest in. So, for example, a cybersecurity company might be characterised as an I.T. company, but it could also be, for example, categorised as a consumer company. We buy it and it's a matter if you're trying to get exposure to the thing. So that's the thing. Now, thematically, it's typically be a lot more will be a lot more concentrated to a theme just by definition. But also all of them have a very significant weighting to set up. So to that end, they have they have a higher level of risk in that way. So for most people, unless you really feel very strongly about the future of keep on using the cyber security example, for most people that would be treated as a satellite investment. Now, something that an ETF can be quite can be quite rounded and quite wholesome. But in many cases, they should be treated as satellite, I think. And as to whether you should ever use them as regularly as data mining techniques, I don't think there's any reason why you would take a different approach to that, because dollar cost averaging has nothing to do with the size of the ETF or what you're investing in. It may be the case. People are more have got more particular conviction around the markets the moment they just want to buy that time. But I don't feel there's any reason why your dollar cost averaging is the matter. Yes, but it probably wouldn't be advisable for most people to have a core of your portfolio, which is automatic ETFs, unless you buy so many of them, then it ends up becoming poor in the first place. But that quite exciting part of the ETF industry and that really grown. [00:55:39][109.8]

Alec: [00:55:40] Well, I imagine a lot of people buying biomedical fanatics right about now. Yeah, that's [00:55:46][6.2]

Ilan: [00:55:47] you. A health care. Yes, I want to get exposure. Johnson and Johnson, Gilead Sciences and all these. [00:55:53][6.3]

Alec: [00:55:54] I mean, we haven't spoken about Covid. I know you want to wrap it up, but I know if people were thinking about rather than trying to pick a winner in the race for a vaccine and all that stuff, diplomatic ETFs make sense to just sight. Health care will benefit from this moment or other things that people should be thinking about before just making the clever bet on. Yeah, and I [00:56:19][24.3]

Ilan: [00:56:19] think I think it's much easier to take a view on a sector doing well than picking the stock, as it really is close to gambling and trying to pick a particularly a biotech, [00:56:27][7.9]

Alec: [00:56:27] especially when you're talking about are you going to come up with a vaccine? [00:56:29][2.0]

Ilan: [00:56:31] Who's to say it's not going to be Johnson and Johnson, but one of the biggest companies? Well, GlaxoSmithKline, who is going to be a small business. So I think that if you have a view that that the health care sector will generally benefit because not only what's happening, but in the past post Covid million, that's going to be people are going to be crazy about their health. So I don't have a really phenomenal secular we call it sort of secular, but like a structural thing. So, yeah, that's that. But then the other thing about Covid is just taking a bit more broadly. This is really the reason why technology like Nasdaq stocks have done so well, because if you think about it, this is a good analogy, getting stronger because who isn't buying online shopping is not using Facebook, who is not using Google more than ever before Netflix. So the other way to sort of play at the Covid or anything like that, which is a huge global thing that will be around for for years to come in our minds, is buying things that are more perhaps slightly more broadly defined, sort of related to the. Yeah, but that's it. That's just part of the whole Covid thing is over. And we're sitting here and I don't know when a couple of months time. It's distant memory, but it's something that's ongoing and [00:57:40][69.0]

Alec: [00:57:40] doesn't go away. The next time we get together, we still have to be. Why virtual? Just be like pectorals. You require inputs and then it will align. [00:57:54][13.4]

Bryce: [00:57:54] Thank you very much for your time as always. It's been very enjoyable knowledge and wisdom that I'm sure a lot of you out there have benefited from this evening. So also a big thank you to all for joining, taking the time out of be evening to listen to what we have to say. And I hope we got a lot out of it. This won't be the last special event that we do and in Covid. But I look very much appreciate it. As we said, those with the beauty of sending questions and we're lucky enough for us to answer them. We'll send you through some stuff in the mail once we get the contact details. But until then, head to Equity Mates dot com for more information. We will be sending out this recording via email. So keep an eye on the inbox and you'll get this school session coming straight to you. So very much appreciate you joining us. And we look forward to joining you again at some point. [00:58:41][46.6]

Speaker 6: [00:58:43] Thanks for listening to Equity Mates investing podcast production of Equity Mates Media. Please remember that everything here in Equity Mates investment podcast is general advice on the content has been prepared, not knowing your personal objectives, specific financial circumstances or goals. The host of Equity Mates Investment Podcast may maintain positions in the companies discussed before considering any investment. Please read the product disclosure statement and consider speaking to a licenced financial professional. [00:58:43][0.0]

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