Under the Hood: Building a strong core with A200 | Betashares

Bryce: [00:00:28] Welcome to Get Started Investing a podcast where we attempt to answer the most common money and investing questions from the community. If you are joining us for the very first time, a massive welcome, we strongly recommend that you scroll up and start at episode one. But with that said, my name is Bryce and as always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:00:46] I'm very good, Bryce very excited for this series. We love the ETFs here at Equity Mates and only get Started Investing podcast and these days there are so many to choose from. The big question is how do we analyse them? And in this series we're going under the hood of some of Australia's favourite ETFs to build the skills of analysing ETFs so we can do it ourselves.

Bryce: [00:01:11] That's it. Recent community surveys suggest said that 93% of our audience buy ETFs. 

Alec: [00:01:16] What do 7% do?.

Bryce: [00:01:19] I don't know. They punt? I don't know. Who knows? But yes, we're continuing. We had great feedback from our Last Under the Hood series and we continue the series. This time it's supported by Betashares and we have an expert joining us for the next four episodes. We're going to welcome to the studio, Tom Wickenden an investment strategist. Tom, welcome.

Tom: [00:01:38] Thanks, Bryce. Good to be here. Alex and Bryce, my two new equity buddies. Got the intro down pat.

Alec: [00:01:45] Nice.

Bryce: [00:01:46] Now, before you get going, a reminder that we are licensed, but we're not aware of your personal circumstances. So all information on this show is for education and entertainment purposes. Any advice is general advice. Now, Betashares are a leading Australian ETF manager with more than $27 billion under management and the broadest range of ETFs on the market. They've been helping Australians build their wealth for over a decade. 

Alec: [00:02:09] Now over the next four episodes, we're going to be looking at four ETFs that make up the Betashares core funds range. And as we've spoken about on the podcast before, having a strong core portfolio is so important. It gives you cost effective exposure to the broad market, not just Australia but globally, but it also helps you weather market uncertainty and is key to building long term wealth. So we're really excited to unpack four ETFs that make up the core fund's range. In this episode, we're talking about the A200 ETF. Then the next one we'll be talking about global shares. Third episode, NASDAQ 100, and then finally closing it out with the diversified All growth ETF. 

Bryce: [00:02:54] The big hitters, the big hitters in the core portfolio range. And it starts with the chorus of CORE, the Betashares Australia 200 ETF. The ticker is ASX A200 and we're going to be unpacking that today. Fun fact it is the world's lowest cost Australian shares ETF with diversified exposure to the top 200 companies by market cap listed on the ASX, the management fee is just 0.04% time pretty cheap. 

Tom: [00:03:24] It's ultra low arch. It was it was up at 0.07, which is already not too bad. But if you look in percentage terms, it's almost 100% more, right? So we've pretty much half that early on this year and so remains the lowest cost and I guess not a fun fact to kick off. It was the first or the quickest Australian ETF to reach 1 billion in funds under management in just over two years.

Bryce: [00:03:47] Well, we talk about having a low cost exposure in your portfolio. It literally can't get lower than this for Australian shares. To put that in perspective, 0.04%, in other words, is $4 for every 10,000 that you invest. 

Alec: [00:04:03] We face here. And that's extremely low. Now, Tom, when we look at an ETF and we go under the hood where we always like to start is the name of the ETF, what can we learn from it? And then from there we sort of go deeper. So let's start with the name Betashares Australia 200 ETF. 

Tom: [00:04:22] Yeah, exactly. I mean there wasn't much scope yet to interesting with this one we couldn't you know you got your grey metal ETFs and your decarbonisation ETFs out there, even things like strategy with coal options and futures with this just like the core of your portfolio, you want to keep it simple, right? So in the name just exactly what it is, Australia 200 largest, 200 companies list on the ASX. [00:04:42][20.5]

Bryce: [00:04:43] Now we know the name is a good sort of descriptor, so we know Betashares is the product issuer here, Australia, obviously Australian companies and then 200, the 200 largest. So the best resources that we've spoken about time and time again is the information on Betashares website for this. But let's just go through it in a bit of detail. We're looking for what the purpose of it is, what index it tracks. We'll talk about fees, performance and top holdings. Let's start with purpose. A200 What is the purpose of of this ETF? 

Tom: [00:05:16] Yeah, I mean when you're looking at any Australian investor's portfolio, typically, you know, it's made up of Australian equities or Australian ETFs. We've actually got the largest home. Bias in the world as Australian investors. What that means is equity mates only makes up about 2% of global equity markets. In our portfolios we typically have close to 50% Australian equities in there. By comparison, someone like the US has, you know, 57% of the equity market in terms of their market cap weighting. And then investors hold about 57% in US equities. So when we think about Australians and how I construct their portfolios, it is predominately around the companies we know and that we love. And that's what this ETF gives you exposure to. 

Alec: [00:06:03] And one important thing to note about this ETF, when we look at the index, we say it's not actually the ASX 200, which people may have heard of or you know, if they're tracking overall market movements, that might be the index they look at. It's not the ASX 200, but it does track the 200 biggest Australian stocks.

Tom: [00:06:23] Not the S&P. ASX, It's a selective Australia 200. 

Alec: [00:06:27] So I guess the question is how are they different? Are they different? 

Tom: [00:06:30] So great question. In terms of that, in terms of the end outcome, they really aren't that different. All the reason we've gone with selective it's it's not the brand name index but you don't really need to look at the brand name in this industry providers anymore you know selective they've been around quite a while and actually you might be familiar with them. I've heard them mentioned the show a couple of times now. So they're becoming quite well known already. By partnering with some like selective, we can construct a top 200 Australia index, which isn't that hard to do in terms of the actual IP. I mean, we could whip out a spreadsheet now and give it a go ourselves, Don't know how well we do, but in terms of actual construction of the index, it's not that complicated. So by partner with so selective, we can provide the same outcomes without playing that brand name faith that you might get from S&P.

Alec: [00:07:21] So I think the important thing to note is that the rules that make up the index are the same. 

Tom: [00:07:26] Very much so that. 

Alec: [00:07:28] Companies market cap weighted or broadly. 

Tom: [00:07:30] There are some very slight differences like the buffering rules off by five, but I don't mean into the nitty gritty. The main thing to understand is that if you look at both indices side by side, they've got a correlation of one to each other. So they move in the same direction at the same time and a beta of one to each other, same over the same magnitude as well. So they're essentially doing the exact same thing. 

Bryce: [00:07:49] Nice. So we've spoken about the purpose to track the performance of the 200 largest companies by market CAP. We've spoken about the index, the Selective Australia 200 index. We have mentioned that it is super low cost, the lowest cost ETF for access to Australian shares at 0.04%, But help us understand why this is important when thinking about core portfolio. 

Tom: [00:08:15] Yeah, I think and it's something a lot of investors understand is that returns compound over time. It's something you guys have talked about on episodes in the past. I think it's also important for us to think about. The same logic towards face to face. Also compound over time and eat away at your investment returns. I can't put it as eloquently as John Boger did, but he said the tyranny of compounding costs can devastate the miracle of compounding returns. Father of indexing. Yeah. So it's really important, particularly in that core part of your portfolio, you know, where it's like a difference, right? 200 ETFs, attractive and indices. They both do the same thing. You really want to focus on lowering the cost there to have better performance in the long run. The alternatives You can look to active managers for the core part of your portfolio so that face can be up towards 1% or higher, which is a huge difference between about four basis points. Right, or 0.04%. So we're using an easy worked example. If you have $10,000 invested over a 30 year time horizon, let's say you invest that in a low cost ETF at four basis points or 0.04%, you'd end up with around $100,000 at the end of it, if you invested in an active fund with 1.2% fees, you'd be left with $70,000. Such a huge difference over the long run.

Alec: [00:09:32] Yeah, and I, I didn't realise you brought a worked example, so I actually just jumped on the money. Smart website. They have a managed funds fee calculator and so if you want to do the worked examples yourself, we'll include this link in the show notes. And you really do start to say, you know, even I was just doing the difference between 0.04 and point four, looking at, you know, 100 bucks invested a month over 30 years and sort of like ten grand difference. 

Tom: [00:10:00] Yet that huge impact over the long run and particularly, you know, there are parts of your portfolio where you might have higher fees, you somatic funds have high fees and nothing wrong with looking at active margin parts. It's just that core part of the portfolio, you really want to keep it low costs. 

Bryce: [00:10:15] Yeah, it's particularly the emphasis on the core, like it's the part of your portfolio that a lot of your money is going to be sitting in. It's also a part of the portfolio where you if you're just getting the market return, there's no real need to be paying for unnecessary active management. 

Alec: [00:10:30] I think that's the thing. It's like the same thing for less cost.

Bryce: [00:10:33] Why would you pay more? 

Alec: [00:10:34] To your point, you know, some of the thematic ETFs that we say in the market, like you can't get it for 0.04%, right? Part of that is because there's costs in running that stuff. But for something like this where you can get the product at this cost, why pay more? Yes. Yeah, yeah, yeah. 

Bryce: [00:10:50] So we've spoken about fees now. We were doing some research for another piece of content recently and the ASX is the best performing stock market in history. Is that right? It seems like between. 

Alec: [00:11:02] Between 1900 or 2000 or even beyond 2000, the ASX is number one. 

Bryce: [00:11:09] Yeah, thanks to dividends. 

Alec: [00:11:11] Yeah, well thanks to mining. Yeah. This book, Triumph of the Optimist, has looked at global stock market returns for over 100 years. Yeah, yeah. We just buy America. America is third one of the Nordic countries. It was always Sweden.

Tom: [00:11:25] So that was up till 2000. You mentioned it. Was it. Let me wonder if the past ten or so years of. Yeah we did very well. Got it in 2000. 

Bryce: [00:11:37] But that brings us to chatting about the performance. 

Alec: [00:11:39] I'll just answer that question. Triumph of the Optimists was 101 years of stock market returns. So I guess 1900 to 2001. Okay. Nothing's happened since 2001 in America.

Tom: [00:11:50] Nothing. Yeah. 

Bryce: [00:11:52] So let's talk about the performance of A200. If you can talk, talk us through Tom the, I guess the last year and then yeah, take us through how it's performed since inception.

Tom: [00:12:01] Yes. As you imagine it is performed in line with the ASX 200. Right. The index which is quite the past year, you know we've seen fairly flat performance. I guess we've got some fears around recession hasn't been as conducive to our stock market. You know, look on if you look for instance in the US market, you've seen a lot of growth come out of there from their big companies. But what's great and what I think why I think a lot of Australian investors, you know have such a heavyweight in their portfolios was Australian stocks. It has the highest dividend yield out of any index in the world and obviously a lot of franking credits coming out there as well. So saying the great benefits out of those both in the market and of course the ETF to tracks those companies.

Alec: [00:12:42] Yeah. So let's get to top holdings. There's not going to be a lot of surprises here if before we talk about the top ten, if we just talk about the sectors, no surprises that the two biggest sectors, financials and materials. Australia is a land of bank and banks and miners.

Tom: [00:13:01] Have dominated our markets for quite a while. Yeah. 

Alec: [00:13:04] Between them they make up more than 50%. So financials 28%, materials 24%. This one didn't surprise me. There are some big companies, but third are 11% of the 200 ETF health care.

Tom: [00:13:21] Mm hmm. Yeah, it's mostly going to be CSL, to be fair, because that's been third. The largest holding at the moment, and I must. 

Alec: [00:13:28] Say a few other ones, ResMed. But yes, CSL of. 

Tom: [00:13:31] CSL, has the bulk. That's not good names now as well. Yeah, yeah, yeah. 

Alec: [00:13:34] Ramsay Yeah. They still listed or did they get taken over. 

Tom: [00:13:38] I think they're still, they sell their own health care. 

Bryce: [00:13:42] But it wasn't there, it looks like they're still listed.

Tom: [00:13:44] It's, is it. We actually often get asked, you know, if we would ever put out just to purely top to the ASX Healthcare ETF.

Alec: [00:13:52] Oh yeah. You have global health care.

Tom: [00:13:54] We've got global health care, some other. But there's just not as large of an investable universe here. Just, It's good you're getting a nice chunk just by buying it. A200 down your broad market. 

Alec: [00:14:05] Definitely. Yeah. Yeah.

Bryce: [00:14:06] Not to divert away from the core, but another one that I actually own and like if you guys is ATech, which is the Aussie tech companies yet because you're, you know, I think. 

Alec: [00:14:15] That if we're just going to talk about like you know like well I think. 

Bryce: [00:14:19] There's a tech I also full disclosure I own a better a200 so I'm I mean this but well, isn't there only like one Australian tech company in the top 20 or Something like this?

Alec: [00:14:30] It is wise tech and yet if Discount Aristocrat is tech. No. Yeah. So then just what just what is tech. Do you count Telstra? 

Bryce: [00:14:41] No, I would like to count themselves as a tech company, but I think. 

Tom: [00:14:45] It's not it's not a bad point to bring up though, because since the Aussie market is fairly concentrated, those resource and those financial resource and financial names, I guess you have to honestly if that is make up the coin portfolio, which is great, it's great to have that broad market exposure, very low costs, but you have to be cognisant then when you're building, you know, a more your entire portfolio that there are those large weightings, 9100 and you can look at things like a tech top, like your technology holdings or if you look internationally, make sure you're not going and buying a US financials, ETF for instance, just getting country diversification but not really getting any diversification at a sector level. 

Alec: [00:15:23] Yeah. Or if you bought an Australian ETF and a Canadian ETF, I don't actually think there's a Canadian ETF in the market, but they're also a market that's very resource and financials very similar. So then you might think you're geographically diversified, but you've just got a lot of banks and miners. 

Tom: [00:15:38] Yeah, exactly right. And it's like it's a broader conversation to have around a 200 and call, but it's making sure you match up those different exposures with one another. 

Alec: [00:15:47] Yeah, well, we will get to that in future episodes because I think that's the beauty of this whole range. But let's stick to Australia. Let's not let Bryce divert us and other ETFs, top holdings. Do you want to talk to us through them? Any surprises in the top ten? Anything we wouldn't expect?

Tom: [00:16:05] Nothing. I don't think anything that would surprise you. It's been the same for quite a while. We've got very large, well-developed, mature stage companies in there. So your big four banks, as we mentioned, health care with CSL's up there alongside your big resource companies and Telstra really, really rounds it out. So no, no real surprises, I wouldn't think. 

Alec: [00:16:26] Yeah. Here's something that's interesting. BHP has been our biggest listed company since at least 1948.

Tom: [00:16:32] Yeah, well assets held the top spot there, which is crazy. If you look at other markets it would not be even that would not be a top spot held by.

Alec: [00:16:38] Yeah, we just wrote a whole book about the importance of core index investing. Don't stress, just invest available for sale now. And you know, we wrote about how in all these markets the index composition changes over time and you know you look at the US and you know in the eighties it was like IBM and then in 2000 it was J and then in 2020 it's Apple. But the index just keeps powering on as these new companies come to market. Yet then you look at Australia and it's like every decade BHP. Yeah so anyway Page paid top of the index no surprise, not surprising. So I guess as we close out this episode, the final question that we're going to ask in all of these under the Hood episodes is how does this ETF fit into a portfolio? 

Tom: [00:17:26] Yet this, this could really act just as your core Australian equities exposure if you you know historically I'd picked a few large cap stocks like a few big banks, few big resources or if you were just building a portfolio out of ETFs this about first name building blocks, the Australia pipe portfolio and as we mentioned, as well as we'll get into in later episodes, you can do do some fun stuff around the site. This is really that set and forget core co-location. 

Bryce: [00:17:52] Awesome. Well, the good news is if you're listening and you're interested in A200 and how it can fit into your portfolio, firstly, head to the Betashares website betashares.com.au/EquityMates. There's plenty of information on the landing page all about the core funds range. Plus Betashares is giving away merch packs full of core essentials like umbrellas, gym towels and water bottles. Time you didn't bring any in for us. 

Tom: [00:18:18] Thinking that the umbrellas are the umbrellas are seriously good. 

Bryce: [00:18:23] Come on. Anyway, next time. 

Tom: [00:18:25] I'll bring him in. 

Bryce: [00:18:26] We'll have to sign up. So they're giving away these core essential merch packs for the first 20 listeners to sign up. So these will go in an instant. Head to betashares.com.au/equitymates. It is 20 per episode, so I'm actually tuning in over the next three. If you miss out on the first and also keep an eye on our socials as we'll get the link up there. But time spent an absolute pleasure. Just to recap, it was the A200. Incredibly low cost diversified exposure to the top 200 companies in one single trade listed on the ASX. The ticker is A200. 

Tom: [00:19:00] Thanks, guys. Appreciate it.