Under the Hood | Help me understand what I’m *actually* buying

Bryce: [00:00:26] Welcome to another episode of Get Started Investing feed podcast, where we attempt to answer the most common money and investing questions from the community to help us all become better investors. Now, if you're joining us for the very first time, a massive welcome. Congratulations for starting the journey of investing. We strongly recommend that you do so. Call up and started episode one. Now we are licensed, but we are not aware of your personal circumstances. So all information on this show is for education and entertainment purposes. Any advice is general advice only. With that said, my name is Bryce and as always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:01:03] I'm very good, Bryce. We are onto episode four of our Under the Hood series, where we pop open the hood of an ETF and see what's going on underneath. 

Bryce: [00:01:14] Check out the engine underneath. Yeah, That's under the hood. Yes, you're right. We're into episode four. We've spoken about what's in a name. We've spoken about what an index is, and we've spoken about how ETF issuers pull together and actually analyse whether there is enough for an ETF. And today the big question is probably the most applicable when it comes to looking under the hood. How do we actually check the holdings of the ETFs that we're investing in? And as always, we're joined by an expert from globalX ETFs, Jessica Leung. Jessica, welcome. 

Jessica: [00:01:52] Hi, thanks for having me. 

Bryce: [00:01:54] So Jessica is a portfolio manager at Global X who are a leading player in the ETF industry. They pride themselves on their industry leading research team, and we have so many experts joining us for this series. They have over 30 targeted products, a million clients across 95 countries. We are joined by some of the best in the business. But a big question, Ren checks the ETF holdings. How do we do it? 

Alec: [00:02:15] Yeah, well, just before we started recording, we were laughing that this might be a short episode, but I think it's an important one because the name of an ETF can sometimes not be clear about, you know, what is what's being held. And we've chosen the uranium ETF. The ticker is ATOM. Again, you've got to love ETF tickers, but we've chosen it specifically because Global X one of the biggest ETFs is physical gold that literally holds physical gold, not gold miners. And so when I first saw Global X's uranium ETF, I just assumed it was going to be something similar. It would go and be tracking the price of uranium. But no, it spoiler alert it doesn't. 

Bryce: [00:03:01] And Ren, you're not the only person who thought that we have a community question that is along the same lines. So let's give it a listen. 

EM Community: [00:03:07] Hey Equity Mates. When I'm buying some of the ETFs, I've just bought one recently. How do I know what's under the umbrella of them? Like if I'm looking at ETF with the ticket? Adam The uranium ETF from Global X and we're buying actually uranium or what am I buying exactly what sits under the umbrella of ATOM.

Alec: [00:03:28] So why don't, why don't we start there using the uranium ETF as an example? Take us through what we do? Where do we find the holdings? 

Jessica: [00:03:37] Yeah. So I guess like the name of the series Look Under the Hood, and that's always my number one tip for investors on, you know, trying to find more about the ETF. And the first place you should always go to is the ETF issuer's website. So for us it's globalxetf.com.au and then on the on the landing page you can see an array of funds that we have or you can just go in the search bar and type in uranium. 

Alec: [00:04:00] So let's say we do that globalxetf.com.au. We find the uranium ETF. What do we find? 

Jessica: [00:04:07] So on there you can always see the ETF issue. I would always list out the top holdings if not the four holdings. I guess that's a good thing about passive ETFs is that they're very transparent and you always know what exactly you're getting as opposed to active funds. So you can see what in this tracks the management fee, how big the fund is and of course the holdings. 

Alec: [00:04:26] And with this one, what we find is there is no physical uranium in this ETF is all right. None.

Jessica: [00:04:34] Have you heard of Sprott? But you know what Sprott is. 

Alec: [00:04:36] Also the reason for this, this is why we do it. Well, let's unpack that. So there is some physical uranium and then some companies. So tell us what's in it. 

Jessica: [00:04:48] Yeah. So Sprott is a physical trust, so it's the world's largest physical uranium fund. So it's kind of like our gold ETF. But instead of gold bars, it buys yellowcake gold or uranium. So that one has I think that fund has a net asset value of over $3 billion in USD and it holds. Can you guess how much you want? Let's just take, let's take a guess how much. 

Alec: [00:05:09] How much uranium do you get for $3 billion.

Bryce: [00:05:11] What's your unit of measure? 

Alec: [00:05:13] Tonnes is a ton. Yeah I think. 

Jessica: [00:05:15] Yeah it's pounds but yeah. 

Bryce: [00:05:16] Okay. So weight. We are looking for weight. I have no idea. 

Alec: [00:05:20] Yeah. $3 billion. But I reckon you're writing. 

Bryce: [00:05:23] Like a hundred million tonnes. 

Alec: [00:05:25] No, no, I'm, I'm going to say like. 100. grams of you. 

Jessica: [00:05:32] 600 pounds, Isn't that what the weight of a person is? 

Alec: [00:05:35] I guess, uranium is expensive. 

Jessica: [00:05:40] The answer is that one itself holds over 61 million pounds of uranium. 

Alec: [00:05:45] So you're probably closer to the pin. So in the uranium ETF, the Sprott Physical is about 10% of the ATF. And then alongside that, there's a number of companies. A quarter of the fund is one company, Cameco Corp. I hadn't heard of the company before. 

Bryce: [00:06:06] And I've also I don't think of outside of your classic tech company ETFs, where Apple makes up 16, 20% or whatever, It's it's rare for the ones that I've looked at and what's in my portfolio to say the number one holding with with a quarter of. The holding. 

Alec: [00:06:21] Yeah. So what's the story with Cameco? 

Jessica: [00:06:25] So Cameco, they're a Canadian uranium miner, so they're also the largest by market cap. So Market Cap is like the size on the stock exchange. So no more shares outstanding multiplied by the price. So that's why they take up 25% of of the fund. 

Alec: [00:06:39] So it's purely because it's just so much more valuable than all these other uranium companies. 

Jessica: [00:06:44] Not necessarily. So, for example, on the stock, I think the ticker is KAP or KazAtomProm. So that one is actually the world's largest producer, but because it's also partially owned by Kazakhstan and the number of shares listed isn't as low. That's why, I mean by market cap, which is size on the exchange. Yeah. Yeah. So even though NAC KazAtomProm, so they produce around 25% of the global supply of uranium and Cameco is 16. But because of that difference, Cameco is larger. You might. 

Bryce: [00:07:19] so, What I'm learning here very quickly is that it's okay and easy to say where. How do I check the ETF holdings? Go to the issuer website. It's on the website. Then you actually you actually need to check the holdings. What are those holdings? What are we buying? We start out by saying there's no physical uranium in this ETF bank. Second largest holding is uranium. I Think that's the important lesson here is. 

Alec: [00:07:45] And it doesn't , it was Sprott physical like if you're in the know you know the term physical is probably an indicator of what it is but that could just be the name of a company as well. So you really do have to actually understand what the top holdings are.

Jessica: [00:07:59] Yeah, So I guess maybe even when you're on the website, there's a whole checklist of things that you can go through. So first is just a top holdings like what we're doing, looking under the hood and then reading or going through the index methodology. So how is the fund actually constructed or how are the names chosen to be included into the fund? And then these are the boring ones, but they're so important, the PDS. So put as a product disclaimer statement, very good document for you to understand what the fund is and the risk profile as well as the TMD. So the target market determination document. 

Bryce: [00:08:29] Thankfully one of our ten episodes that we're doing with Global X doesn't cover pads in detail. 

Jessica: [00:08:36] You might be a very short hour long episode. 

Alec: [00:08:41] We could have told, Jes, that every expert that comes on has to read the full PDS into the mic. 

Bryce: [00:08:47] In Shakespeare. So I think it's pretty simple here. There's no science to this, but it is super important. Check the holdings and don't just cursory glance over the top ten. Understand at least what the top ten are because they're likely to be the greatest portion of the ETF and it doesn't take many clicks to download the Excel spreadsheet that will give you every single holding in there. Some issuer websites list them all out. As you said, just some give top ten actually just understand and we say it every episode. Look under the hood, understand. But there's a reason we say it and we've kind. 

Alec: [00:09:22] Of yeah there's a reason we say it's the name of the series. 

Bryce: [00:09:26] As if as we've figured out today, like you might think, you know, what is in the ETF based on the name, but it's not always the case. 

Alec: [00:09:35] Yeah. So with that said, let's actually go under the hood and not just look at the top holdings, but look at this ETF entirely. And we like to start with I guess some of its key information, what the ETF is trying to do a.k.a its purpose, how it's trying to do it. Okay the index it tracks and then how much it costs to do that. So let's start with what it's trying to do or its purpose. It's in the name uranium ETF but what are we trying to do with this ETF here?

Jessica: [00:10:05] Yeah so atom so Atom offers investors access to a broad range of companies involved in the Iranian mining and production of nuclear components. So that includes extraction, refining exploration or the manufacturing of equipment for uranium and nuclear industries. 

Alec: [00:10:22] And it does that by tracking a particular index. In the previous episode with Kanish, we spoke about indexes and how they're made and how we know what we're tracking. So which one are we tracking here? 

Jessica: [00:10:35] So this one tracked a selective global uranium and nuclear components total return index. 

Alec: [00:10:40] Makes sense. Selective. That's a name that we've come across before. One of the bigger index providers when it comes to thematic ETFs, I get the sense. And then how much does it cost? What or what are the fees? 

Jessica: [00:10:54] So the fee for this one is 69 basis points. So that means for every $10,000 invested for a year, it'll cost you $69.

Alec: [00:11:02] Now this is a pretty new ETF as well. So when we look at performance, we actually don't have a full year. We've got a few months and it's returned minus one and a half percent over the past three months. But pretty early days. 

Jessica: [00:11:18] And did you know that? So I heard you guys. As we're talking about ETFs, I listed both here and potentially in the U.S. as well. So this one actually has the same identical fund listed in the U.S. by our U.S. Global X counterparts. And that fund, the ticker is UIA, is that funds actually been around for, I would say, more than ten years. And actually, it has assets under management of 1.4 billion. 

Bryce: [00:11:41] So, Jes, we're actually lucky to have you in the studio because you look after this ETF for Global X. So talk us through the breakdown of the geography. Canada makes up over 50% of the holdings of uranium rich country. What's the guy that. 

Jessica: [00:11:55] Yes I like talking about my fossil Cameco and that's a Canadian stock that's already 24% so that already takes up a large portion of the ETF. So your largest country exposure is Canada, 55%, and then South Korea at 12 and Australia at 11, and then Kazakhstan at six. So I guess if we're looking at this on an overall high level ETF. Your geographical span of this is quite different compared to your other ETFs. 

Alec: [00:12:21] Yeah. Finally, the United States isn't in the top five. Yeah. 

Jessica: [00:12:24] Oh yeah. In the top or all of it, right? Yeah. 

Alec: [00:12:28] Unsurprisingly, when we look at sectors, the energy sector is the biggest and then industrials and then we get to the top holdings. And we've spoken about some of the biggest holdings, Cameco Corp from Canada, about a quarter of the ETF. Sprott Physical, which actually holds physical uranium a lot more than £100, as we've learnt. And then a number of the other companies in the uranium space. Are there any Australian companies here? 

Jessica: [00:12:58] Yes. A Paladin energy. That's a big one. 3.61%. And there's also BHP, if you look at the fund holdings. Okay, go to the website, download the Excel and you'll see BHP. So I went there this morning and as of now BHP has a rate of 2% in the fund. 

Alec: [00:13:17] There you go. Go Australia. Go Australia. 

Bryce: [00:13:21] Well, guys, we set out to answer the question, how do you check the ETFs holdings? There's no rocket science to this. It is very simple. Jes, set at the top. We can just Google it. There's more science to that. There's more science to that. But it is going to issue a website, as we said, having a look at the products page. There's going to be a top ten. There's also going to be the ability and one of the advantages of ETFs is transparency, and they will show every single holding in that ETF. So you will understand exactly what's in there. But then doing more than just a cursory glance understands those top ten holdings and don't take it at face value from and from the name that you're buying. 

Jessica: [00:13:59] And I would add another advantage of an ETF. So let's say, you know you're interested in investing in uranium. You believe it's purpose for decarbonisation, but then you know, there's so many companies or there's lots of small cap companies, so that's why Cameco is so big. But then all the other ones are so small. But that's why maybe an ETF is a good way for you to gain exposure. So you want exposure to the sector or to uranium, but you're not necessarily a stock picker. So an ETF is a good way for you to access this thematic. 

Alec: [00:14:27] Yeah, love that. Or if your brokerage doesn't give you access to the Kazakhstan Stock Exchange. Yeah. Which I'm going to hazard a guess. No Australians have access to that market. ETFs give Australian well in this case Australian investors access to some markets they may not otherwise access. 

Jessica: [00:14:43] Yeah. So you guys just reminded me of something. Do you guys ever watch What's that series, all the young Sheldon or Big Bang Theory? Oh, yeah. And you know that episode where the FBI just comes to his though and he's young because you ordered uranium yellowcake off the web. 

Alec: [00:14:58] Haven't seen that, but I can imagine that would be a red flag. 

Jessica: [00:15:02] On the topic of access, yes, physical uranium is harder to access features on but so maybe this is a good way for you to access it. 

Bryce: [00:15:11] Love it. Well, Jes, thank you so much and thank you to Global X for supporting the Under the Hood series, where we're really starting to add a bunch of tools to our toolkit when it comes to analysing ETFs. Global X are a leading player in the ETF industry. They have an amazing industry led research team, Global Access with over 30 targeted products. So head to globalxetf.com.au To actually go under the hood on the products that we're talking about and familiarise yourself with those product pages. Jes, thank you so much. You are. You're going to be back in a few episodes. Time to talk about equal weight versus market cap weights. So stick around for that. But thank you so much. 

Jessica: [00:15:48] Thanks for having me. This is great fun.