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Podcast – BetaShares

ETF investments and Index Funds are attracting most people's investment and growing in popularity, especially as fund managers continue to underperform the market. For my most recent fortnightly education session on ASX stock tips I was joined by Ilan Israelstam and Blair Modica from BetaShares and Daniel McDonald, creator of the ASX Stock Tips Facebook Group.


If you're interested in hearing from one of Australia's largest and fastest growing ETF providers, then tune in.


Stefan Angelini

Good day good day everyone welcome to our live session. I'm your host Stefan Angelini we're representing today the ASX Stock tips Facebook group but also the Investor Types podcast. I'm your host Stefan Angelini from Angel Advisory. We're talking about ETFs or exchange traded funds, so investing into markets or specific markets ETFs have been so popular over the last few years and it'd be really good to get some good insights with BetaShares who are one of Australia's largest ETF providers


Alright good day welcome back everybody so we're here talking about ETFs with BetaShares. I'm joined by Blair Modica, Director of BetaShares and Ilan Israelstam I hope you pronounce that properly one of the founders at BetaShares. Good day guys, thanks for joining us today really appreciate you being on Ilan you joining us from Sydney you're from Melbourne like myself unfortunately still in lockdown we'll be right.


Blair Modica

Indeed we are in lock down Stefan, but hopefully we get we get through this soon.


Stefan Angelini

Ilan, how's the feeling over there in Sydney?


Ilan Israelstam

Well, we're we're so lucky we feel so fortunate and on the other hand so disappointed that things have dragged on for so long for you guys down south yeah over here in Sydney in the CBD. It's probably about 60% in terms of capacity so by no means is it back to 100% but relatively speaking I can't compared to you guys it's obviously massively different, so yeah not too bad at all over here.


Stefan Angelini

Hugely different and and when it comes to markets even though there's lockdowns going down around the world. It seems like a lot of markets around the world keep going from strength to strength including ETFs and index funds and I think ETFs really really came to light probably I don't know 10 maybe 12 years ago.


Now when Warren Buffett back in 2008 he took out a one million dollar wager against a few in against a few hedge fund managers and basically said that I bet you that if I invested a million dollars into the S&P 500 that I would beat your returns after fees and turns out ten years later he actually won that bet.


Do you guys, Ilan when did you start BetaShares or might hand it over to Blair to sort of talk about BetaShares and and how that sort of commentary fits into what you guys do?


Blair Modica

Yeah absolutely look thanks Stefan and and certainly I mean the BetaShares story is is one that's been very exciting I mean where Australia's only founded and managed ETF provider

and I think that's important for a couple of reasons and a lot might sort of touch on this

a bit more broadly. But first of all I guess being Australian founded all our funds are Australian domiciled so no need for paperwork or anything like that when you're investing no pesky W-8Ben forms and the second thing is because our portfolio management teams based in Sydney.


We're not taking product off the shelves from overseas investments we're creating it in Australia with the Australian I guess practitioner and investor in mind so you can rest assured that everything is is designed for an Australian investor with that in mind I guess it's my pleasure to introduce one of the founders of our business Ilan Israelstam. He's going to talk a little bit more about I guess what ETFs are a little bit about the BetaShares business where it came from and then and then talk to some ideas that we're seeing in the market at this point in time so we've got a little bit of a presentation put together happy to run through that and then any any questions that that may come up off the back of that I'll pass over to you Ilan


Ilan Israelstam

Yeah thanks so much really appreciate it and it's always great to see the growth of this community Stefan like it's obviously been an incredible growth trajectory for your community and you know we keep an eye all communities like this and I know there's a bit of ETF charter a lot of stock charter but also a lot of ETF charter.


Yeah so as Blair said I did start the business with a couple of guys about over 10 years ago now so it's actually been quite a journey we saw an opportunity in exchange traded funds back then there there was hardly any in Australia actually at the time and we ourselves had been involved in in building out other businesses before in the financial services space including the active funds management space and we worked out that it's very damn hard to beat the market and that not only that the way in which people were investing was changing a lot.


You know people were looking to invest largely by the ASX and via exchange. So the ETF which I'll talk about in more in more detail is an evolved way of investing and BetaShares was launched our first fund was launched around about 10 years ago and I'll chat about ETFs in a minute there, Blair. But in terms of BetaShares itself you know we ourselves are about 10 years old we're lucky enough now to have 65 different exchange traded products now in the market.


We do compete with some very large global players but happily we're we've managed to build out quite a business and we're now managing about 14 billion dollars in assets with many many hundreds of thousands of investors in our products. So it has been a great story and we think we've done a fair bit to start growing out the opportunity set for Australian investors not only to invest in what are gonna be known as vanilla ETFs, which we'll talk about no doubt in the future but also some ways to actually trade and and takes you know take positions on on various themes and various sectors and various countries and so I think our product range as broad as it is now allows people of all shapes and sizes to express their views based on ETFs and no doubt we'll need to talk about what ETFs are but that's the BetaShares story so still still owned by by the founders and we have a loud strategic investor but we are Australian and and Blair is right the fact that we're Australian allows us to think quite deeply about the needs of Aussie investors and that's why we've launched so many new products to the market so it's been good and we've got a lot of direct investors as well we have financial advisors as clients but many many many hundreds of thousands of individual investors buying our products on the exchange.


Stefan Angelini

The ETF story has evolved so much it's no longer just tracking the index of the Australian A200 or the Australian 200 top shares it's it's morphed and grown and I can't wait to explore it more with you guys. So we might might kick it off with just explaining what ETFs are and then walking through a bit of a presentation of course for everyone out there if you've got any questions you are joining us live please feel free to ask them through the chat box it'd be great to hear your comments.


But just want to let everyone know that everything contained in this presentation or

in our chat today is just general advice general information only please don't consider it as

personal advice if you're thinking about investing in ETFs and you want to know if they're right for you please go and consult the licensed financial planner or or a financial professional so without further ado I might bring up the slides and you can talk to us about what ETFs are.


Ilan Israelstam

Yeah so the best way to understand an ETF is to look at the acronym which is exchange traded and fund. So the exchange traded fund indicates that they are bought and sold on an exchange in our case that's the ASX in the case of the U.S that's the New York Stock Exchange in the case of etc etc.


So Exchange Traded means they are bought and sold like shares now why is that good well

you your your entire community by shares so they know why that's good right it's because it's easy there's no minimum investment you can buy and sell any time during the trading day no paperwork to fill out and it really is just an easier way to invest you know you you you

do it there and then on your screen or by a financial advisor and you get invested

as compared to non-exchange traded funds or traditional managed funds where you have to

fill out a paperwork or use a financial advisor to you know to get access to it so that's the

exchange traded component and the fund component is is essentially saying that it is a managed fund.


So like the benefit of a managed managed fund is that it typically would have more than one thing in it so it'd be diversified it would basically have a collection of different securities whether those securities are shares or bonds or even goals and so that the benefit of that fund structure is that first of all it's a regulated fund so the actual investment itself is protected by the fund structure which means that with the assets are held separately to the asset manager but also it's diversified so with one trade you get access to a lot of things and we'll talk about what those are.


So that's what an exchange traded fund is and the benefits on the slide you can see there

is is is the following but perhaps the way to really describe it most simply of all is to give an example, so I'm going to use the example of A200 Australia 200 ETF which you mentioned Stefan, so it's actually the lowest cost exposure to the Australian share market so in the past prior to the advent of ETFs if somebody was looking to invest in the Australian share market and didn't have a big view on which particular stock to buy they would have to buy a whole lot of shares or take your view on whether to buy CSL or BHP or CBA with the ETF we're essentially giving you exposure to the largest 200 stocks on the Australian stock exchange.


What that means is you basically don't have to make that decision and for a very low cost and I'll tell you how low the cost is it's 7 basis points which is 0.07 percent a year which is the equivalent of seven dollars a year for every ten thousand dollars invested or you know seventy cents for every thousand dollar invested so very very low cost you get access to the whole market and you buy the market as simply as buying a share so that's the way in which most people get to understand what an ETF is an index investment obviously that's gone a long way beyond just the ASX 200.


Now we'll talk about specular themes we'll speak about the way to get exposure to regions and countries but that's the basic and because of the rapture and what I've said there there's a few things that come with buying ETF number one and probably most importantly for many it's very low cost. Because we don't have to pick a stock pickup we don't have to pay for give a salary to a high high profile stock picker like a Hamish Douglas or Ken Nielsen the costs that can be passed on to the investors and they're usually much much lower half more than half than than the managed fund industry they're transparent we tell people exactly what's in our fund every single day you can go onto our website and see the entire the entire constituent list that it's called or the entire portfolio. We've spoken about ease of access we've spoken about liquidity because they're like shares and we've spoken about diversification and the other one there is tax efficiency because we're not doing a lot of buying and selling in the fund it's actually at the end of the tax year you don't typically see anything that's underwater strange you usually have just a pretty simple you know simple tax tax document there.


So those are exchange traded funds now there's seven trillion U.S dollars in exchange traded funds around the world you'd probably say they would be the fastest growing investment product in the world of our of our generation the generation before. So that's it's been an incredible incredibly fast rise in this in the U.S one out of every two investors has got an ETF here it's more like 1 and 20 so we think that's going to change a lot and Blair if you just want to jump to the next slide I'll just show you the Australian story.


So this is the Australian ETF industry and its growth so it's now setting at just over 70 billion

dollars in assets and when we started the business back in 2010 you can see that there was less than 5 billion so the industry is growing at around 45 percent a year and you can really see the growth particularly in the last three years on that chart it's a small chart but you can see the growth that's really picked up in a meaningful way you've almost got like a vertical line there of growth in the industry over the last three years and I'll tell you that the Covid scenario certainly certainly certainly added to that growth story so so it's been a very.


Stefan Angelini

That's crazy is it because you've got so many different funds getting added or is it just the exposure of the relevance of index fund investing in a portfolio do you think has just grown amongst many more investors especially in Australia.


Ilan Israelstam

I think that I think that the ETF industry around the world has shown this sort of chart you can

look at the ETF industry in any country and it will the chart will look like this it's because quite honestly Stefan it's a better way to invest I've always thought and I guess part of the launching of this business is that anything that's cheaper and faster and better ultimately does better in the world right the Amazon better way to shop, Netflix is a cheaper faster better way to watch movies or TV shows, the mp3 or or Spotify is a better cheaper faster and better way to get access to music ETFs is a cheaper, we've spoken about why faster because you can do it anytime you want and better way to invest and so we'll just we'll see this play out in every single industry around the world.


There has been more products launched in and your question but that's by no means the reason behind this growth it's just really because of more investors and more advisers using these products yeah.


Stefan Angelini

I agree 100% no that's it's great I know a lot of people that turns to me going I had a chat with Blair on my podcast not long ago and the amount of questions I got on ETFs and there's still so much confusion around what it is so that's why I think this presentation is gonna be amazing so keep on keep on pressing on through Ilan.


Ilan Israelstam

Yeah cool so look that's mean that's that's the ETF industry as I mentioned we have 65 of them now so there's about 250 of which we have 65 so that's the broadest range. So look I think the first thing you asked me to talk about was just our views at the moment on the economy and the market so if that if you want to I can give you a little bit of a background on that I mean that's everyone has their own view on that but probably good to just at least set the scene with a little bit of a view on on the economy and the markets would that make sense Stefan.


Stefan Angelini

Go for it I love it.


Ilan Israelstam

Great well you can you can you can drop the screen share there and look I think I think you know our view on the on the on the economy again everyone has their own view and I know that your your your listeners readers viewers are are stock investors so they all have their view but I think our view as a firm is that while we're not out of the woods quite yet it does seem like the global economy is continuing to recover after Covid right and that's because a social distancing restrictions are starting to ease but probably more so and and probably the thing that I personally keep my eye on a lot I know a lot of people in our firm does is while there's definitely second waves of Covid and those second waves are pretty significant.


In terms of number of cases what we're not seeing is the death rates rising and that's the thing that governments are gonna be looking at in terms of imposing lockdowns with the exception of Melbourne and hopefully that will change very soon but the governments have got their eye on the death rate so because we're getting I guess more younger people exposed to this disease at the moment and because we've seen the death rates keep low that gives us at this point optimism around the global economy you know if that changes we'll have to change our view entirely.


So we're cautiously optimistic on that in terms of the you know the death rate and therefore the less the lower likelihood of severe economic lockdowns because severe economic lockdowns will not be good for companies will not be good for people and will not be good for the share market the other thing as well that we've seen that we nobody had understood except for many probably many of your viewers is just how hard the governments were gonna go and try to provide stimulus and incentives to to people in the economy that's been unprecedented it's a terrible word to use because it's been used unprecedented number of times but it really really is it really is crazy to see the reaction from from local governments around the world that is another area that gives us optimism it just feels that no matter what happens they'll throw money on it and you'd say oh that's a problem because you know the economies are becoming indebted but there's such low interest rates that becoming indebted is not not as such a bad thing at the moment right.


So so the view is that that's the economy piece I think the equity markets you saw that which is obviously the focus I know of of of of all your channel here the equity markets we saw at the bottom very quickly in March with a stupendous rise and you know the global contraction period was pretty brief there so so the valuations are certainly high in markets right now but in our view what are your options in terms of investing with interest rates as low as they are and expenses remain low equities are one of the only options you know and in that regard we have a view that equities will continue to grow I mean subject to the things I mentioned before around Covid.


Stefan Angelini

Look at even so the ETF space in the index fund space the Australian the Australian index

has has gone okay probably the small cap index in Australia has been a real winner and that's a real big talking point amongst our guests and what's been happening of those those mid-tier companies and a lot of those tech stocks that are the smaller companies really been able to blow up their valuation but even looking at the S&P 500 over in the U.S being able to go from strength to strength and even with political turmoil going on over there I guess the big tech stocks over there are driving up their index as well so you're right valuations in times of falling profitability it's it's it's pretty crazy to see what's going on around the world but you're right.


Ilan Israelstam

That's right.


Stefan Angelini

What options do we have?


Ilan Israelstam

Exactly what happens you have and like I know it's not something that people look at a lot outside of sort of our general industry but interest rates are pretty key you know and the fact that interest rates are sort of going to remain so low and everyone's pretty much including our Aussie government pretty much promising not to raise them for many years it should make it should keep bonds you know got bond yields as we call them or bond rates very very low and again with that happened equities are the only alternative.


So just talking about what you just mentioned there and picking up on that Stefan is that as we think about that that's our overall view of the market but as we think about where the position exposures right now you are hitting on something that we agree with which is the the growth and the continued growth of technology so technology stocks are are definitely very very well valued right now.


But ultimately if you think about which companies are gonna go well in this period and beyond it'd be very hard not to have those names in your portfolio so those and very high quality companies which may not be in technology are where we are thinking about and talking a lot about positioning portfolios so that means from our perspective we would have a more optimistic view a more positive view on global shares and U.S shares than we do Australian shares and I think it's really important for your viewers to know that it's very good to talk about all the small cap stocks that are done brilliantly Afterpay and the Zip money and Sizzle and all the other ones that I mentioned probably multiple times at a second let alone a day on your group but but it's important to understand that's all well and good.


But in terms of positioning your portfolio for future growth with technology names as small as they are in Australia I think the U.S market and global equity markets is pretty interesting and so for us our main areas of interest rate now what we're seeing a lot of interesting from

from our clients is in global equities exposures technology oriented in particular and also Asia and even better Asia and technology mixed together so so that's that's a bit of a holistic view Blair don't know didn't know if you wanted to add anything to that before we go into the ETF side of things.


Blair Modica

No, Ilan I mean you're spot on technology is a major focus of us as you said at the moment I think you've hit the nail on the head with Asia I think if we look at traditional emerging markets and those brick economies what we're offering with Asia is a step away from those resource intensive economies and into where you want to be in emerging markets which is IT and certainly from my point of view that that represents a a really interesting trade into

emerging technology.


Ilan Israelstam

Yeah


Stefan Angelini

And even even looking at manufacturing numbers over in China are now back at higher levels than they were pre-Covid and they're wondering where this manufacturing is going but their economy seems to be driving a lot of Asian economies around it because they're used to these these global these health concerns they just keep driving their economy so hopefully yeah you're right Asia is gonna be a really interesting one to watch I agree.


Blair Modica

Interesting Stefan and we look at technology and we probably have a tendency to think about gadgets iPhones and things like this but but really technology is about improving different industries and and making the way our lives or with the way we live our lives easier and I think once you you buy into that thematic it becomes pretty exciting.


Ilan Israelstam

Yeah.


Stefan Angelini

100%. So let's talk let's talk about some ETFs you've got.


Ilan Israelstam

Yeah that's right so look we have.


Stefan Angelini

The popular ones.


Ilan Israelstam

We've got 55 we've got 65 so I'm not planning on you know talking about them all I am talking planning on talking about one that I think would be useful and interesting to your audience. Now I know that your audience is is heavily invested small cap and mid-cap Aussie names and that's great because that's a way to sort of pick a stock that you think is gonna be a winner and it's a great thing to do but I do think it's pretty important for people to balance out their portfolios with some core stuff that you can hold for a little bit longer feel a little bit safer safer about you know relative to the volatility that comes from incredible volatility that comes from you know from some of those tech names and looking at you know the volatility.


We saw in Afterpay I mean obviously it's over hundred dollars now but man it was at 8.50. So you know you know it it can it can rise as fast as it can fall basically now so what I'm gonna to talk about really is some stuff that we're hearing a lot of direct investors interested in and and also note that these can be used as trading opportunities as well as you know as well as non-trading opportunities that can be fine holder that can be used to trade.


So look the first is is a very very popular fund it's our second largest fund and it's the BetaShares Nasdaq 100 ETF which has got the code NDQ that's just a real life picture of Nasdaq congratulating the fund from getting to you know from getting to a billion dollars in assets it's about 1.2 billion dollars in size now by number of investors definitely by the most

popular you know in our range by a long long way it says what it is it it invests in the largest 100 stocks on the Nasdaq Stock Exchange and as you know those are Apple, Amazon, Microsoft, Facebook, Tesla, Netflix and more so a way to get exposure to those tech giants that are to be honest pretty annoying to access here in Australia in a single trade as Blair has mentioned it's Aussie domiciled fund which means you don't have to worry about any tax forms or anything like that you buy the fund and you get access to the Nasdaq and that has been well a phenomenal phenomenal investment for anyone who's been in that for the long term.


So the next page just shows the you know just just shows that that return right so this particular slide here shows you the Nasdaq 100 for many many years 12 years versus the two benchmark indices one the ASX 200 which is Australian shares index and the other which is the all worlds essentially like a global share market index and look it's you know it's chalk and cheese basically I mean you can see there's just nothing like it so I think you know these days we're seeing more and more investors treat this as a core exposure. But obviously you can trade it if you've got a view on you know if you've got a view on this trade on the U.S technology scene but if you just think about the companies that are part of this it's gonna be hard to argue they're not going they're not going any direct other than up is Google gonna be a big company today than it is that in 10 years time than it is today hard to say not Amazon I mean talk about incredible incredible business, Apple no matter what happens they seem to keep on going and Microsoft as well a huge turnaround in their business over the last 10 years to become a cloud-based business as a amongst others including Tesla which is cost been is now one of the most valuable if not the most valuable car company in the world so so that that was one that we had to mention just because it's so well so well it's supported and obviously that the performance has been excellent for that so it's actually up about


Stefan Angelini

I think I think what's really what's really interesting to talk about when you talk about index fund and like the and the Nasdaq 100 is that if you were investing into the top 100 companies in the U.S 20 years ago back in the year 2000 the names in the top 10 would have been completely different you would have seen big oil companies up there still being some of the big drivers but now as these companies get larger and larger they take up a higher and higher proportion of the index and I don't know if you can talk to this but am I right in saying that the top five tech companies in the U.S now take up about 25% of the of the U.S index.


Ilan Israelstam

I think you got it I think that's right.


Stefan Angelini

Yeah


Ilan Israelstam

So this this funds up 30% here today to the end to basically from January to today so 30% a year it's about 40% off of its lows in in March and it's got some names that are high quality

businesses with real earnings and and and sort of real I mean obviously basically investing how you live because all of us would have used today at least four to five maybe three to four names on that screen right now I'm pretty confident that anyone watching this has used google by definition we're using Facebook there's a good chance Apple's been used by at least sixty percent of the people listening and they may well.


Stefan Angelini

We got love Linkedin we got love on Linkedin, Microsoft on Linkedin.


Ilan Israelstam

Yeah


Blair Modica

That's a key point you bring up, Ilan you talk about the companies in the Nasdaq 100 and clearly they're you know domiciled for the most part in the U.S but really their revenue streams are truly worldwide and therefore I think you you're getting those benefits of ETFs in the form of diversification and and you know access to 100 companies that are generating revenue from every country in the world.


Ilan Israelstam

Exactly so that was the first one I'll move on if you like to the second one which is actually well this page here just shows some of our technology products which have been very very popular ATEC is is something that many of your investors would have constituents of 'cause it's the S&P ASX all technology index that we track for that one so that's biggest holdings is Afterpay and and Wisetech and car sales.


So I know many of you many of your listeners will own those directly just to say if you did want to just buy one share that gives you one ETF that gives you exposure to all of them and be a little bit more diversified that's available to you Nasdaq 100. We've spoken about I'm not gonna talk too much about robotics and artificial intelligence but I could talk about it for the whole session I mean again an incredibly fair incredibly amazing fast-growing secular growth theme.


You know the theme of robotics and artificial intelligence and I think but what I will talk about is the Asia Fund and the Global Cyber Security Fund I think with our technology sector series which has been incredibly well supported since the launch of their main and and this year what we're trying to do there is either give you that sort of broad core exposures like Nasdaq 100 or the Australian technology or allow people to invest in areas that are otherwise difficult to invest in and provide you access to what we call a secular growth theme and a secular growth theme is a theme that is underpinned by fundamentals not a flash in the pan it's something that has structural underpinnings and so robotics and artificial is one of them I mean artificial intelligent robotics will continue to rise by definition as the cost of labor continues to be squeezed etc., etc., so I won't talk about that in any detail what I'm gonna talk about is the Asia Technology Tigers and Cybersecurity so I'll start with the Asia Technology Tigers,


Blair, if you just want to jump to the next page there so the ASX ticket for that is Asia which is

an easy one to remember and it gives you exposure to the 50 largest Asian technology companies excluding Japan so a lot of Chinese exposure but not only it also includes Korean exposure etc.,


So the single trade you're getting exposure to technology tigers now we can talk

about Asia and the reason why it's been relatively well positioned during this Covid environment you know it really has coped a lot better with Covid and have been Europe and the U.S not not really Australia Australia has been singularly amazing in New Zealand but but Asia has been number one in and of its right in and of itself has has had lower infection

rates and have been better at dealing with it but the real interest there is the technology

space in Asia.


So the technology space in Asia now is home to some of the companies you see on the screen there which are you could read biographies on all the founders of these or or have a business case studies about each of these in every case they are some of the most amazing companies in the world and Alibaba is now the world's largest retailer it's actually you can see some of the numbers on there you know it's a massive business it's you know it's got more it's got more sales than Amazon, Walmart and Ebay combined it it it basically controls retail in Asia Tencent incredibly interested internet company internet related business owning amongst other things a number of huge gaming gaming businesses including a stake in epic games which owns Fortnite which again many of your listeners will be familiar with but also amazingly popular sort of infrastructure such as Wechat which is used as Whatsapp is used in Australia by virtually everybody we pay you know you can pay through that thing qq.com so it's it's a it's an amazing social media business in China you can see some of the numbers have such ridiculous numbers 45 billion messages sent a day via Wechat these numbers are stupendous.


Baidu shorthand the Google of the Google of China, JD.com shorthand Amazon of China so these kind of companies you get exposure to they've all had incredible runs in fact the Asia ETF is the best performing ETF on the ASX this entire year so far here let me see here 45% it's up 45% for the year.


Stefan Angelini

Hold on. You told me before that the Nasdaq returned 30% since January but the Asia fund has returned 45% since January.


Ilan Israelstam

That's right.


Stefan Angelini

It's crazy numbers yeah.


Ilan Israelstam

This has been an incredible incredible rise of growth it's got about 330 million dollars in assets in that fund and yeah we just think that it's it's very well positioned for future growth I mean Blair knows fund well he might have some other comments to make on it.


Blair Modica

No I think you hit the nail on the head again Ilan very exciting fund really good opportunity where where I mean it traditionally it's been difficult to access Asian equities and I think this fund gives you a really well diversified portfolio into not just China but South Korea, Taiwan a little bit of India, a little bit of Thailand as well.


Ilan Israelstam

Yeah so there's nothing like.


Stefan Angelini

Samsung pulling to into this.


Ilan Israelstam

Yeah. Yeah.


Stefan Angelini

Okay.


Ilan Israelstam

Samsung is in there and there's a huge semiconductor by far the largest semiconductor company in the world which is called Taiwan Semiconductor TMSC. It's by far the largest semi-conductor company in the world and again like if those of you understand semiconductors it's powering a lot of the global economy now. So yeah the next page is just the performance long-term performance of that fund oh no it's not it's actually talking about the just the reason behind investing in this fund which if it isn't evident it's just essentially a play on the growth of technology in Asia.


So this particular slide is just showing how internet users have grown in China versus the USA and it's truly truly a ridiculous ridiculous growth there and but I think the next page is the performance the performance of of that of that particular index that we track against the

world you know it's been a bit of a chalk and cheese sort of sort of chat that one so so that

one's got a lot of interest from a lot of people. And then I was gonna talk about about

Cybersecurity I was gonna to talk about Cybersecurity because I think to me this is a personal view I believe it's probably the most secular the biggest secular growth theme of all in technology I I kind of view it as as as the foundations of a house or the plumbing of a house and whether where the house is that is a technology business or a company and Cybersecurity is more and more becoming the foundations where you might have to occasionally you know go and go go go spend a bit more on those foundations.


But ultimately you need them there to to build the house and I think Cybersecurity now is not not only just the thing that companies need to sort of pay passing attention to they need to pay massive attention to it and so the question you have to ask yourself when thinking about this fund is is is the Cybersecurity are the companies in Cybersecurity gonna grow between now and whenever your investment horizon is is Cybersecurity gonna be a growing industry and I think many would say that it is and again very hard to get exposure to the Cybersecurity companies that we we access here so this one is called HACK it gives you exposure to the largest Global Cybersecurity companies they are in most cases pure place library companies who essentially derive virtually all of their revenue from from selling Cybersecurity products which is forecast to be a trillion dollar industry over the coming years so the next page that just shows you sort of how things made up.


But the next page talks about the reason for it it's just because data is is you know it's just becoming more and more prevalent in our world so in every minute in the internet the page

before we'll show you what happens and it's just basically just a whole lot of things happen

you know trillions and trillions of people sent millions and billions of people send messages

you know you can see there's a so-called Every minute of the internet 2020. You know just some ridiculous ridiculous figures there what happens in a minute right so you know you can look at it look at it yourself there but just in every case Zoom, Amazon you know Facebook, Tinder you know all this sort of things is is using data that people want to protect they don't want you know you don't want to have your data compromised.


And as Covid has has has come about it's become even more data intensive and if you believe that data is going to continue to grow in the way that it does on this page then then then you know that needs to be protected by Cybersecurity companies and so that companies that are in there which you know on the next page are fully also of the largest Cybersecurity companies in the world and these are some of them so names that your listeners may know Cisco and Symantec and that's possibly a bit more straightforward but very likely they wouldn't know FireEye, CyberArk NXP, Juniper these are companies that are usually off the off the radar of many investors but still are leading the charge in terms of Cybersecurity.


So another exciting fund that that is up about 22% this year and in our view sort of a very obvious theme over to Blair for any further comments on HACK.


Blair Modica

Yeah look I think if we break down that secular trend you talk about Ilan I think it's very easy to to focus on the financial risk of being HACK but I see it playing out in in three different ways really you've got the individual so identity theft things like that you need to protect yourself from obviously businesses where yes financial risk happens ip can be stolen and then government where health data can be stolen again financial data can be stolen so you can see pretty quickly it's a pretty impressive way to be able to plug into a really strong growth thematic that all facets of society are going to need to use going forward.


So I think as well to speak to the breakdown of the fund obviously it's heavily invested in North America but you do get some exposure to more nascent and emerging technology hubs so to speak in Israel and France with some of the companies listed there.


Ilan Israelstam

Yeah so that's been a good one and I suppose the final one I didn't want to only talk about

things that have done well this year I wanted to talk about things that have been smashed to

pieces this year because I know that a lot of your investors are looking to buy value and so it

doesn't get talked about a lot but but we have seen significant interest in in a number of our

sector ETFs which are you know those funds I just mentioned before more like thematic ETFs this is now an actual sector of the economy which in this case is the global energy companies the sector.


So this fund I've spoken about how well Asia has done it's up 45% for the year I'll tell you with a straight face that FUEL is down 43% for the year but I did want to talk about a a fund that people might look to for playing a recovery and given the way in which these companies that are part of this particular index and I'll just describe the index it's called FUEL as it sounds it is the largest global energy companies there's about 40 of them in this index the largest global energy companies big names that people would know Chevron, Royal Dutch Shell, Total you know, Exxon that that are have been smashed as as as energy usage and and all usages come down over time due to Covid but if there's a view out there that there might be a recovery on the horizon these will be a very leveraged way to to get exposure that recovery because at the end of the day there's strong companies with huge economic moats around them in many cases leading you know their various marketplaces so I did want to put one out there that had not doesn't have a beautiful chart I actually haven't shown the chart because it's too embarrassing it just goes hork.


But but again I know that your your your your investors on this group may be interested in

relative value and what are you what are you doing when you're buying this fund you're taking a view on on on the recovery you're also taking a view on some companies that are not loved because of the ESG growth and we talk a lot about ESG we've got the one of the biggest ESG ranges in the country about close to two billion dollars invested in ESG funds which we're very very proud of but as a result of all that all that all that all that move you know these companies are unloved and unwatched and I think for many people who are taking a contrarian view that could potentially be something pretty you know pretty interesting for for them to have a look at so that was the other one I wanted to mention as a contrarian play given how on board they have been so yeah that was those are the four ideas I had you know for your group Blair anything on field you wanted to add.


Blair Modica

No that's that's spot-on.


Ilan Israelstam

Yeah so so those are the four things after you have to bring a few ideas and those are our four ideas but obviously open to any questions or anything else that that that's come up in the conversation so far


Stefan Angelini

So look looking at FUEL it's obviously very obviously secular so you so you're set to focus but it's cyclical very much energy plays and things like that I know very very cyclical as well so it's interesting if we talk back about bringing it back to Australian equities and tax and taxes tax efficiencies of investing into ETFs always get questions around franking credit so obviously in Australian equities when you get paid a dividend the franking credit gets passed on to you there's a lot of confusion around whether or not when you own an ETF does the franking get it credit get past you I know the answer but I'd love it if one of you could sort of step in and and provide that answer to our guests.


Ilan Israelstam

I'll let Blair do that.


Blair Modica

Yeah well the answer is absolutely yes so we we will pass on the franking credits as as it would look like if you were investing in the top 200 stocks for an ASX 100 example.


Stefan Angelini

Yeah and for those of you who don't know what a franking credit is out there it's essentially the company pays the tax before you get it therefore you can claim that back and it goes against your tax return so so nice and simple since over the last four, five years how many new products have been added to the BetaShares list, Blair.


Blair Modica

That's a good question I think I've been on board and I I think it would be up close to 20 Ilan if not more.


Ilan Israelstam

Yeah it'll be more than that Blair I think I think even if you're talking about four or five years

I mean the last two years it'll be closer to 20 I mean four or five years it's probably good

it's got to be a good a good good 35 or so we've got maybe 40 maybe 40 it's been very fast five I mean you know with 10 years of track record the first three years of sort of your setup period I suppose you're just starting to get known in the marketplace started really growing going quite hard on product development probably from year four onwards and that's why if you ask me the last four or five years it's probably in the number of 40 or so and just yeah very diverse now I think we've obviously spoken a lot about shares because I know that's the focus of your group


But I mean it's fair to say we've also got stuff that gives you exposure to gold oil we've got stuff that goes up when the market goes down which has been heavily spoken about amongst various social media forums bboz bbos very well well traded funds now you know so we looked at that space the ESG space was you know was a really interesting thing we've done as I mentioned in the last few years this the technology suite build out has been in the last four to five years as well so and a big range of bond funds as well which you know I know may not be that relevant to your group but for for people who are looking to build portfolios you know who are actually trying to build more of a balanced portfolio those bond funds have been also massive so yeah.


Stefan Angelini

Bond funds are quite interesting because we do get a lot of people in the group who might have cash sitting there and hence they join a group to learn about learn about stock picking because they want to get more out of their cash and they might look to find equities that might pay dividends but for those out there who want a cash like bit a bit a bit better than cash-like return or investing into more secure products such as bonds what sort of options do they have out there.


Ilan Israelstam

yeah so we have a cash ETF first and foremost so they just want us continue to remain invested in cash which you know we things pay you know a pretty good rate given the current environment but of course that's still very very low so you're not gonna get you know not gonna get rich of it but if you just if you just wanna be invested in cash and you don't have a good rate like perhaps you're getting almost nothing from the bank this at least gives you a little bit but again I'll just say just give them where the interest rates are and I like it to be after Melbourne cup day you know those are gonna be those are gonna be very very low so look that's about 65.65 percent a year so nothing to nothing to sort of get particularly excited about.


But obviously make sense within the portfolio I think the way that we think about it is you've just basically start going up the risk spectrum from there and again this is all less risky than shares so the most risky non-share exposure that we have is is is hybrids which you know some of your investors wouldn't know is it basically it's got it shares cash rises of shares and bonds so the interest rates on those float with the the interest rates in Australia but but those that is a fund called HBRD and it's managed by a fund manager who's very expert in this particular field and it will have much more we call it risk or we call it volatility which is another word for risk it would have much more volatility than you know then then then then then bonds but quite a bit less than shares maybe half that of shares


So that is that's probably paying you right now before franking credits two and a half percent or so a year so again that's significantly more than the 65% I just mentioned so that

that's one way you know to get exposure but but there will be some you would expect some volatility in that and then you just keep on going down the list so then you go into things like credit exposure so in other words these are borrowings of bond that have been created by bonds that have been created by by companies and they are corporates that's what we call a corporate or credit bonds and that will give you you know again a lower exposure a lower yield than what I just said but perhaps a little bit of a lower risk as well all the way through to ultra safe things like Australian government bonds and which is AGVT of the fund I mentioned before is called CRED by the way CRED.


Yeah the AGVT fund is Australian government bonds and the government the global government bond fund has GGOV so we've got a big range and in fact we've also got a range a fund that's actually just all bonds in one place which is called BNDS in case somebody just wants a bit of a set and forget bond exposure it's managed by a really high quality world-class you know bond manager and it gives you exposure to the the whole bond the whole bond scene actively managed which is might be a way to just get exposure to a set and forget sort of bond bond product.


Stefan Angelini

What a lot of people don't realize is that this bond sector it's so it is so complex there's so many options?


Ilan Israelstam

Yeah


Stefan Angelini

It's not like just putting money in the term deposit there's so many different risk characteristics that come into it and therefore income characteristics that come about as well you talked a lot about secular being sector focused and you establishing new ETFs based on trends what about the the health industry or eye health industry.


Ilan Israelstam

Yeah


Stefan Angelini

Do you see them in space?


Ilan Israelstam

We are and I'm gonna ask Blair to discuss one of our funds called the BetaShares Global Healthcare ETF Fund over to you Blair.


Blair Modica

Yeah Ilan so the ticker code for that is drug d-r-u-g so some some interesting or good marketing there with respect to the ticker but really focuses on I guess Global Ex Australia large pharmaceutical companies and I think if if you talk to trends given obviously global aging demographics that's that's going to over the long term become a really important thematic but then if you talk to the short term with respect to the Covid concerns the search for a vaccine and and the flow of money into pharmaceutical companies again a really good way to play that thematic.


Ilan Israelstam

Yeah I mean I think it's actually a good one and I was actually I had it on my mind to talk about it but I didn't know what sort of time or seasons we'd have I think again you as an investor can go and if you believe that one of the large global healthcare companies is ultimately gonna sort of work out how to do a vaccine on Covid you're gonna have a pretty hard time working out which one it is right we're talking about Johnson and Johnson, is it gonna be Glaxo, is it gonna be Roche, is it gonna be Novartis, is it gonna be Pfizer, is it gonna to be Merck.


So so again I think if you believe that I mean apart from the fact that healthcare is a definite secular secular growth aging population most people spending money on healthcare if you want to have a view on a vaccine piece good luck trying to work out which one it is I mean nobody knows and so there again you buy the DRUG ETF and you get exposure to it hopefully one of those big names will be the one to nail this and and then you'll sort of sort of benefit from the upside there.


Stefan Angelini

Beautiful, probably one last question before we let you go I get a lot of people come to me

and working out how to use debt to invest so typically if you look at Australians that buy

property they get all bank they ask a bank for money and they use a little bit of their own cash where they're putting 20% of their own cash and borrow 80% from the bank and therefore they ride the growth of that property up and they benefit from the growth.


In terms of when it comes to investing into stocks you can do the same things but people

might not have access to that cheap debt from a bank and you don't want to go and buy borrow money at 12% as a personal loan what options are there out there for index investors to actually use borrowed funds to invest to try and get that extra growth if they're a believer


Ilan Israelstam

Yeah I'm personally passionate about this for young investors I think that too many people think that the only way to make money in Australia is via property and if you think about why property invested in Australia have done so well number one the asset class has done pretty well but equally if not more importantly is the fact that they are forced essentially to gear at 80% and to regularly repay regularly repay or or service that debt if you essentially use that approach to any asset class that's a growth asset class you will do it just about as well so gearing makes a huge amount of sense as long as you understand it.


And are sort of happy to take the risk that comes from it and there is significant risk gearing in our view makes a lot of sense for a young investor and recognizing that we have launched some time ago now internally geared funds the most popular of which is called GEAR

G-E-A-R and we've got one over the U.S market called GGUS now that essentially is internally geared so you don't have to have to go to the bank and get any money to you know get any money to to borrow we've done that for you but better than that we've done that at the lowest possible rate available to anybody so our we don't we don't we don't disclose the rates every day but our annual report last year would have shown a gearing rate of of sort of circa 80 basis points or 0.8%


You you know for some of the stuff we're talking about virtually free free gearing that's done on on your behalf by BetaShares and it basically gives you exposure to an index of the ASX 200 geared between 2 to 2.75% of the time I will say again these will be very volatile instruments you do need to be able to ride the ups and the downs you need to be comfortable with debt or at least with magnified returns or leverage but with time on your side and with regular regular reinvestment into something that's geared number one you you do benefit from the benefits of gearing you benefit from the extraordinarily low rate that we've managed to negotiate on on your behalf and because you've essentially got more than two times exposure you get essentially double the franking credits and and and also double the dividends.


You know although of course those dividends will you know will be reduced by the fees we charge but so so you know it is it is a pretty supercharged way again I'll repeat for somebody with a long time horizon it's a pretty supercharged way to consider getting a good market so you know to have on a gear on on a franking credit basis at the moment that fund would be paying around about an yield and on a non-frank basic will be paying around about a 7% yield which you know for long-term investors shouldn't matter.


But they should be consider it that back in via a distribution reinvestment plan the equivalent of a DRP for for share investors and and I I don't know I I think it's a very interesting way to go as long as you're willing for you know willing to take take very very big drawdowns and it can't it can really get you know during Covid it you know it it it had a real hit it had a real hit.


Stefan Angelini

Yeah.


Ilan Israelstam

But and behold.


Stefan Angelini

That's it.


Ilan Israelstam

Yeah.


Stefan Angelini

Risk risk debt is risky 100% and I guess if anyone is going to use debt to invest don't have a short time frame your mind be there for the long term and make sure you write out those waves so Blair and Ilan look thank you so much for that I'm gonna probably end it there

it's been really insightful I'm sure a lot of people on the show or who watch it who will watch it after will be able to get some great insights and to add to their portfolio we won't take any more questions just yet guys in terms of if people want to invest into a BetaShares how do they how do they go about it Blair?


Ilan Israelstam

It's the same as buying a share so you just go and find the go and find the the ticker DRUG.


Stefan Angelini

Yep.


Ilan Israelstam

HACK yeah whatever you're about Asia and buy it like a share and I know that given that you are ASX stocks tips you guys know how to do that so yeah.


Blair Modica

And can I get today before we go I definitely encourage people to jump onto the website there's plenty of sector-specific information or ETF specific information with respect to the funds we've discussed today but obviously all 60 or other of our funds and that's a really good starting point and then head to your broker and and trade.


Stefan Angelini

Beautiful Blair Blair, Ilan thanks so much just quickly before we do sign off guys so we're brought to you today by McDonald Legal Daniel Mcdonald who's normally here well-rounded legal practice based in Melbourne anything general law, family law but also setting up self-managed super funds and of course Angel Advisory which is my business we essentially help people set up well-rounded investment portfolios whether it's their superannuation or their personal funds so if you ever get over of trying to trade and and you can't take the the hair loss and the stress that comes about it we try to set up a very tailored investment portfolio and glad to know that BetaShares have been good good assistance for our clients in the past so guys.


Thank you so much for your time again I really appreciate it for everyone that listened out

there thanks so much to ASX Stock Tips Group hopefully we get plenty more rockets in the future all right guys I'll end it there thanks a lot.


Blair Modica

Thanks Stefan.


Ilan Israelstam

Bye appreciate it.



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