3 May 2020
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Understanding ETFs
ETF stands for Exchange-Traded Fund.
An ETF is an open-ended investment fund, similar to a traditional managed fund, which is traded on the ASX. Most ETFs aim to closely track the performance of an index or underlying asset, and seek to provide the returns of that index or asset – less any fees and costs. Learn more about ETFs.
As ETFs trade like shares, investors may mistakenly attempt to evaluate their liquidity in the same way they might for shares. This gives rise to one of the most common misunderstandings about ETFs, namely, that an ETF’s ‘on-screen’ volume equates to ETF liquidity.
Due to the open-ended structure of ETFs, the best measure of an ETF’s liquidity is the liquidity of the underlying assets (such as company shares) it holds. In most cases, therefore, this means ETFs are highly liquid!
Unlike shares or listed investment companies (LICs), ETFs have an ‘open-ended’ structure, which effectively means their supply of units on offer can adjust to demand through the trading day. Each ETF trading on the ASX has one or more dedicated market makers. Uniquely to ETFs, these market makers have an ability to add to or withdraw from the supply of ETF units by trading directly with the ETF issuer (such as with Betashares). Should investor ETF demand exceed what is currently available ‘on screen’, the market makers can simply create more units (issued by the ETF issuer) to meet the demand. Similarly they can also redeem their units should supply exceed demand.
The ETF units issued or redeemed are exchanged for the underlying holdings that comprise the ETF and therefore the liquidity of these underlying holdings is the key determinant of the real liquidity of the ETF units available to investors. The volume displayed for sale or purchase at any given moment of the trading day, therefore, is really only a small glimpse of what is really available.
The role of a market maker is to satisfy supply and demand for units. They do this by providing liquidity to the market by acting as the buyer and seller of units on the ASX during the day, and by creating and redeeming units off-market. This helps to ensure the number of units on issue matches supply and demand, which in turn seeks to ensure that the price of the ETF does not trade at a material premium or discount to its net asset value (NAV).
An ETF is a type of managed fund. Like traditional managed funds, ETFs can invest into many different underlying assets, offering potential diversification benefits for investment portfolios. Traditional managed funds are usually actively managed to try to outperform a benchmark index. ETFs are mostly passively managed, as they and typically aim to track a benchmark index. Traditional managed funds tend to have higher management fees to pay for their active management approach, while ETFs tend to have lower fees, due to their passive, index-tracking approach. Learn more about ETFs vs Managed Funds.
NAV stands for “net asset value”, and represents the dollar value of the underlying holdings of the ETF less fees, costs and other liabilities. The NAV is calculated daily and published for each product on individual product pages of this website. Click here to visit a product page and see an example.
Net asset value (NAV) represents the value of the underlying assets or holdings of the ETF, after all fees, costs and other liabilities have been deducted. NAV is not the same as market price. The market price of an ETF is the price at which ETF units are bought and sold in the course of a day’s trade on the exchange. Learn more about NAV.
To help ETF investors assess whether an ETF’s market price is in line with the “net asset value” (NAV), to encourage maximum transparency, most ETF issuers provide a real time indication of NAV per unit, or iNAV, which stands for ‘Indicative Net Asset Value’.
The iNAV calculation is normally provided by a third party calculation agent, who has access to the prices of the ETF’s underlying securities and assets. The calculation agent uses market data feeds to determine the current market value of the assets of the ETF. This provides an investor with an independent indication of the ‘fair value’ of the ETF – in real time.
The iNAV is very helpful for investors when it comes to trading ETFs. Potential investors can simply compare the “iNAV” to the price at which they can buy or sell ETF units on the market – if the values are close then the investor can elect to trade at that price.
Our fund iNAVs are, where applicable, either displayed and updated regularly on our website, or in some cases, can be viewed on broker websites using as an ASX code (e.g. QOZ). For more information see the relevant Fund page.
The iNAV is calculated on an intraday basis by a third-party calculation agent and is based on the market prices of the individual holdings included in the index or asset class being tracked by the Fund.
Most traditional managed funds calculate NAV once per day, or less frequently. By contrast, Betashares’ iNAVs are normally updated every 60 seconds, enabling investors to compare the ‘quoted price’ at which they are considering buying or selling the product vs. a ‘fair value’ price as designated by the iNAV.
The NAV/unit of a Fund represents the dollar value of the underlying holdings of the ETF expressed as a single unit value. As a result this is the ‘fair value’ of an ETF which is struck daily as at the end of the day.
On the other hand, the market price is the price at which the last trade of the Fund occurred. As there may be gaps between the time that a trade was made and the actual NAV/unit it is recommended that when an investor is looking to determine performance of their Fund they use the NAV/unit history provided on each Fund page
The primary risk of investing in ETFs relates to the underlying investment strategy itself. Because ETFs typically aim to track an index or asset class, should that index fall in value, you should expect the value of your ETF to fall too.
From a structural perspective however, ETFs in Australia are regulated by the Australian Securities and Investments Commission (“ASIC”) as registered “managed investment schemes” (“MIS”) which means ETF issuers are governed by a detailed set of regulations regarding the operation of their funds.
Most importantly from an investor perspective, the assets of an ETF are held on trust for the benefit of unitholders and separate from the assets of the product issuer. As an extra layer of separation, the assets are normally held by an independent third party custodian appointed by the ETF issuer. This essentially means ETF assets are not available to creditors of the issuer in the unlikely event of a default.
If a business failure at the level of the ETF issuer were to occur, a new manager would be appointed and the ETF would continue to operate. Alternatively, if the ETF were to be wound up, the liquidator would sell the assets, and the net proceeds would be paid to the unitholders in proportion to the number of units they held.
For more information see here.
For more information on the specific risks of a particular fund, please see the “Risks” section in the relevant Product Disclosure Statement.
Thematic ETFs are Exchange Trade Funds that select underlying holdings based on their exposure to particular investment themes or ideas. Thematic ETFs are typically agnostic to industry sectors and geographical boundaries.
Learn more about thematic ETFs.
Understanding Betashares ETFs
Betashares ETFs are a family of exchange traded funds (ETFs) that trade on the Australian Securities Exchange (ASX), just like shares, during the trading day. They can bought and sold like any share via any broker.
At Betashares, our suite of ETFs are designed to expand the universe of investment possibilities for Australian investors and have been built with the needs of Australian investors in mind. We do this by delivering transparent exposure to a broad range of market indices, asset classes and investment strategies. These can be products based on equity indices (e.g., providing exposure to a particular segment of the equity market or the broad sharemarket itself), or they can be products that offer exposure to alternative asset classes (eg: currency and commodities). To view the full Betashares product range, please click here, or contact us to request an information pack.
Simple access
ETFs help investors gain exposure to a wide range of investment strategies, international markets and asset classes as simply as buying any share.
Liquidity
ETFs normally have a high level of liquidity, and are traded on the Australian Securities Exchange (ASX) so can be bought and sold just like shares during the trading day.
Transparency
Investment information about ETFs (including underlying portfolio holdings, fees and distribution information) can be accessed via the relevant Fund product page.
Cost-effective
Because ETFs aim to track the performance of an index or asset class, there are no in-built ‘active management’ fees to worry about. As such they’re generally significantly more cost-effective than comparable traditional managed funds that are actively managed.
SMSF friendly
Just like shares, ETFs are eligible to be bought inside Self-Managed Super Funds, and the popularity of ETFs has been growing strongly with this client base. For more information about ETFs and SMSF see here.
Betashares ETFs are built like traditional managed funds but they can be traded on the ASX like any share, providing significantly more flexibility to investors.
Because Betashares ETFs aim simply to track the performance of a specified index or asset class, they also typically have lower costs than most managed funds
Betashares ETFs are regulated unit trusts whose units trade on the ASX much like shares. They have the same legal structure as traditional managed funds and are subject to the highest form of investor protection regulation available in Australia.
The assets underlying our ETFs do not form part of Betashares’ assets. Rather, they are held on trust for the benefit of unitholders. Betashares has appointed an independent, third party custodian to hold the assets of each exchange traded fund, which are kept separate from the assets of Betashares, the custodian and any other fund.
For more information see here.
Betashares ETFs can be useful building blocks in any investor’s portfolio. They are very flexible investment tools which can be used to implement a wide range of investment strategies, including core ‘buy and hold’ allocations and tactical exposure to a particular investment theme or strategy.
The goal of thematic investing is to identify megatrends and enduring structural forces that will affect the economy over time, and then position one’s portfolio to benefit from those forces, irrespective of the ups and downs of current or future economic cycles. Learn more about thematic investing.
Environmental, social, and governance (ESG) refers to an evaluation of a given company specific to three areas that can define how sustainable, responsible, or ethical a business is. Typically, a score is compiled from data collected around specific metrics related to the three categories.
ESG investing or ethical investing is a way to hold companies accountable for the environmental, social and ethical consequences of their actions. At its core, ethical investing is an approach taken by investors who want to align their investments with their values.
How to invest in Betashares ETFs
You can buy and sell units in an ETF during the trading day through a stockbroker, financial adviser or online broker, the same way you would buy and sell individual stocks. ETFs are traded on the Australian Securities Exchange (ASX). Learn more about investing in ETFs.
ETFs accrue management costs daily in the value of the unit price, much like traditional managed funds. As such no additional fees are paid by an investor to Betashares when trading ETF units on the Australian Securities Exchange (ASX). To view the fees applicable for each fund, click here.
In addition, because ETFs are bought and sold just like shares, customary brokerage fees will apply when trading ETFs, just as they do when investors trade shares on the ASX. Note that these fees are levied by your broker with prices set by them, not Betashares.
While Betashares cannot control or influence the execution of your ETF trade, we would like to highlight the following considerations, for you to keep in mind:
Before placing your ETF trade order, check with your broker (or look at “market depth” if using an online broker) to make sure you have accurate bid-offer information. If there is an iNAV associated with the Fund, you should check this against the price at which you are planning on buying or selling the ETF to make sure you are getting close to ‘fair value’.
It may be prudent to use limit orders rather than market orders to make sure you get the price you are expecting. Limit orders allow investors to specify a buy or sell price and will only get executed at the stipulated price.
Avoid trading in the first and last 10 minutes of the trading day – at this stage there is generally a lot more volatility in share prices which may lead to wider ‘buy-sell’ spreads.
For more information on trading ETFs, click here.
Yes – all Betashares funds can be purchased in a Self Managed Super Fund (SMSF). Indeed, SMSF investors are some of the most active investors in ETFs. ETFs are increasingly popular investment tools being undertaken by savvy SMSFs. For more information on SMSFs and ETFs click here.
You can buy and sell units in a thematic ETF during the trading day through a stockbroker, financial adviser or online broker, the same way you would buy and sell other ETFs or individual stocks.
Dividends, Distributions and Tax
After investing in a Betashares funds, you will receive the following information:
- Welcome letter – general information about your investment
- Confirmation statement – issued for every subsequent transaction
- Distribution statement – issued for every distribution you receive
- Annual statement – details the investment balance, transactions made and fees charged since your last statement
- Exit statement – issued following a full withdrawal of your investment and
- Tax statement – issued following the end of each tax year.
ETFs invest in securities and other assets, and seek to provide distributions based on those underlying securities or assets. Depending on the ETF, distributions may be paid on a monthly, quarterly, half-yearly or annual basis. Depending on the ETF’s investment strategy, the distribution could be made up of dividends, interest, and/or capital gains that are realised by the ETF on the sale of underlying assets.
As with shares, unitholders on the register of a Fund as at the record date for the distribution will be entitled to a share of the distributable income of the ETF for the relevant distribution period, based on the number of units held in the ETF.
You can find distribution information and current yield/franking levels on the individual product page of the Fund you are interested in.
To the extent that the underlying holdings of the Fund receive franking credits, these credits will normally be passed on to the Fund’s investors.
You can find distribution information and current yield/franking levels on the individual product page of the Fund you are interested in.
Distribution Reinvestment Plans (DRPs) allow unitholders in a fund to take part or all of their income distributions in the form of additional units rather than cash.
Many Betashares funds allow investors to undertake partial or full DRPs. To check which degree of DRP participation is available for a particular fund, please see the relevant Product Disclosure Statement (PDS).
You can claim payment for the residual credit balance associated with the DRP via our unit registrar, either upon the sale of your units or when opting out of the DRP. You can do this by contacting Link Market Services on 1300 202 738 and providing them with your Holder Identification Number (HIN).
If you do not request this amount, the residual is held in the fund. If you were to sell units and repurchase them via the same HIN, the residual is carried over into the ‘new’ holdings.
Upon investing, you will receive a Welcome Letter which includes instructions on how to access your holdings and update your details online via the Link Investor Centre.
The web address for the Link Investor Centre is www.linkmarketservices.com.au. If you need help, please contact Link Market Services on 1300 202 738, they will guide you through the online portal.
DRP is currently available only to unitholders who have a registered address in Australia or New Zealand.
Eligible Unitholders can elect to participate in the DRP by completing an online form available on our unit registrar’s website (Link Market Services) or by contacting the registrar (further information will be provided in the information pack sent to you when you become a unitholder).
Participation in the DRP is subject to the terms and conditions of the DRP policy document, which is available from the registrar, or by contacting Betashares on 1300 487 577 (within Australia).
Multi-factor authentication is an added layer of security which helps to protect your financial account and personal details from cyber criminals. You can set up MFA with Link by following Link’s user guide: https://mfa.linkgroup.com/user-guide/
If you need further assistance, please contact Link Market Services on 1300 202 738.
After the end of a financial year you will receive an individualised tax statement regarding your investment, setting out the components of any income received during that financial year.
If you do not receive a tax statement you were expecting, please contact our unit registrar, Link Market Services. You can contact them by phone at 1300 202 738 or online at Link Market Services – Investor Centre
Link Market Services is the unit registrar for all Betashares Funds and is able to help you with a number of administrative enquiries.
Please contact them directly if you would like to:
- Update your contact and other information
- Enquire about Fund distributions/dividends
- Enquire about your tax or distribution statements
- Enquire about the size and value of your investment
- Elect to participate in a distribution reinvestment plan (if available) or
- If you have other enquiries regarding your holding of units
Link Market Services can be contacted by calling 1300 202 738. Alternatively, some queries can be answered by using the Link web portal: Link Market Services – Investor Centre.