ETF Basics: where are my ETF assets?

BY Aditi Grover | 10 October 2017
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ETF Assets

With the Australian ETF industry recently hitting a record $31B in assets, made up mostly of net new money rather than due to an increase in market value, we are now starting to see a new wave of savvy investors adopting ETFs as core building blocks in their portfolios.

For these new investors, or just as a refresher for our ETF veterans, here’s what you should know about who actually owns the assets of your ETF and what happens to your ETF if a Fund Manager ceases business.

Knowing the structure of an ETF and who ultimately owns the assets of the funds is an integral first step in understanding your investment vehicle.

In Australia, just like traditional managed funds, ETFs are regulated by the Australian Securities and Investments Commission (ASIC) as registered Managed Investment Schemes (MIS), which means Fund Managers are governed by a set of regulations regarding the management of assets that seek to protect investors’ interests. As an investor, this means that your money can only be used for the specific purpose as described in the product disclosure statement (PDS).

Each ETF investor acquires units which give the investor an ownership share in the overall assets held by the fund. These ETF units are issued by a unit trust, which must hold the assets of the fund on trust for the benefit of investors. These unit trusts are generally required by law to hold client assets separately from the assets of the ETF issuer and from any other fund.  An independent custodian is commonly appointed by the ETF issuer to hold the ETF assets, a bit like holding your personal assets in a safety deposit box at a bank, although of course the value of the ETF’s assets will rise and fall depending on market conditions. This provides an extra layer of separation between the ETF issuer’s own assets and those of the ETF.

This trust structure means that if the Fund Manager ceases business, the ETF assets will continue to be held for the ultimate benefit of investors. The assets do not form part of the personal assets of the Fund Manager and are not available to any creditors of the Fund Manager.

All of BetaShares ETFs are MIS structures and the portfolio holdings of each of our 40 funds are published on our website. You can see this using our Gold Bullion exposure – BetaShares Gold Bullion ETF – Currency Hedged (QAU) – as an example. The physical gold bullion bars backing the fund are held in the JP Morgan bullion safe custody vault in London and the Gold Bullion Bar List, right down to the serial number for each gold bar, is updated daily on our website.

Although the MIS structure is subject to a high level of investor protection regulation, investors should be aware that they can still lose money from market movements and other investment risks.

In summary, your ETF’s assets should be invested in line with the investment strategy described in the PDS and held in a prudent way for the benefit of investors.

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