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 and strict set of regulations regarding the management of assets. To understand how safe ETF assets are, we need to understand the MIS rules – the laws which apply not only to ETFs but also to most traditional managed funds,
Our post entitled “What is a balanced portfolio and what does it mean for me” briefly explained “core and satellite strategies” using ETFs. In this Portfolio Construction post we look further into implementing a core and satellite strategy in an Australian equities portfolio.
All ETFs in Australia utilise a structure where each investor owns “units” which give an ownership share in the overall assets held by the fund. These ETF units are issued by a “unit trust”, which holds the assets of the fund on trust for investors. The structure used for ETFs is the same structure used by most traditional managed funds in Australia.
The remarkably prescient Glenn Stevens has given his latest summary of global and Australian economic conditions, continuing his cautiously optimistic predictions of steadily improving economic conditions in Australia and overseas at last week’s Credit Suisse Asian Investment Conference. Stevens (reflecting the RBA official view) made three key points of relevance for Australian investors:
Australian inflation and interest rates are now expected to be on hold for a period of time
The Australian housing sector (especially new construction) is expected to continue to grow strongly
Economic reforms are expected to help drive economic growth,
2014 has started with a torrent of bad news for Australian workers and manufacturers. The closure of Holden and Toyota’s local operations and the demise of Alcoa speak loudly about growing unemployment and an uncompetitive Australian manufacturing industry. Australia’s economy is slowing down and dire predictions by a leading economist of GDP growth as low as 1.5% in 2015/2016 could be taken as a sign that the Australian share market isn’t a great place to invest.
One of the most frequently mentioned benefits of ETFs is liquidity – the ability for investors to buy and sell at any time throughout the trading day. In companion articles in the BetaShares Academy we have described how the liquidity of ETFs is managed – that is, by the inter-linked concepts of “Market Making” and “Creation and Redemption of ETF Units”.
Last week we launched, in collaboration with the research firm Investment Trends, the BetaShares/Investment Trends ETF Report 2013. This is the fourth year we’ve been involved with this effort which represents the leading comprehensive quantitative and qualitative research study of Australian ETF users available to the market,
Last week we released our monthly Australian ETF Review for February 2014, which indicated that, after a slow January, the Australian exchange traded fund industry re-commenced its fast growth trajectory and reached a new record high of $10.3B. Industry market capitalisation grew 5% for the month on stronger trading value.
Understanding how sharemarket indices work is a key to understanding how to use investments like Exchange Traded Funds (ETFs) many of which aim to replicate indices. We’re all familiar with the index of a textbook, but what does a sharemarket “index” tell us about the sharemarket?
What is the NAV?
For any investment in an ETF we can assess its “fair value” by comparing the market price for units (ie the price quoted on the ASX at which you can buy or sell) with the ETF’s “net asset value” or “NAV” per unit. The NAV is essentially the market value of the ETF’s component assets (eg shares in the case of an equities ETF) minus management fees,