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EDUCATION CENTRE WEBINAR:
ESSENTIALS OF ETFS
2
Agenda
What are ETFs?
Benefits of ETFs
Portfolio Strategies
ETF industry overview
3
Best of both worlds
Like an index fund…Constructed to reflect performance of a
benchmark
Low management costs
Low turnover
Like a share….Trading flexibility intra-day on the
exchange
Long or short
4
Introducing ETFs
Exchange traded funds (ETFs) are index funds, which are listed and traded on major stock exchanges around the world.
An ETF seeks to reflect the performance of a chosen index through holding a diversified underlying basket of assets.
5
Unique benefits of ETFs
Precise access to markets
Diversification
Transparency: Price & holdings
Cost effectiveness
Trading: Multi-dealer
Portfolio strategies
6
Precise market access
ETFs provide benchmark exposure
Access to variety of asset classes on-exchange, including less accessible, e.g. emerging markets
Continuous pricing during market hours provides competitive and fair pricing
7
Diversification
Exposure to the underlying companies in an index
Reduces concentration risk
8
Transparency
Know what you own
Manage costs
Manage portfolio risk
* Broker fees may apply
9
Comparing Management Costs
Japanese Market Equities
Market Category iShares fund Universe of funds
Emerging Market Equities
US Market Equities
Global Large Cap Equities
Of the 15 Japanese Market Equity Funds, the average fee in Australia is 1.78% (ranging from 1.00% to 2.40%)
Of the 54 Emerging Market Equity Funds, the average fee in Australia is 1.92% (ranging from 0.56% to 3.20%)
Of the 12 US Equity Funds, the average fee in Australia is 1.92% (ranging from 0.65% to 2.64%)
Of the 1,140 Global Market Equity Funds, the average fee in Australia is 1.89% (ranging from 0.19% to 4.79%)
iShares MSCI Japan– management cost is 0.52%
iShares MSCI Emerging Markets – management cost is 0.72%
iShares S&P 500– management cost is 0.09%
iShares S&P Global 100 – management cost is 0.40%
Management Costs for the iShares funds represent total fund management fees and expenses as a percentage of average net assets, and is equivalent in calculation to the indirect cost ratio (‘ICR’) and the management cost ratio (‘MER’). Analysis and table were prepared by BlackRock Asset Management Australia Limited using information provided byMorningstar Research Pty Limited (“Morningstar”). The information is as at 2 November 2009.Morningstar takes no responsibility for the analysis, the accuracy of the information or the way in which the information provided by them has been presented.
10
Trading could not be simpler
Equity-like execution:
Shares traded at any time on the ASX
Settle like listed shares
Buy and sell quickly even in market volatility
11
Investment strategies using iShares
Category Objective Strategy
Build Strategic asset allocation Core/satellite Use broad based ETFs as core holdings and add single country or sector ETFs as satellites
Alternative asset classesUse ETFs for exposure to difficult-to-access markets
Adjust Active management Cash equitisation
Invest extra cash in ETFs to maintain full market exposure, through management transitions or for portfolio completion
Tactical rotation
Can easily be applied among countries, styles and market cap
Maintain Risk control Risk management
Incorporating ETFs for index exposure or combining ETFs in managing total portfolio volatility, or duration adjustments in fixed-income portfolios
12
Core - stay true to an asset allocationSatellites - pursue opportunities for outperformance
Building a portfolio core/satellite strategyE
xpec
ted
to
tal r
etu
rn %
Total risk %
Core portfolio
Core plus satellites
13
Growth of the global ETF industry
Global ETF assets hit US$933 bn at the end of Q3 2009Over 1,800 ETFs with over 3,200 listings96 providers on 40 exchanges throughout the world Source: BlackRock ETF Landscape, Industry Preview, as at end Q3 2009
14
Agenda
What are ETFs?
Benefits of ETFs
Portfolio Strategies
ETF industry overview
15
IMPORTANT INFORMATION
Before investing in an iShares fund, you should carefully consider the appropriateness of such products to your circumstances, read the Australian prospectus and consult an investment adviser. This information is general in nature and has been prepared without taking into account your objectives, financial situation or needs.
This information has been prepared by BlackRock Asset Management Australia Limited ABN 33 001 804 566, AFSL 225 398. BlackRock Asset Management Australia Limited is the local agent and intermediary for iShares (iShares, Inc. ARBN 125 632 279 formed in Maryland, USA; iShares Trust ARBN 125 632 411 organised in Delaware, USA. The liability of shareholders is limited.). The information in this document relates to iShares funds quoted on the Australian Securities Exchange (“ASX”). Trades on ASX in the shares of an iShares fund are settled using CHESS Depositary Interests (or “CDIs").
BlackRock Fund Advisors serves as an advisor to the iShares funds that are registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940. BlackRock Asset Management Australia Limited and BlackRock Fund Advisors are wholly-owned subsidiaries of BlackRock, Inc.
International investments such as an iShares fund may have different risk characteristics compared to investments in other securities listed on the ASX that do not have international exposure.
Past performance is not a reliable indicator of future performance.
Shares of an iShares fund trade on an exchange at market price (not, net asset value ("NAV")). Shares may only be redeemed directly from an iShares fund by persons or entities in the United States called 'Authorised Participants', in very large creation/redemption units.
The iShares funds are not sponsored, endorsed, issued, sold or promoted by MSCI, Inc. or Standard & Poor’s.
Transaction costs are incurred when buying or selling shares of a Fund on the ASX, and brokerage commissions if such trades are done through a broker.
The performance of an iShares fund is not guaranteed.
©2009 BlackRock Asset Management Australia Limited. All rights reserved. iShares® is a registered trademark of BlackRock, Inc.
Slide 9 - Cost Effectiveness: Management Costs comparisons
Each universe consists of retail and wholesale funds. All funds are “open” funds. Management Expense Ratio ("MER") and Indirect Cost Ratio ("ICR") figures have been incorporated into the above expense ratios. The universe of Japanese Market Equities is represented by the Morningstar Category Equity Japan. The universe of Emerging Market Equities is represented by the Morningstar Category Equity Emerging Markets. The universe of US Equities is represented by the Morningstar Category Equity North America. The universe of Global Market Equity funds is represented by those funds benchmarked to the MSCI World Ex-Australia.
©Morningstar Research Pty Ltd ABN 83 062 096 342, AFSL 243161. All rights reserved. To the extent that any of the content above constitutes advice, it is general advice that has been prepared by Morningstar, without reference to your objectives, financial situation or needs. Before acting on any advice, you should consider the appropriateness of the advice and we recommend you obtain financial, legal and taxation advice before making any financial investment decision. If applicable, investors should obtain the relevant product disclosure statement and consider it before making any decision to invest. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/fsg.asp
Management Costs means total fund management fees and expenses as a percentage of average net assets, and is equivalent in calculation to the indirect cost ratio ('ICR') and the management expense ratio ('MER'). For the purposes of this analysis, both expenses and fees calculations are referred to as Management Cost or fee. Funds where no Management Cost/MER/ICR was provided were excluded from the analysis. The analysis does not take into account entry/exit fees or other transaction costs.