Australian ETF Industry · This was a detailed quantitative survey of financial planners, dealer group managers and RG146 compliant accountants conducted between July and September

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Confidential – may not be distributed without the consent of BetaShares Capital

Australian ETF Industry:Growth, Strategy and TransformationBETASHARES/ INVESTMENT TRENDS ETF REPORT LAUNCH 2019

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The information contained in this document is general information only and does not constitute personal financial advice. It does not take into

account any person’s financial objectives, situation or needs. It has been prepared by BetaShares Capital Limited (ABN 78 139 566 868,

Australian Financial Services Licence No. 341181) (“BetaShares”). The information is provided for information purposes only and should not be

construed as a recommendation to invest in any financial product or adopt any investment strategy. BetaShares assumes no responsibilities for

errors, inaccuracies or omissions in this document. Past performance is not indicative of future performance. Investments in BetaShares Funds

are subject to investment risk and investors may not get back the full amount originally invested. Any person wishing to invest in BetaShares

Funds should obtain a copy of the relevant PDS from www.betashares.com.au and obtain financial advice in light of their individual

circumstances.

Disclaimer

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Welcome

Michael Blomfield, Chief Executive Officer,

Investment Trends

CEO of Investment Trends since 2016

Previously Head of CommSec in Australia

Former Director of the Securities and Derivatives Industry Association and

the Commonwealth Bank Foundation and a former member of the ASX

Market Rules Committee

Alex Vynokur, Chief Executive Officer,

BetaShares

Co-Founder and Chief Executive Officer of BetaShares

Director of Apex Capital Partners, an advisory and investment firm based in

Sydney

Alex was previously a lawyer at Baker & McKenzie. He holds a Bachelor of

Commerce and a Bachelor of Laws from University of NSW

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Research methodology

ETF market dynamics

Profile of ETF investors

SMSF use of ETFs

Financial planners and ETFs

Recap of key themes

Growth of the Global and Australian ETF industry

Flows into the ETF industry

Financial planners post Royal Commission and ETF usage

Views on ESG investing

Growth of Active ETFs

Outlook for 2019

Agenda

Investment Trends

BetaShares

5Copyright 2019 Investment Trends Pty Ltd. BetaShares/Investment Trends 2018 Exchange Traded Funds Report – SUMMARY REPORT. Reproduction prohibited.

BetaShares/Investment Trends2018 Exchange Traded Funds Summary Report


Agenda


ETF market dynamics


SMSF use of ETFs


Recap of key themes


The October 2018 ETF Investor and Planner Report is the 10th annual study into the Australian ETF market and is based on two detailed online surveys.

1. The Investor Product and Marketing Needs survey

This survey was conducted between August and October 2018 among two main groups of investors:

i) Respondents from Investment Trends’ opt-in panel who had taken part in previous investment related research

ii) Investors recruited from Investment Trends’ institutional clients, including a diverse range of investor information providers, product providers, private banks, advice

networks, and online brokers

Over 7,900 valid responses were received, including 2,486 respondents who were currently using exchange traded funds (ETFs), with a further 389 next wave ETF investors

(those currently considering, but not yet using ETFs). The maximum sampling error for current ETF investors at the 95% confidence interval (centre of the range) is +/-2.0%.

Analysis of smaller subgroups will have a higher sampling error.

2. The Adviser Product and Marketing Needs survey

This was a detailed quantitative survey of financial planners, dealer group managers and RG146 compliant accountants conducted between July and September 2018. The

survey was conducted in two phases:

i) Core sample: Invitation emails were sent to planners who had previously participated in Investment Trends’ research. This was supplemented with invitations sent by

Morningstar and Money Management to their full databases of financial planners and associated professionals

ii) Additional sample: Once the core sample was completed, a number of individual fund managers, ETF providers, and platform providers also invited planners on their

own database to participate. These responses have been utilised where appropriate

Total responses after data cleaning, de-duplication, and validation: n=766 financial planners, including RG146 compliant accountants, and dealer group managers who

personally provide advice. The maximum sampling error (centre of the range) at the 95% confidence interval for this sample is +/-3.5%.

Where appropriate, respondents were post weighted slightly to remove any sampling bias and ensure correct distribution by main fund manager, dealer group channel and

preferred platform.

Methodology


ETF market dynamics


Investor sentiment is flagging and their stock market return expectations is

falling into negative territory amidst growing geopolitical concerns

Australian investor sentiment vs the All Ordinaries Index

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18

8%

-1%

2%

0%

4%

2%

5%

8%

5%

7%

2%

5%

1%

4%

1%

5%

4%

6.5

7.4

6.8

6.15.9

6.6

5.65.4

6.2

6.5

5.7

5.2

5.9

6.6

12-month forward

looking return

expectations

for the All Ords

Concern levels with

financial markets

(out of 10)

All

Ordinaries

Index


The number of ETF investors has grown from 314,000 to 385,000 and is

expected to rise to 437,000 in the coming 12 months

Projection

for 2019

Projection in

previous study

^Projected figures based on Investment Trends modelling. Note that actual outcomes will be influenced by a host of factors, particularly share market performance.

0

10

20

30

40

50

Ma

rket

ca

pit

alisa

tio

n o

f E

TF

s (

in $

bn

)

Market capitalisation of ETFs ($bn)

ETF market dynamics

Number of ETF investors

10k 19k38k

53k 60k69k

103k

146k

202k

265k

314k

385k

437k

381k


Among ETF investors, the role of ETFs in the context of their total investment

portfolio is growing

^New option added

24%30% 30% 31%

37%30%

25%

5%

5% 6% 6%

5%

7%8%

8%

10% 9% 7%6%

6%8%

23%

23%26% 28%

24%28% 31%

3% 3% 5% 5%

7%

8%6%

6% 6% 6% 7%18%

10% 6%5% 5% 8%

8%

16% 15% 17%13% 13% 11% 9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012

[n=591]

2013

[n=706]

2014

[n=865]

2015

[n=1104]

2016

[n=1057]

2017

[n=1046]

2018

[n=2378]

All other investments

Cash (incl. online

savings accounts,

CMAs)Term deposits

LICs^

Property (incl.

residential &

commercial)Managed funds

ETFs

Direct shares (not

through a mgd fund)

Asset allocation - Proportion of total asset invested in each asset class

Averages among current ETF investors

All other investments

Cash (incl. online

savings accounts, CMAs)

Term deposits

LICs^

Property (incl. residential

& commercial)

Managed funds

ETFs

Direct shares

(not through a

managed fund)

Asset allocation – Proportion of total assets invested in each asset class

Averages among current ETF investors


The majority of investments into ETFs represent new money into the industry

26%

11%

24%

57%

Direct shares

Managed funds

Cash & TDs

Nothing, incremental

investment

What would next wave ETF investors

plan to sell down to invest in ETFs?

75%

34%

16%

Direct shares

Managed funds

Cash & TDs

What would current ETF investors

invest in if ETFs were unavailable?

26%

10%

15%

62%

Direct shares

Managed funds

Cash & TDs

Nothing, incremental

investment

What investments did

current ETF investors

reduce to invest in ETFs?

(% citing each)




More young investors and females are investing in ETFs

Profile of current ETF investors:

46 years old

20182013

% who are retired

Average age

% who invest in ETFs

through an SMSF

% who intend to re-invest

in ETFs in the next year

29%

51 years old

45%

68%

% who are female 11%

% who are Millennials 19%

18%

31%

57%

19%

29%


The majority of ETF investors rate their understanding of ETFs as ‘average’ or

lower, and this has not improved in recent years

3% 5% 6% 4% 4% 4%

32%

41% 37%40% 39% 39% 40%

43%

37%37%

36% 38% 38% 35%

19%18% 20% 16% 16% 17% 15%

4% 3% 3% 5%

48%52% 51% 53% 52% 51% 51%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012

[n=532]

2013

[n=585]

2014

[n=589]

2015

[n=940]

2016

[n=951]

2017

[n=633]

2018

[n=917]

No understanding

Limited

Average

Good

Expert

Level of understanding

(self-assessed)

Q130 How would you rate your understanding of ETFs?

Among current ETF investors

Self-assessed level of understanding: Weighted average using Expert=100%, Good=67%, Average=50%, Limited=33%, No understanding=0%


Investors show strong appetite for both passive investing and active

investing, and the existing range of ETFs must keep up with this demand

41%

29%

44%

50%

Among current ETF investors [n=1004] Among next wave ETF investors [n=219]

Active management:

Invest to outperform the

market (or a benchmark)

Passive (or index) management:

Invest to match the broad

market performance

Q91 Which of the following investing methods do you prefer?

(Multiple responses permitted)


SMSF use of ETFs


An estimated 120,000 SMSF investors use ETFs, representing just under a

third of all ETF investors nationwide

^Source: Investment Trends SMSF Investor Reports

19k 24k39k 45k 53k 59k 60k 66k 69k

82k103k

120k

146k

181k202k

220k

265k285k

314k 320k

385k

10k 12k20k 23k 27k 31k 30k 32k 33k 38k 46k 54k 63k

76k 83k 90k100k 103k 105k 107k

120k

Number of investors holding ETFs (incl. SMSFs)

Number of SMSFs holding ETFs (via their SMSF)

ETF market size among SMSFs

50% 50% 51% 51% 51% 52%49% 49% 48%

46%45% 45%

43% 42% 41%41%

38% 38%

33% 33%31%

% of ETF investors holding ETFs via their SMSF


Diversification and access to overseas markets are the top drivers of

investing in ETFs among SMSF trustees

77%

65%

53%

26%

34%

33%

32%

23%

19%

23%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Diversif icat ion

Access to overseas markets

Low cost

Avoiding risk through individual stock exposure

Liquidity/ easy to buy and sell

Access to specif ic types of inv's

Access to specif ic sectors

Access to investments otherwise out of reach

Provide a good core of inv. portfolio

Easier to access than unlisted managed funds

All current ETF investors [n=907]

SMSFs who use ETFs [n=261]

Q133 Why do you use ETFs? (Multiple responses permitted)

SMSFs who hold ETFs versus Current ETF investors (Top 10 reasons shown)




The adoption of ETFs among planners continues to gain momentum, with

53% now providing advice on ETFs, up from 45% in 2017

15%25% 27%

31% 28%33%

40% 44% 43% 45%53%

17%

19%

27% 16% 19%17%

19%20%

16% 14%

16%

15%

11%

9%

12% 10%11%

9%

9%10% 9%

9%

3%

4%

4%4% 5%

6%

51%43%

37% 39% 41% 38%29%

23% 26% 27%

16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008

[n=487]

2009

[n=305]

2010

[n=561]

2011

[n=635]

2012

[n=486]

2013

[n=466]

2014

[n=442]

2015

[n=417]

2016

[n=381]

2017

[n=359]

2018

[n=463]

I haven't used them

and don't intend to

use them in future

I have used them, but

won't in future

I haven't used them

but may do so after 12

months

I haven't used them

but may do so within

12 months

I have used them and

intend to continue

doing so

Q24 Have you used ETFs or active ETFs for your client investments?

Among financial planners

47% 55% 62% 59% 57% 60% 68% 73% 69% 68% 78%

Currently

recommend

or intend

to do so:


The 9,300 planners currently advising on ETFs represent 73% of planners

who are accredited to advise on direct listed equities

53%

73%

Of all planners Of planners who are

accredited to advise on

direct listed equities

3,5003,800

4,5004,000

4,800

7,0007,600 7,500

7,800

9,300

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Planners currently advising on ETFs


7%

9%

13%

17% 17%

18% 17%

4%5%

6% 6%7%

9%

12%

2013 2014 2015 2016 2017 2018 2021 (E)

Planners who recommend ETFs [n=182]

All financial planners [n=410]

Q19/ Q20 Average % of new client inflows invested in ETFs

Among financial planners

Among planners who recommend ETFs, the share of new client money

invested in ETFs edged up in 2018

(E) = Planners’ estimates for three years’ time


21%

34%

49%

38%

52%

65%

82%

28%

21%

14%

36%

26%

26%

11%

51%

45%

37%

26%

22%

8%

7%

20% 40% 60% 80% 100% 120% 140% 160%

My clients' financial outcomes have improved

I am able to service a greater number of clients

ETFs are suitable for all client types

My practice profitability has improved

My clients have become more engaged

Inadequate liquidity has caused issues

I would prefer all ETFs I recommend

to be from one provider

d Disagree I don't know Agree

Q52 Do you agree or disagree with each of the following statements regarding recommending Exchange Traded Funds (ETFs)? Among planners who currently recommend ETFs [n=226]

Those who recommend ETFs recognise the benefits of these solutions for their

clients and their practice


There is significant opportunity for advisers to be more involved in ETF

investments

7k (or 18%)15k (29%) 17k (29%) 18k (27%) 27k (26%) 39k (27%)

49k

(24%)

57k

(21%)

71k

(23%)

83k

(or 21%)

38k

53k 60k69k

103k

146k

202k

265k

314k

385k

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total number of ETF investors

Number of ETF investors saying an adviser played

a role in their most recent ETF investment

Adviser involvement in ETF investments


Recap of key themes

More Australians are investing in ETFs than ever

ETF investor demographics are rapidly changing. More females

and younger investors are entering the space

SMSF trustees continue to value the wide ranging benefits of ETFs

Over half of all financial planners now recommend ETFs, but the

advice channel can still play a more prominent role


Thank you!Questions?


© Copyright 2019 Investment Trends Pty Limited. All rights reserved.

The material in this Report (“BetaShares/Investment Trends 2017 Exchange Traded Funds Report: Summary Report”) contains proprietary information including copyright material and

trademarks, the rights to which must be respected. Investment Trends owns the copyright in the design, selection, arrangement, production, and presentation of the Report, as well as in the material

originally developed by or for Investment Trends. You may use copyright material for your personal or internal use within your business. Otherwise, and except as permitted by law, no copying,

publication, modification or commercial exploitation of the Report is permitted without the prior written permission of the owner.

Except for any rights under any legislation in Australia or any other relevant jurisdiction which cannot be excluded or limited, Investment Trends does not provide a warranty with the Report or give an

assurance as to its accuracy or reliability. Investment Trends shall not be liable for any damages you suffer, or which are claimed against you by a third party, arising out of use of the Report. You

should particularly note that most of the issues covered in our Report(s) are in a continuous state of change and are likely to be appropriate only for the timeframe indicated. As such you must make

your own enquiries regarding any aspect of the Report or research that you may seek to rely on and not rely solely on the Report for any purpose. You should also note that we rely on information

provided to us through various research and data collection methods and whilst we have made our best endeavours to ensure reasonableness and accuracy, we have not audited the information

and do not audit claims.

Analysis: Mark Johnston, Executive Chairman & Founder

Michael Blomfield, CEO

Dr Borhan Uddin, Director of Statistical Research

Recep III Peker, Research Director

King Loong Choi, Senior Analyst

Minsoo Park, Analyst

Audience: Current and next wave investors of ETFs

Financial planners

Data collected: August to September 2017

Collection method: Online surveys

Disclaimer

29



ETF market dynamics


SMSF use of ETFs


Recap of key themes

Growth of the Global and Australian ETF industry

Flows into the ETF industry

Financial planners post Royal Commission and ETF usage

Views on ESG investing

Growth of Active ETFs

Outlook for 2019

Agenda

Investment Trends

BetaShares

30


Growth of the Global ETF Industry

2005 – 2018

CAGR ~20%

Global ETF Industry AuM (US$b)

Source: ETFGI. Includes all exchange traded products.

2018

US $516 Bn in net inflows

Market Cap: US $4.8 tn

Asset depreciation led to the Global ETF

Industry finishing slightly lower (0.6%)

Net new assets gathered by the Global

ETF Industry were $76.24 Bn in

December

2nd highest on record rivalled only

by January 2018.

31


Growth of the Australian ETF Industry

Australian ETP Market Cap: July 2001 – February 2019 (A$m)

04 – 18 YTD

CAGR 31%

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

01 – 19 YTD

CAGR 46%

CAGR: Compound Annual Growth Rate. Source: ASX, BetaShares

2018

Net inflows AUD $6.3 B

Market Cap AUD $41 B

Feb 2019

Market Cap AUD $44.8 B

32


A glimpse into our future?

In the U.S., ETFs represent about 16%

of the size of the broader mutual fund

industry.

In Australia, the penetration is far

smaller, at about 1.5%, evidencing the

growth opportunity in our local market.

Source: ICI

33


As the industry matures, flows are being attracted into non-equity ETFs

33.7%

2.9%5.0%

1.4%

-0.1%

14.6%

41.1%

0.5% 0.8%

23.9%

1.9%3.7%

1.8%

-2.8%

20.9%

46.5%

4.6%

-0.5%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

AustralianEquities

Australian ListedProperty

Cash Commodities Currency Fixed Income InternationalEquities

Multi-Asset Short

ETF net flows by category (% of total): 2017 vs 2018

2017

2018

The fixed income category

continued to grow at a rapid pace,

with record flows to this category

in 2018, picking up $1.3 B in net

flows (vs. $1.1B in 2017) and

ranking 3rd

Source: BetaShares, Bloomberg

34


Financial services post Royal Commission: a new landscape

35


We believe ETF Model Portfolios will be used more widely to support planners’ needs

As advisers seek to create efficiencies in their businesses

Lower costs for clients

It is becoming increasingly understood in the Australian market that the combination of low-cost index

building blocks and active asset allocation can result in a compelling investment solution that delivers

value for both the end client and the adviser

How will the Royal Commission affect planners’ use of financial products?

Planners interested in ETFs expect the Royal Commission will lead to them recommending

more lower cost and transparent products

The ETF industry will ultimately benefit as the playing field levels out

36


Interest in ESG/ responsible investments is significant among ETF investors

4

5

67

8

910

11

0

2

4

6

8

10

12

$-

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

$700.00

$800.00

$900.00

Feb-15 Feb-16 Feb-17 Feb-18

Mill

ions

Market Cap Number of Products

Market Cap for ESG-Orientated ETFs: 2015- January 2019 (A$m)$843.6 m

$76.6m

Inflows FAIR ETHI

2017 $ 53 m $ 117 m

2018 $ 145 m $ 114 m

Source: ASX, BetaShares. As at 31 January 2019. Inflow data as at 31 December 2018.

We have observed

significant growth in our

Ethical ETFs since launch

37


One in three ETF investors say they applied the concept of ESG in

their investing in the last 12 months while a quarter are interested in

learning more

Q117 Have you invested or excluded any investments based on ethical, environmental, social or governance

factors? By use of ETFs. Among all investors

Source: BetaShares/ Investment Trends 2018

38


~25% of current ETF planners want more education on socially responsible investing

Source: BetaShares/ Investment Trends 2018

Q32 On which topics do you want more education? (Multiple responses permitted)

By use of ETFs. Among financial planners

39


Getting Active: The Active ETP market has grown to $2.6 billion across 23 products since launching in 2015

Source: ASX

Active ETF Market Capitalisation and Number of Active ETPs Available on ASX:

January 2019

123

4 4

6

89

10

121314

1617 18

19

2223

0

5

10

15

20

25

0

500

1000

1500

2000

2500

3000

Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18

$M

illio

ns

Market Cap Number of Products

40


Predictions for the ETF industry in 2019

Adoption of ETF model portfolios is predicted to increase

Fixed income ETPs will continue to grow in popularity

Thematic investing will continue to grow

Due to increased product choice but also signalling changing

sentiment from investors looking to position portfolios more

defensively

A record number of thematic ETFs were launched during 2018

and have experienced strong take-up to date

Advisers seek to create efficiencies in their businesses and lower

costs for clients

41


Overall, Australia’s ETF industry is headed into another strong

year for growth

Predictions for the ETF industry in 2019

42


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Documents

Australian ETF Industry · This was a detailed quantitative survey of financial planners, dealer group managers and RG146 compliant accountants conducted between July and September