LPAC - Strategies for Risky Times · Confidential – A Member of Mirae Asset Financial Groupmay...

LPAC - Strategies for Risky Times BetaShares – Vinnie Wadhera

Confidential – may not be distributed without the consent of BetaShares Capital A Member of Mirae Asset Financial Group

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Disclaimer

Financial Intermediary use only

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 with all reasonable care

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 an offer or solicitation. BetaShares

assumes no responsibilities for errors, inaccuracies or omissions in this document.

Performance and statistical results noted are unaudited. 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.


ETFs - will Australia follow in the US footsteps?

3


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ETF Industry Facts Current Australian ETP Market Cap Growth

CAGR: Compound Annual Growth Rate

Source: ASX, BetaShares

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14

Market Cap (A$m)

Australian ETP Market Cap: July 2004 – May 2015 (A$m)

04 – 15YTD CAGR 32%

#ETPs 7 9 8 5 19 30 37 57 82 81 129

May-15

92


5

SMSFs have been early (and heavy) adopters of ETFs


Growing Levels of Awareness and Comfort Among Planners

15%

27% 28%

40%

17%

27%

19%

19%

0%

10%

20%

30%

40%

50%

60%

2008 2010 2012 2014

Proportion of planners advising on ETFs: (%)

Currently or may use (%) 32% 54% 47%

Currently Using ETFs (%)

May use within 12 mths (%)

6

59%

Source: Investment Trends


Adviser Involvement in ETF Investment

7


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The looming retirement wave The population either approaching or in retirement is growing


9

A long retirement ride ahead Those aged between 55-65 years can expect to live another 20-30 years


10

Equity investing as risky as ever New retirees should expect at least one 30-50% market decline during retirement

8


11

Holding equities exposes investors to ‘sequencing risk’

Individuals nearing or in retirement may not have the time to recover from steep losses in the market when an individual needs to make withdrawals to meet current

income needs, it may not be possible to ride out a large decline in the market.

S&P/ASX 200 Accumulation Index – Time taken to recoup losses from market falls

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Source: Bloomberg

50% decline top to bottom

Almost 6 years to recoup losses from market fall

Nov. 2007

March 2009

Sept. 2013


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Relying on equities gives rise to “sequencing” risk Market downturns are especially nasty for those that are living off their nest-egg

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

1 6 11 16 21 26

Millio

ns

Smooth Returns, NoCrashEarly Market Crash

Late Market Crash


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The result: retirees face a tough trade-off Retirees need to balance sequencing vs. longevity risk

Longevity risk

Sequencing Risk High risk

Portfolio eg. 80% equities

Low risk Portfolio eg. 80%

bonds/cash

Probability of running out of money during retirement

Balancing Retirement Risks


14

Typical retirement strategies now falling short The real returns available from cash and bonds have declined

*Deflated by weighted median CPI


International diversification won’t avoid pain

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The correlation between Australian and global equities remains high, especially during downturns


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Part 1: Using equities for income Despite declining interest rates, real equity market dividend yields remain attractive


17

Australian dividend yields are especially attractive Australian equities also benefit from dividend imputation which boosts gross yields by around 2%

%


Part 2: Risk management to provide a “handbrake”

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A strategy of reducing risk at times of high market volatility and price weakness


The aim: a more optimal risk-return trade-off

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Equity income together with risk management may help reduce sequencing and/or longevity risk

Longevity risk

Sequencing Risk

High risk portfolio

Low risk portfolio

Probability of running out of money during retirement with traditional AA

Lower probability trade-off via risk management


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The Fund aims to provide investors with exposure to large capitalisation Australian shares along with regular franked dividend income, paid monthly, that is at least double the income yield of the broad Australian sharemarket.

In addition, the Fund aims to reduce the volatility of equity investment returns and cushion downside market risk.

Key Information 31/12/2014

Investment Objective

Product Name: BetaShares Australian Dividend Harvester Fund (managed fund)

ASX Code HVST

Bloomberg Code

HVST AU

IRESS Code HVST.AXW

Asset backing Equities

Management Fee

0.65% p.a.

Expense recoveries

0.25% p.a. (estimate)

Inception Date 29 October 2014

Company Weighting

Commonwealth Bank 10.8%

Westpac Banking Corp 8.0%

BHP Billiton Ltd 7.1%

ANZ Banking Group 6.9%

National Australia Bank 6.3%

Telstra Corp Ltd 5.7%

Wesfarmers Ltd 3.7%

CSL Ltd 3.2%

Woolworths Ltd 2.9%

Woodside Petroleum Ltd 2.0%

Top 10 Underlying Exposures* 31/12/2014

Sector Allocation* 31/12/2014

BetaShares Australian Dividend Harvester Fund (HVST)

Financials 48.2%

M aterials 14.9%Consumer Staples 7.5%

Industrials 7.0%Telecommunicat ion Services

Health Care 5.8%Energy 5.1%

Consumer Discret ionary 3.0%Utilit ies 1.8%

Information Technology 0.7%

*Underlying Exposures and Sector Allocations will change regularly as a result of the investment strategy


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The case for Harvester

BetaShares Australian Dividend Harvester Fund (managed fund) (HVST) has

been specifically designed to meet the investment challenges of SMSFs

and retirees, offering the potential to:

• Provide attractive, tax-effective income for investment portfolios

• Significantly improve on risk-adjusted returns available from the

equities market

• Provide equity exposure while reducing the risks of significant

drawdowns


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The Dividend Harvester Strategy

Illustration of the Dividend Harvester Strategy – August/September 2014

Starting Universe: S&P/ASX 50

Filter for stocks paying dividends in next 2 months (+ market cap % liquidity filters)

10 Largest franked dividend payers (who meet yield threshold) included in Harvester Portfolio

Ticker Security Name

Portfolio

Weighting

(%)

IAG Insurance Australia Group Ltd 12.0%SUN Suncorp Group Ltd 12.0%

WPL Woodside Petroleum Ltd 12.0%TLS Telstra Corp Ltd 12.0%

CBA Commonwealth Bank of Australia 12.0%

Ticker Security Name

Portfolio

Weighting

(%)

WES Wesfarmers 8.0%AMP AMP 8.0%WOW Woolworths 8.0%

AMC Amcor 8.0%BHP BHP Billiton 8.0%

Ticker Security Name Ex Date

Expected Gross

Dividend ($)

Closing Price

as at 25/7/14

($)

Expected Gross

Div Yield (%)

IAG Insurance Australia Group 8/09/2014 0.371$ 6.29$ 5.91%

SUN Suncorp Group Ltd 20/08/2014 0.571$ 14.19$ 4.03%WPL Woodside Petroleum 27/08/2014 1.702$ 42.70$ 3.99%

TLS Telstra 27/08/2014 0.214$ 5.45$ 3.93%CBA Commonwealth Bank of Australia 19/08/2014 3.114$ 82.28$ 3.78%

WES Wesfarmers 29/08/2014 1.500$ 43.28$ 3.47%

AMP AMP 3/09/2014 0.163$ 5.42$ 3.00%

WOW Woolworths 9/09/2014 1.014$ 36.00$ 2.82%AMC Amcor 2/09/2014 0.235$ 10.27$ 2.29%

BHP BHP Billiton 3/09/2014 0.886$ 39.00$ 2.27%RIO Rio Tinto 13/08/2014 1.473$ 65.09$ 2.26%

STO Santos 27/08/2014 0.286$ 14.39$ 1.99%

QBE QBE Insurance Group 27/08/2014 0.214$ 11.86$ 1.81%

ORG Origin Energy 26/08/2014 0.250$ 14.13$ 1.77%CSL CSL 8/09/2014 0.648$ 66.80$ 0.97%


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Harvester Strategy – Annual Yields

This chart is for financial intermediary/wholesale client use only. It must not be given to any retail clients. Simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading, are based on certain

assumptions, and are produced with the benefit of hindsight. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. No representation is being made that the Fund will achieve results similar to those shown. Past performance, simulated or

actual, is not an indication of future performance. Source: BetaShares, Milliman, Bloomberg

As the fund is expected to produce significant levels of income, investors and their advisers can elect to adjust how much income is required and reinvest the remainder through the DRP

HVST^ HVST^ HVST^ S&P/ASX 200 S&P/ASX 200 S&P/ASX 200

Gross Yield Net Yield Franking % Gross Yield Net Yield Franking %

2004 15.35% 10.90% 95% 5.77% 4.37% 75%

2005 17.76% 13.35% 77% 5.79% 4.45% 70%

2006 15.57% 11.65% 78% 5.66% 4.33% 72%

2007 16.51% 12.41% 77% 5.33% 4.08% 72%

2008 17.09% 13.25% 68% 4.93% 3.74% 74%

2009 15.78% 11.85% 77% 6.47% 4.90% 74%

2010 12.94% 9.76% 76% 5.20% 3.93% 76%

2011 16.81% 12.52% 80% 5.64% 4.25% 76%

2012 17.61% 13.08% 81% 6.85% 5.13% 78%

2013 16.83% 12.06% 92% 6.40% 4.76% 80%

2014 15.30% 11.50% 77% 5.98% 4.47% 79%

Average 16.14% 12.03% 79.92% 5.82% 4.40% 75.05%

Dividend yield is dividends paid after management fees and brokerage costs


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Monthly Harvester net yield since inception (Dec 2014 – May 2015)

Note: Yield calculated as monthly distributions declared divided by NAV/unit on ex-date for that month. Past performance is not an indicator of future performance. Distribution

amount is per unit.

Source: BetaShares

$0.000

$0.050

$0.100

$0.150

$0.200

$0.250

$0.300

December January February March April May

1.0% 0.9% 0.9% 0.9% 0.9% 0.9%


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High Volatility is frequently associated with sharply falling markets

S&P/ASX 200 Index (1992-2013): Cumulative equity return and volatility

Source: Milliman Financial Risk Management LLC, 31/12/1991-31/12/2013. The chart above is historical and for illustrative purposes only. It does not represent actual performance of any investment. Past performance is no guarantee of future results.

Selected periods when increased market volatility was associated with market declines


26

+

The Dividend Harvester Strategy


27

The Dividend Harvester Risk Management Strategy

• Equity markets are not a ‘straight road’

• Volatility in the markets creates many ‘bends and turns’

• The Fund’s risk management strategy involves monitoring the volatility of equities daily

• If volatility rises beyond ‘normal’ levels, the Fund will apply a ‘handbrake’ and reduce market exposure by selling SPI futures

• Strategy aims to provide a ‘smoother ride’ for investors

Risk Management Strategy to provide most of the upside in rising markets while avoiding most of the downside in periods of decline


28

Harvester’s Risk Manager

Sample Clients About Milliman

The risk management strategy employed by the Harvester Fund is being run in conjunction with Milliman, one of the largest institutional global risk managers in the world, assisting clients in managing risk on US$500B worldwide Milliman’s risk management strategies have been used for the last 15 years by some of the largest firms and institutional investors in the world Strategies used by Milliman helped their clients navigate the ‘tech bubble’ and global financial crisis The Dividend Harvester Fund provides investors access to such a strategy, which was previously primarily confined to large institutional investors During market downturns, the risk management strategy seeks to curb potential portfolio losses while preserving principal and gains captured in favourable market conditions

Milliman has 55 offices globally and employs more than 2,600 professionals, including more than 1,300 qualified consultants and actuaries


Volatility Management with Milliman Managed Risk Strategy

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30

BetaShares Harvester Strategy (Simulated) v S&P/ASX 200 Index: 4 Dec 2007– 30 September 2014 (Indexed to 100)

Harvester Strategy has outperformed S&P/ASX 200 Index through the cycle

50

70

90

110

130

150

170

190

210

Dec-07 Dec-09 Dec-11 Dec-13

BetaShares Harvester Strategy

S&P/ASX 200 TR Index + Risk Management Strategy

S&P/ ASX 200 TR Index HVST Strategy

S&P ASX 200 Index + Risk Strategy

S&P ASX 200 Index

Annual return (%, p.a.)

9.6% 4.2% 1.5%

Volatility (%, p.a)

13.4% 9.1% 19.6%

This chart is for financial intermediary/wholesale client use only. It must not be given to any retail clients. Excludes the effects of management costs, transaction costs and cash held for futures margins. Simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading, are based on certain assumptions, and are produced with the benefit of hindsight. Also, since the trades have not actually been executed, the results may have under- or over-compensated for

the impact, if any, of certain market factors, such as lack of liquidity. No representation is being made that the Fund will achieve results similar to those shown. Past performance, simulated or actual, is not an indication of future performance. Source: BetaShares, Milliman, Bloomberg


-60.00

-50.00

-40.00

-30.00

-20.00

-10.00

0.00

3 0 / 1 2 / 2 0 0 7 3 0 / 1 2 / 2 0 0 8 3 0 / 1 2 / 2 0 0 9 3 0 / 1 2 / 2 0 1 0 3 0 / 1 2 / 2 0 1 1 3 0 / 1 2 / 2 0 1 2 3 0 / 1 2 / 2 0 1 3

HVST (Simulated)

S&P/ASX 200 Acc. Index

Harvester Strategy – Drawdown Analysis

31

BetaShares Harvester Strategy (Simulated) v S&P/ASX 200 Accumulation Index – Drawdown: 4 Dec 2007– 30 September 2014

This chart is for financial intermediary/wholesale client use only. It must not be given to any retail clients. Simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading, are based on certain assumptions, and are produced with the benefit of hindsight. Also, since the trades

have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. No representation is being made that the Fund will achieve results similar to those shown. Past performance, simulated or actual, is not an indication of future performance Source: BetaShares, Milliman,

Bloomberg

Max Drawdown: S&P/ASX 200: -49.7%

HVST (Simulated): -17.6%


32

While the Fund is expected to have broad application and be suitable for a variety of investors, it has been specifically designed to meet the needs of SMSFs, retirees and tax-exempt investors. It is particularly relevant to: • Investors seeking high levels of franked dividends and high tax

efficiency

• Investors seeking high income whilst mitigating the risk of market

volatility and large drawdowns

• Investors seeking equity exposure but who may be concerned about

uncertain financial markets

• Investors seeking relatively consistent monthly income to assist with

investment planning

Who is the Dividend Harvester For?


33

The fund aims to provide investors with a simple way to profit from, or protect against, a decline of the Australian share market by seeking to generate returns that are negatively correlated to the returns of the

Australian share market (as measured by the S&P/ASX 200 index).

Key Information


Product Name: BetaShares Australian Equities Bear Hedge Fund

ASX Code BEAR

Bloomberg Code BEAR AU

IRESS Code BEAR.AXW

Asset backing Australian Dollars

Management Fee 1.19% p.a.

Expenses Capped at 0.19% p.a

Fund Inception Date

6 July 2012

Portfolio Exposure

Short Australian Equities(1) ~100%

BetaShares Australian Equities Bear Hedge Fund Bear Fund – Product Factsheet

(1) Market movements may cause the Fund’s exposure to vary between -90% to -110% on a given day. The Fund does not track any benchmark and should not be expected to provide the exact opposite of the market return over any time period.


34

The fund aims to help investors profit from, or protect against, a decline of the Australian share market by seeking to generate magnified returns that are negatively correlated to the returns of the Australian share

market (as measured by the S&P/ASX 200 Index).

Key Information


Product Name: BetaShares Australian Equities Strong Bear Hedge Fund

ASX Code BBOZ

Bloomberg Code BBOZ AU

IRESS Code BBOZ.AXW

Asset backing Australian Dollars

Management Fee 1.19% p.a.

Expenses Capped at 0.19% p.a

Fund Inception Date

17 April 2015

Portfolio Exposure

Short Australian Equities ~200% to275%

BetaShares Australian Equities Strong Bear Hedge Fund Strong Bear Fund – Product Factsheet

The Fund does not track any published benchmark and should not be expected to provide any particular short multiple of the market return over any time period.


35

BBOZ Fund Hedging Calculator

Inputs

Client Portfolio Size($) 1,000,000$

Desired Percentage to be hedged (%) 25%

Current BetaShares BBOZ Fund Portfolio Exposure % -209% Insert f igure from BetaShares Website: (http://w w w .betashares.com.au/products/name/bear-fund/#each-keyFacts)

Current BetaShares BBOZ Fund Intraday NAV (iNAV Live, $) 27.06$ Insert f igure from BetaShares Website: (http://w w w .betashares.com.au/products/name/bear-fund/#each-keyFacts)

Results

Units to Hedge = (Client Portfolio Size x Desired Percentage Hedged) / (BBOZ Fund Intraday NAV x BBOZ Fund Portfolio Exposure)

Approximate number of units of BBOZ Fund required in order to hedge portfolio (#) 4,421

Approximate value of investment in BBOZ Fund required in order to hedge portfolio ($) 119,632$

IMPORTANT NOTICE

Past performance is not an indication of future performance.

You should make your ow n assessment of the suitability, accuracy or completeness of this information as BetaShares gives no w arranty

Investors should check the suitability of their BBOZ Fund holdings regularly, just as they should w ith any short position position in the

market.

This information tool is only for the use Australian Financial Services Licensees and other “w holesale clients” w ithin the meaning of the

Corporations Act 2001 to help a prospective investor in the BEAR Fund interested in hedging their Australian equities portfolio to calculate

approximately how many BBOZ Fund units to buy given their portfolio size and level of hedging required.

It has been prepared by BetaShares Capital Ltd (ACN 139 566 868 AFS Licence 341181) (“BetaShares”), the responsible entity of

BetaShares Australian Strong Bear Hedge Fund (ASX code: BBOZ).

It is not a recommendation to buy units or adopt any particular investment strategy. It is general information only and does not take into

account any investor’s particular circumstances.

Investors should read the PDS (at w w w .betashares.com.au) and consider their particular circumstances before deciding to buy or hold

units.

Investors may buy units on ASX through a broker or f inancial adviser. Only investors w ho are authorised as trading participants under

the ASX Market Rules may invest through the PDS. Other investors may buy units in the Fund on the ASX through a stockbroker, f inancial

adviser or online broker.

An investment in BBOZ Fund is subject to investment risk and the value of units may go dow n as w ell as up.

Portfolio exposure is subject to change on a daily basis. The iNAV is updated frequently intra-day.


Research has shown that equity income strategies using options may outperform

Summary results from ASX Buy-Write Study – April 2005 – December 2011(1)

(1) ASX Market Insights “An Encyclopedia of Australian Buy-Write Returns (August 2012”). Data from the ASX study is a general illustration of how various equity income (buy write) strategies have performed in different market conditions. The BetaShares Australian Top 20 Equity Yield Maximiser Fund will use an equity income strategy that

combines elements from both the different buy-write strategies described and evaluated in the ASX research, along with certain modifications that seek to optimise the strategy. As a result the strategy of the BetaShares Equity Yield Maximiser Fund is not identical to that described in the ASX research, and the performance described in the

ASX research is not indicative of the future performance of the Fund. 36


8.4%

5.7%5.5%

4.9% 4.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

BetaShares Aus Top 20

Eqty Yld Maximiser

(YMAX)

Djerriwarrah(DJW) Vanguard Australian

Shares High Yld ETF (VHY)

Russell High Div

Australian Shares ETF

(RDV)

SPDR MSCI Australian

Select High Dividend Yield

Fund (SYI)

37

YMAX yield as at 1 April 2015 was 9.8% gross

Selected High Yield ASX ETPs: 12 month yield to 1 April 2015 (%)

Note: 12 month cash yield calculated as total distributions declared in the four quarters to 1 April 2015 divided by unit price on 1 April 2015. Past

performance is not an indicator of future performance.

Source: Morningstar, Issuer websites, BetaShares

9.8%

6.4%

7.2% 6.6%

Cash Yield

Gross Yield

8.2%


38

July 2007 – March 2009

Example: Equity Income Strategy outperforming in a bear market

40

50

60

70

80

90

100

110

120

Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09

ASX/University of Sydney “Delta” Strategy(1)

S&P/ASX 20 Index

-12%

-37%

Source: Bloomberg, ASX (1) ASX Market Insights “An Encyclopedia of Australian Buy-Write Returns (August 2012”). Data from the ASX study is a general illustration of how various equity income (buy write) strategies have performed in different market conditions. The BetaShares Australian Top 20 Equity Yield Maximiser Fund will use an equity income strategy that combines elements from the different buy-write strategies described and evaluated in the ASX research, along with certain modifications that

seek to optimise the strategy. As a result the strategy of the BetaShares Equity Yield Maximiser Fund is not identical to that described in the ASX research, and the performance described in the ASX research is not indicative of the future performance of the Fund.


39

January 2009 – January 2011

Example: Equity Income Strategy outperforming in a modest bull market

80

90

100

110

120

130

140

150

Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10


S&P/ASX 20 Index 40%

27 %




40

October 2009 – January 2011

Example: Equity Income Strategy outperforming in a range bound market

70

75

80

85

90

95

100

105

110

115

Oct-09 Jan-10 Apr-10 Jul-10 Oct-10


S&P/ASX 20 Index

9%

-1%




41

March 2009 – March 2010

Example: Equity Income Strategy lagging in a strong bull market

90

100

110

120

130

140

150

160

Mar-09 Jun-09 Sep-09 Dec-09 Mar-10

ASX/University of Sydney “Delta” Equity Income Strategy(1)

S&P/ASX 20 Index

50%

39%

Source: Bloomberg, ASX (1) ASX Market Insights “An Encyclopedia of Australian Buy-Write Returns (August 2012”). Data from the ASX study is a general illustration of how various equity income (buy write) strategies have performed in different market conditions. The BetaShares Australian Top 20 Equity Yield Maximiser Fund will use an equity income strategy that combines elements from both the different buy-write strategies described and evaluated in the ASX research, along with certain modifications

that seek to optimise the strategy. As a result the strategy of the BetaShares Equity Yield Maximiser Fund is not identical to that described in the ASX research, and the performance described in the ASX research is not indicative of the future performance of the Fund.


42

US Dollar Exposure : Portfolio Applications

1. A “deep value” play on US economic recovery • Signs of earnings expansion • Signs of employment growth • Signs of potential for lower AUD:USD interest rate differential

2. Inverse Correlation position to AEQ

• When fully invested in Australian listed securities, holding USD position provides exposure to a historically negatively correlated asset class

3. “Risk off” decision

• Consistency in portfolio – Equities-to-cash for the International Equities allocation (already in place for Aust Equities)

• Implement without “crossing” currencies back into AUD


43

Current Portfolio

Portfolio Weight Portfolio Value 15% Fall in Equity Market 10% Fall AUD vs USD & EUR End Portfolio Value

Weight $100 (p/f value) (hedge benefit) End Value

(%) ($million) ($million) ($million) ($million)

US Equities (IVV) 40.0% $40.0 $34.0 $4.0 $38.0

European Equities (IEU) 20.0% $20.0 $17.0 $2.0 $19.0

USD ETF (USD)

EUR ETF (EEU)

60.0% $60.0 $57.0

Portfolio Return -5.00%

Portfolio with 50% Equity "Risk Off"

Portfolio Weight Portfolio Value 15% Fall in Equity Market 10% Fall AUD vs USD & EUR End Portfolio Value

Weight $100 (p/f value) (hedge benefit) End Value

(%) ($million) ($million) ($million) ($million)

US Equities (IVV) 20.0% $20.0 $17.0 $2.0 $19.0

European Equities (IEU) 10.0% $10.0 $8.5 $1.0 $9.5

USD ETF (USD) 20.0% $20.0 $20.0 $2.0 $22.0

EUR ETF (EEU) 10.0% $10.0 $10.0 $1.0 $11.0

60.0% $60.0 $61.5

Portfolio Return 2.50%

Currency ETFs : Illustrative Example


44

FOR MORE INFORMATION Website Visit www.betashares.com.au [email protected] Blog: www.betasharesblog.com.au Twitter: @betashares 1300 487 577 (within Australia) +61 2 9290 6888 (outside Australia)

mailto:[email protected]

http://www.betasharesblog.com.au/


HVST– Some things to keep in mind

• Due to the high income nature of the Fund, investors in HVST should consider electing for some portion of the income distribution to be reinvested pursuant to a DRP in order to maximise participation in the total return growth potential of the Fund

• HVST’s portfolio has concentration risk (individual stocks + sectors)

• The Risk Management strategy has demonstrated its effectiveness over market cycles (i.e. over the medium/long term time horizons), but it is not designed to protect against day-to-day market fluctuations and ‘gap’ events

45


46

BetaShares Harvester Strategy – Full DRP (Simulated) v BetaShares Harvester Strategy - 50% DRP (Simulation) v BetaShares Harvester Strategy – No DRP (Simulated) : 4 Dec 2007– 30 September 2014 (Indexed to 100)

The importance of reinvesting distributions via the DRP for Harvester

50

70

90

110

130

150

170

190

210

Dec-07 Dec-09 Dec-11 Dec-13

BetaShares Harvester Strategy with full DRP participation

BetaShares Harvester Strategy with 50% DRP participation*

S&P/ASX 200 Accumulation Index

BetaShares Harvester Strategy with no DRP participation*

This chart is for financial intermediary/wholesale client use only. It must not be given to any retail clients. Excludes the effects of management costs *Assumes 14% average annual yield component from HVST strategy

Simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading, are based on certain assumptions, and are produced with the benefit of hindsight. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if

any, of certain market factors, such as lack of liquidity. No representation is being made that the Fund will achieve results similar to those shown. Past performance, simulated or actual, is not an indication of future performance. Source: BetaShares, Milliman, Bloomberg

Income


47

TOPIC AREA MYTH REALITY

VOLUME

Average daily volume looks very light so the ETF must be illiquid and difficult to trade

• ETF liquidity is driven off the liquidity of the underlying securities not ETF printed volume

• ETFs can issue new shares and therefore offer additional liquidity as frequently as necessary

• ‘Authorised Participants” (ETF issuer’s institutional trading partners) use the creation/redemption process to facilitate trading and satisfy market demand

PRICE

The last trading price for the ETF is close to the price that I should expect to pay or receive for my trade

• Last traded price is, simply, the last traded price

• Each trade is independent and has its own unique characteristics that should not affect any trade that follows

• These characteristics include time of trade, market levels, trade instructions etc

Last price is a good representation of the true value of the ETF

• The last price will not give you the best indication of the fair value of an ETF

• Investors interested in ‘fair value’ should refer to the ETF’s iNAV (intraday net asset value)

• Best practice issuers display ETF iNAVs on their websites and through data providers

TRADING COST

I need to trade an ETF at size to obtain the lowest trading cost

• For most investors, the quote depth visible on the screen itself (by market-makers) should be sufficient to handle investor orders at low bid/ask spreads

• Trades should be executed as limit orders (not market orders)

SELLS

I should be able to access liquidity to my buy order but will not be able to access the same liquidity for my sell orders

• Market makers have no preference for buys or sells and so liquidity levels should be equivalent for both buys and sells

Myths and Realities About ETF Trading

LPAC - Strategies for Risky Times · Confidential – A Member of Mirae Asset Financial Groupmay...

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