Third Slide

Discover the cheap, easy and effective way to invest

Exchange traded funds (ETFs) offer cheap, simple and diversified investment exposure to (high yield) bank deposits, bonds, shares, commodities (like gold) or currencies - and can be bought directly with a share trading account. Used correctly, they can save time, money and worry - especially for DIY SMSF investors. Learn what you need to know now in this comprehensive e-book by one of Australia’s leading ETF experts.

What you will learn

ETF Benefits

Discover the simplicity, transaparency, liquidity, broad diversification and low low fees typically found with ETFs

ETF Pitfulls

Learn the risks and traps to avoid when trading and investing in ETFs. Learn when to invest and how to invest with comfort.

What's available

A detailed review of almost 100 ETFs trading in Australia covering high-yield cash. bonds, equities, currencies and commodities

Trading Tips

How ETFs can be used in a variety of trading strategies that don't require knowledge of individual company stocks

Investment Tips

How to use ETFs to express long-term investment views on asset classes, countries or industry sectors.

Model Portfolios

Sample ETF model portfolios for wll diversified low cost long term investing - using as few as 3 ETFs

Hedging strategies

How to hedge your Australian equity exposure or bet on market declines with a single ASX listed purchase

Gearing Strategies

How to easily gear your Australian equity exposure using cheap wholesale financing and in ways open to SMSF investors

What readers thought!

A sample of opinion from existing buyers

Christopher, Sydney NSW

Christopher, Sydney NSW

"The Australian ETF Guide let me know I was on the right track. I now see ETFs not as the blunt instrument they appeared to be in a market timing scheme, but, in a longer-term investment, quite a finely tuned product. The writer explains comprehensively their multitude of uses and opportunities they offer. The book digs deep into the ETF phenomenon and there are gems of knowledge on virtually every page. In the book David explores and explains the stock market far more comprehensively than just explaining ETFs and his explanations and investment modelling will be useful for a long time to come."

Paul, Melbourne VIC

Paul, Melbourne VIC

"As an investor in shares and property, I found I was sadly lacking in knowledge about ETF’s – snippets in the papers and blogs not really providing enough depth. David’s e-book has well and truly ‘lifted the fog’ – it is well written, concise, detailed enough without being too technical, and a great source of knowledge on the subject. I can move forward now on using ETF’s more confidently in my investment decisions. Highly recommended"

Gordon, Adelaide SA

Gordon, Adelaide SA

"I found the ETF book extremely informative and I have already made some initial investments."

Samples from the book

The Australian ETF Guide provides details on virtually everything SMSF investors, independent planners and traders need to know about ETFs. Please review the table of contents below.

Table of Contents:

SECTION 1: ETF PRIMER: ALL YOU NEED TO KNOW ABOUT ETFs

Terminology: ETFs, ETPs, and ETCs 
ETFs 4
Structured Products 5
Managed Funds 6

ETFs Unique Structure 6

ETF Benefits 7

Diversification 8
Liquidity 8
Fair Value 8
Asset Backing Security 10
Cost 10
Tax Advantages 12
Transparency 13
Survivorship Bias 14

ETF Concerns/Trading Tips 14

Tracking Error 14
Leverage and Inverse ETFs 16
Spot vs. Future Prices 17
Counter-Party/Default Risk 19
Liquidity and Bid-Offer Spreads 21
Checking the NAV 22
Tips on buying ETFs 23
Currency Exposure 24
International Taxation 25

SECTION 2: THE AUSTRALIAN ETF MARKET 27

Global backdrop 28

Australian market Overview 29

Australian Equity ETFs 31

Broad Australian Market Indices 31
Bear Funds 36
Geared Funds 37
Australian Sector ETFs 40
High yield ETFs 41
Actively Managed ETFs 44

International Equity ETFs 46

All Country International ETFs 47
Broad Global & Developed Market ETFs 48
Emerging Markets 49
Currency Hedged ETFs 52

Australian Fixed Income ETFs 52

Composite, Government and Corporate Bond ETFs 54
Indexed Bond ETFs 57

Commodity ETFs 59

Gold ETFs 60
Commodity ETP Structures and Counter-Party Risk 61
Hedged vs. Non-Hedged Commodity ETFs 61
A form of tracking Error 62

Exchange Rate ETFs 63

PART 3: ETF INVESTMENT STRATEGIES 65

Trading ETFS instead of Shares 66

Single Asset Class Risk and Paperwork Reduction 67

Cheap & Simpler Core “Strategic” Portfolio 69

Simple 3-Asset Portfolio 70
7-Asset Portfolio 71

Value based Core/Satellite Strategy 72

Passive vs. Active Funds 73
Equity Sector Rotation 74
Financials vs. Resources 75
High Dividend Stocks 76
Small vs. Large Caps 77
Domestic vs. International Equities 78
Global Developed Markets 78
Emerging Markets 80
China 80
Global Sectors 81
Australian Bond Market Tilts 82
Corporate vs. Government Bonds 82
Nominal vs. Inflation Protected Bonds 83

Valuation based tactical asset allocation 84

Momentum & Trend based Investment Strategies 88
Simple momentum based tactical asset allocation model 89
Intra-Asset Class Sector Momentum Model 90
A few words of warning regarding momentum & timing strategies 92

Combined ETF and Derivatives Strategies 94

Hedging or Adding leverage with CFDs 94
Some thoughts on using leverage 96
Heading or Protecting your Downside 96
Warrants 97
Call and Put Options 97

Ad-Hoc Strategies 98

Cash equitisation 98
Tax Loss Harvesting 98

CONCLUSION 100

 

 Introduction:

With the wreckage of America’s dotcom bubble and sub-prime mortgage crisis just behind us, you could be forgiven for thinking that most products invented in financial markets these days are designed to fleece unsuspecting investors.

But over the past decade, one product has emerged from fairly humble beginnings to shake the established world of finance. Although initially intended as a product for large institutional fund managers, it has also been embraced by retail investors.

The leading US investment magazine, Barron’s, went so far as to argue that these products “probably rank as the most successful financial product of the past two decades”.

And in somewhat of an irony, those intended to benefit the most from this product’s introduction – professional fund managers – are now having their cosy world threatened by the product’s growing popularity among retail investors.

Which product? They’re called exchange traded funds, or “ETFs” for short.

At heart, an ETF is nothing more than an index fund that is listed on the stock market, and can be bought and sold just like an ordinary share. An ETF that tracks America’s S&P 500 index, for example, will rise or fall in value each day in line with the US S&P 500 market index. It will pay dividends in line with that of the index each and every year.

ETFs can track the performance of selected equity, bond, or commodity indices such as the S&P/ASX 200 Australian equity index, America’s S&P 500 equity index, China’s stock market, the MSCI emerging markets equity index, or even gold.

Simple right? As we’ll see, ETFs have certain attractive features for retail investors, especially compared with many large and expensive institutional managed funds that often don’t try too hard to beat their benchmark index.

ETFs are actually greatly democratising the world of investment – by allowing investors to develop their own diversified investment portfolio for a fraction of the price of those usually offered by financial planners and fund managers.

However, ETFs are not without their pitfalls. As with any popular financial product, competitors are crowding the market to try and carve out their own profitable niche. This is gradually turning an industry dominated by a handful of fairly simple and transparent offerings into one with many smaller, obscure, and complex products that can still trap the unwary investor.

Unfortunately, it does not take long before the global financial industry can take something cheap and simple and make it complex and expensive. This book will also explore these potential traps for investors – ranging from often wide bid-offer spreads and tracking errors to counter-party risks. Our specific focus is on the widening range of ETFs – or more broadly exchange traded products or “ETPs” – available on the Australian market.

The burgeoning Australian ETF industry presents both opportunities and risks for investors. The safest bet is to stick with the biggest and simplest offerings, though investors still keen on exploiting the more exotic ETF opportunities are urged to do their homework first.

This book is divided into three sections. The first section provides a primer on how ETFs differ from traditional managed funds and their specific benefits and risks. Section Two reviews the current range of ETFs available in Australia, covering every major asset class such as equities, bonds, commodities, and currencies. Section Three then outlines a range of ETF trading and investment strategies, such as how to use ETFs to build a cheap and highly diversified strategic asset allocation portfolio, and/or tactically invest in favoured industry sectors, geographic areas or other investment themes.

 

Global Rotation Strategy:

The chart below outlines the results of several momentum and/or trend strategies relative to a benchmark strategy of simply placing 25% of investment funds across four asset classes: cash, bonds, equities, and gold

 

rotationchart

As shown, all models outperform the equal-weighted “buy and hold” portfolio, especially the momentum models. Over the past 10 years, the equal weighted buy and hold portfolio produced annualised returns of 7.4%. Adding a trend filter marginally boosts annualised return performance to 8.3%, whereas adding a momentum filter alone boosts annualised return performance to 11.7%. The combination trend and momentum filters lower annualised return performance marginally to 11.3%.

Equally importantly, these models tend to result in less downside risk for the portfolio as evident in the “drawdown curves” shown in the chart below. While producing the lowest degree of outperformance, the trend model alone is especially good at reducing risk, with a maximum drawdown of only 2.9% over the period, compared with 10.2% for the equal weighted portfolio. The momentum model had a maximum drawdown of 6.0%, while adding a trend filter kept the maximum drawdown for the momentum model at 6.0%.

drawdown

 

Book samples

  • - Table of Contents: SECTION 1: […]
  • -  Introduction: With the wreckage of […]
  • - Global Rotation Strategy: The chart […]

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About the author

David Bassanese is a Sydney-based economist with extensive experience in financial markets, public policy making and media David Bassanesecommentating.

His is Chief Economist with Beta Shares, an independent Australian manager of exchange traded products (ETPs), with over $A1 billion in funds under management. He is also an economic adviser to the National Institute of Economics and Industry Research.

David is a former senior financial columnist for The Australia Financial Review newspaper, and interest rate strategist with Macquarie Bank. His is also a former Federal Treasury and OECD economist.

David graduated with first-class honours in Economics from the University of Adelaide, and also earned a Masters in Public Policy from Harvard University in the United States. He is married with two children and lives in Caringbah NSW and is an avid follower of the AFL’s Sydney Swans.

Pricing

The Australian ETF Guide is available as an e-book (PDF) for immediate delivery or, for an added fee to cover extra costs, we can also print it out as a report and send it to you via traditional mail.

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