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TRANSCRIPT
A B C S O F E T F S
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W h a t e x a c tly is a n E x c h a n g e T ra d e d F u n d (E T F )?
For illustrative purposes only. Where a company or a key figure is mentioned, it is only provided as a reference and does not represent endorsement by these companies. Reference to specific company names is for illustration only and should not be construed as investment advice or
recommendation. Blackrock has not acquired any rights or license to reproduce the trademarks, logos or images set out in this document. The trademarks, logos and images set out in this document are used only for the purposes of this presentation.
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Dive rs ific a tion
Liqu id ity
T ra n s pa re n c y
C os t E ffe c tive
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A c c e s s ibility
E T F s C a n Ma ke In ve s tin g E a s ie r
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Source: BlackRock April 2020. For illustrative purposes only.
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Individual
Securities
Single securities (either equity or fixed
income) usually available on the
NYSE or LSE
A diversified portfolio of securities (shares,
bonds, commodities) that usually tracks
an index tradeable on an exchange (like
the ASX)
ETFs Managed
Funds
A diversified portfolio
of securities that is professionally
managed
Dive rs ific a tion h a s be e n Ke y
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Source: BlackRock April 2020. For illustrative purposes only.
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3 tre n d s to fu e l E T F g rowth
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Source: BlackRock April 2020. For illustrative purposes only.
Investors are
cost sensitive AND
demand quality
Access to bonds
for ALL investors
ETF investors are
active investors
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How many ETFs are there?
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AUD102Bof Australian AUM
252 ETPslisted in Australia
USD8.6Tof Global AUM
+8000 ETPslisted globally
Source: Global – BlackRock April 2021 ; Australia - ASX, as of April 2021
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$5TR
ILL
ION
2018
$6TR
ILL
ION
2019
$7TR
ILL
ION
2020
$8.5TR
ILL
ION
2021
$10TR
ILL
ION
2022
$12TR
ILL
ION
2023
Globa l E T F a s s e ts cou ld re a c h US $12 trillion ove r 5 y e a rs
C u rre n tly s ta n d in g a t US D$8.7B
Source: BlackRock; Global Business Intelligence, as of April 2018. Numbers are
USD.
You are here
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Bill
ion
s
Year
Equity Fixed Income Commodity Property Mixed Asset Infrastructure Currency Cash
AUSTRALIAN ETP INDUSTRY - SPLIT INTO ASSET CLASSES
Equities $78b
Fixed Income $10b
Commodity $3b
Property $3b
E T P In d u s try a s s e ts u n d e r man a g e me n t, a s a t Marc h 2021
FOR WHOLESALE CLIENTS ONLY – NOT FOR DISTRIBUTION TO RETAIL CLIENTS
$102B
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Source: ASX, BlackRock, as at March 2021
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ETF DUE DILLIGENCE
HOW TO CHOOSE
THE RIGHT ETF
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Just like buying a car, you need to look under an ETF’s bonnet
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Images are used for illustrative purposes only and are the property of their respective owners.
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The ETF Due Diligence Check List
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How well do you know your ETF provider?1. Manager
What is inside your fund?2. Exposure
What are the implications of structure?3. Structure
Can you trade when you need to?4. Liquidity
What is the true total cost of ownership?5. Costs
Images are used for illustrative purposes only.
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1. Manager Evaluate the ETF manager’s ability to deliver the index performance
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Tracking Difference is key for the long term investor
Tracking difference is simply the total return difference between the ETF and its underlying index over a given time period
Bonds Market L iqu id i ty
Index Fund
Index
Fund
Tracking difference can be viewed on the ETF issuers site for each ETF
1 year performance
Source: BlackRock 30/4/2021; For illustrative purposes only that has not been prepared having regard to your objectives, financial situations or needs.
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2. Exposure What’s inside your ETF?
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Bonds Market L iqu id i ty
Targeted exposure
Broad or narrow?
Depth of coverage?
Exposure performance
Is it the exposure you intended?
Does it express your views?
Frequency of disclosure and level
of transparency
Infrequent disclosure of holdings may expose
investors to risk.
For illustrative purposes only that has not been prepared having regard to your objectives, financial situations or needs
Index definition methodology impacts upon
economic exposure and outcomes – check portfolio
composition and listed underlying securities on issuers
website
Index Exposure
What exposure does the index provide?
Consider the weightings in countries, sectors, and
companies and its relevance in your investment objectives.
Index Methodology
What exposure does the index provide?
Understand the methods that the index provider uses to screen companies
to include in the index.
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2. Exposure The ETF’s underlying index should deliver your desired exposure
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When it comes to ETF benchmarks, it may seem one index is as good as another.
Understanding the difference between indices is key to selecting the most appropriate ETF to achieve your investment
objectives.
Bonds Market Liquidity
Example
Index Exposure
What exposure does the index provide?
Index Methodology
How is the index constructed?
S&P 500 S&P MidCap 400 S&P SmallCap 600
Australian Equities
For illustrative purposes only. This is not a securities recommendation to invest in any particular financial product.
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2. Exposure Case Study – USA Equities
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12m Performance S&P Indices, as of April 2021
For illustrative purposes only that has not been prepared having regard to your objectives, financial situations or needs
Source: BlackRock as at 30 April 2021. Index returns are for illustrative purposes only and do not represent any actual fund performance. Indexes are unmanaged and on cannot invest directly in an index. Index performance does not reflect any
management fees, transaction costs or expenses. Past performance is not a reliable indicator of future performance. This is not a securities recommendation to invest in any particular financial product.
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Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21
S&P 500 S&P MidCap 400 S&P SmallCap 600
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3. Structure ETF Comparison
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Source: BlackRock. For illustrative purposes only.
Physical Synthetic Active Index
Holds underlying Securities Yes No Yes Yes
Attributes
Simple
Transparent
Cost Efficient
Access restricted
markets
Access exposures where
physical not practical
Execute complex
strategies
Has fund Manager
oversight
Typically higher cost
Possibly single market
maker
Trades at NAV
Broad market exposure
Transparent
Cost Efficient
Wide Range
Counterparty Risk No Yes No No
Credit Risk No Yes No No
Daily Transparency into
HoldingsYes Depends No Yes
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ETFs benefit from multiple layers of liquidity resulting in potentially lower entry / exit costs.
4. Liquidity Liquidity is there but at what cost?
On-Screen Liquidity
A reflection of the average trading
volume as well as the bid/ask spread on
exchanges
Underlying Liquidity
Derived from the ETF’s underlying
holdings/securities
Secondary Market
Primary Market
Secondary Market
Primary Market
Source: BlackRock. For illustrative purposes only.
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5. Costs So let’s just take a step back…
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Assessing the cost of an ETF requires investors to look beyond Management Expense Ratio (MER) and take an approach
called Total Cost of Ownership (TCO).
COST OF PURCHASING
• Bid/ask spread
• Broker Commissions
COST OF HOLDING
Management fees
Opportunity cost
COST OF SELLING
Bid/ask spread
Broker Commissions
Tax
+
+
COST OF PURCHASING
• Stamp duty
• Luxury car (for those so lucky!)
COST OF HOLDING
Maintenance & Service
Petrol
Registration & Insurance
COST OF SELLING
Platform (car sales) Fees
+
+
Source: BlackRock. For illustrative purposes only.
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The ETF Due Diligence Check List
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How well do you know your ETF provider?1. Manager
What is inside your fund?2. Exposure
What are the implications of structure?3. Structure
Can you trade when you need to?4. Liquidity
What is the true total cost of ownership?5. Costs
Images are used for illustrative purposes only.
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Important Information
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Issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFSL 230 523 (BIMAL)
This material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. Before making any
investment decision, you should assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives,
financial situation, needs and circumstances. This material is not a financial product recommendation or an offer or solicitation with respect to the purchase or sale of any
financial product in any jurisdiction.
This material is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law
or regulation. BIMAL is a part of the global BlackRock Group which comprises of financial product issuers and investment managers around the world. BIMAL is the
issuer of financial products and acts as an investment manager in Australia.
BIMAL is the responsible entity and issuer of units in the Australian domiciled managed investment schemes referred to in this material, including the Australian domiciled
iShares ETFs. Any potential investor should consider the latest product disclosure statement (PDS) before deciding whether to acquire, or continue to hold, an
investment in any BlackRock fund. The PDS can be obtained by contacting the BIMAL Client Services Centre on 1300 366 100. In some instances the PDS is also
available on the BIMAL website at www.blackrock.com.au. An iShares ETF is not sponsored, endorsed, issued, sold or promoted by the provider of the index which a
particular iShares ETF seeks to track. No index provider makes any representation regarding the advisability of investing in the iShares ETFs. Further information on the
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