BetaShares are cementing their position as one of the leading ETF providers in Australia. Now managing roughly a quarter of all ETFs on the ASX. Not content, they are now in the game of Diversified ETFs, launching 4 ‘ETFs of ETFs’ that invest in both their own and their competitors’ ETFs. We take a look.
BetaShares are cementing their position as one of the leading ETF providers in Australia. They now manage roughly a quarter of all ETFs listed on the ASX, and hold $9 Billion of Australia’s $60 Billion ETF market, with only international behemoths Vanguard and Blackrock (iShares) managing more money.
Not content with 50+ ETFs, they’ve recently launched 4 new ETFs. These new ETFs do not aim to access new markets or strategies, rather are a diversified blend of BetaShares’ and their competitors’ ETFs, offering investors a diversified portfolio in a single trade.
BetaShares competitor, Vanguard, began offering diversified ETFs 2 years ago. Until then, investors wanting to invest in a diversified portfolio of both companies and sectors needed to buy multiple ETFs.
Vanguard’s diversified ETFs have been reasonably successful, with over $800 million in assets now. BetaShares new ETFs are a direct competitor to the Vanguard ETFs and are listed below:
The above are all offered for 0.26% management fee, making these just the lowest cost diversified ETFs available on the ASX, at 0.01% less than Vanguard’s 0.27%.
BetaShares key point of difference with their diversified funds are that they are investing in both BetaShares ETFs as well as their competitors’ ETFs. Across the 4 ETFs, a total of 12 ETFs are invested in. 6 of these ETFs are BetaShares ETFs with the remainder a mix of Vanguard and SPDR ETFs, many of which are not available in Australia.
The table below shows the underling ETF holdings of each diversified ETF (at 16 December 2019). The Growth and Balanced options hold the same ETFs, albeit at different weightings. The High Growth ETF holds all of the same growth options as Growth and Balanced, but does not hold some of the income ETFs. True to label, the Conservative Income ETF swaps out the growth options of the others for income focused alternatives. The funds hold anywhere from 40% to almost 90% in BetaShares ETFs, with higher exposure to BetaShares in the more conservative options.
|Ticker||Exchange||Underlying ETF Name||Sector||DHHF||DGGF||DBBF||DZZF|
|A200||Australia||BetaShares Australia 200 ETF||Australian Shares||40.14%||32.03%||22.80%||0.00%|
|VHY||Australia||Vanguard Australian Shares High Yield ETF||Australian Shares||0.00%||0.00%||0.00%||10.21%|
|VTI||US||Vanguard Total Stock Market ETF||Global Shares||23.32%||18.03%||12.87%||0.00%|
|SPDW||US||SPDR Developed World ex-US ETF||Global Shares||15.09%||11.53%||8.23%||0.00%|
|SPEM||US||SPDR Portfolio Emerging Markets ETF||Global Shares||7.25%||5.59%||3.99%||0.00%|
|INCM||Australia||BetaShares Global Income Leaders ETF||Global Shares||0.00%||0.00%||0.00%||12.65%|
|VAP||Australia||Vanguard Australian Property Securities Index ETF||Property||4.30%||3.42%||2.43%||2.43%|
|AGVT||Australia||BetaShares Australian Government Bond ETF||Fixed Income||7.41%||8.52%||12.38%||0.00%|
|VBND||Australia||Vanguard Global Aggregate Bond Index (Hedged) ETF||Fixed Income||0.00%||7.37%||14.95%||0.00%|
|QPON||Australia||BetaShares Australian Bank Senior Floating Rate Bond ETF||Fixed Income||0.00%||4.29%||6.21%||29.88%|
|CRED||Australia||BetaShares Australian Investment Grade Corporate Bond ETF||Fixed Income||0.00%||4.27%||6.20%||29.88%|
|AAA||Australia||BetaShares Australian High Interest Cash ETF||Cash||2.24%||4.66%||9.68%||14.68%|
A common financial planning strategy, these new offerings from BetaShares are invested according to the Nobel Prize winning concept of “Modern Portfolio Theory”. No longer modern, given it was coined in 1952, it was hypothesised by economist Harry Markowitz and states that investors can construct portfolios to optimise their returns and reduce their risk by investing in a portfolio of investments rather an a single or limited investments.
ETFs by their nature already meet some diversification characteristics, but this is generally only within a sector, eg Australian Shares. Modern Portfolio Theory states that to maximise the return for a given level of risk, the investments should have different characteristics to one another. An ETF of ETFs helps to achieve this by investing in different sectors such as Australian Shares, Global Shares, Fixed Income, Cash and Property.
As we mentioned earlier, Vanguard were the first to market with diversified offerings. They also offer four ETFs, of the same Growth/Income allocation as BetaShares. The BetaShares ETFs are offered for 0.01% lower cost than Vanguard, and their key point of difference is their mixture of BetaShares and other providers’ ETFs.
There are also a small but growing number of dynamic ETFs now being launched, that put the sector allocation in the manager’s hands, such as the recently covered Pinnacle aShares Global Dynamic Fund. However, these types of ETFs are moving well into the realm of active management, with fund managers armed to make Macroeconomic calls. We consider these far different to the BetaShares and Vanguard offerings.
You can find a full list of diversified ETFs in the ETF Watch Fund Database.
We’re often asked if diversified ETFs have effectively replaced the role of Robo Advisers who’s key value proposition has been packaging up and selling diversified portfolios of ETFs. We truly believe there is a place for both. Diversified ETFs provide a low cost solution for investors with a single trade, however Robo Advisers help their clients assess their risk tolerance, provide user friendly tools, regular reviews, and have more scope to change tactical allocations of their portfolios if market conditions see fit.
We think both serve different markets and we’ll likely see both prosper.
More choice for investors, happy days!