Opportunities abound with ETFs

Globally, the fastest growing segment of ETFs has been Strategic Beta.  According to the Blackrock Investment Institute the proportion of investments in US ETFs in Strategic Beta is 20%, and growing.  It comprises just 1.5% of assets in the Asia Pacific region, which includes Australia.  This is expected to increase to represent a ratio similar to the US.

In light of 2015 returns investors are now paying greater attention to what Strategic Beta offers.  These types of ETFs empower investors with strategies that are designed to behave differently from traditional market indices while retaining the benefits of ETFs being low costs, liquidity, diversification and transparency.

Below we provide Australian examples of Strategic Beta in domestic and international equities and demonstrate how these two strategies behaved differently from the benchmarks performance reported in the media.

Australian equities – equal weight outperformance

Given Australia's highly concentrated market, with the top 10 stocks making up more than 50% of the total market capitalisation, investors are starting to worry how truly diversified their Australian equities portfolios are.  This was underscored in the past 12 months as the big 4 banks and large miners fell. Since its inception on 4 March 2014, the Market Vectors Australian Equal Weight ETF (ASX code: MVW) has outperformed the S&P/ASX 200 Accumulation Index  by 3.20% pa, returning 6.57% pa to 31 December 2015.

Performance of MVW to 31 December 2015

*Inception Date is 4 March 2014
Source: Morningstar Direct, as at 31 December 2015. Results are calculated daily to the last business day of the month and assume immediate reinvestment of all dividends and are net of management costs but do not include brokerage costs of investing in MVW. The above performance information is not a reliable indicator of current or future performance of MVW, which may be lower or higher.

MVW does not equally weight every stock in on ASX, rather the index MVW tracks is designed to overcome liquidity issues that plague the smaller stocks in the Australian market by applying liquidity and size filters.  MVW currently contains only the 73 largest and most liquid stocks on the ASX.

International Equities – A portfolio of Quality

In the low growth, low inflation environment that global markets are currently experiencing, Quality companies outperform. Notably, Quality companies generally outperform in markets that do not exhibit excess leverage.

Quality companies:

• have durable business models that are less correlated to the business cycle,
• are easy to identify and understand; and most importantly,
• outperform over the long term.

The Market Vectors MSCI World ex Australia Quality ETF (ASX code: QUAL) tracks the MSCI World ex Australia Quality Index which only includes the top 300 quality companies as determined by MSCI.  In 2015 QUAL outperformed the MSCI World ex Australia Index by 4.27% returning 16.07%.

Performance of QUAL to 31 December 2015

Source: Morningstar Direct, as at 31 December 2015. Results are calculated daily to the last business day of the month and assume immediate reinvestment of all dividends and are net of management costs but do not include brokerage costs of investing in QUAL. The above performance information is not a reliable indicator of current or future performance of QUAL, which may be lower or higher.

There are many different types of Strategic Beta ETFs and so investors should understand the underlying index the ETF tracks so they can understand how their investment may perform.

If you would like more information on how strategic beta can form a building block for yours or your client’s portfolios please contact our ETF specialists on 02 8038 3300 or email us at info@marketvectors.com.au

IMPORTANT NOTICE: Issued by Market Vectors Investments Limited ABN 22 146 596 116 AFSL 416755 (‘MVIL’). MVIL is a wholly owned subsidiary of Van Eck Associates Corporation based in New York, United States (‘Van Eck Global’). 
This is general information only and not financial advice. It does not take into account any person’s individual objectives, financial situation nor needs. Before making an investment decision in relation to a Market Vectors ETF, you should read the relevant PDS and with the assistance of a financial adviser consider if it is appropriate for your circumstances. PDSs are available at www.marketvectors.com.au or by calling 1300 MV ETFs (1300 68 3837).
No member of the Van Eck Global group of companies or the Trust guarantees the repayment of capital, the performance, or any particular rate of return of any Market Vectors ETF. Past performance is not a reliable indicator of current or future performance.
QUAL is indexed to a MSCI index .QUAL is not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to QUAL or the MSCI Index. The PDS contains a more detailed description of the limited relationship MSCI has with MVIL and QUAL.
Australian domiciled ETFs: MVIL is the Responsible Entity and AQUA Product Issuer of units in the Australian domiciled Market Vectors ETFs traded on the Australian Securities Exchange under codes MVA, MVB, MVE, MVR, MVS, MVW and QUAL.
United States domiciled  ETFs: Market Vectors ETF Trust ARBN 604 339 808 (‘Trust’) is the issuer of shares in the US domiciled Market Vectors ETFs (‘US ETFs’) which trade on ASX under the codes CETF, GDX and MOAT. The Trust and the US ETFs are regulated by US laws which differ from Australian laws. Trading in the US ETFs’ shares on ASX will be settled by CHESS Depositary Interests (‘CDIs’) which are also issued by the Trust. The Trust is organised in the State of Delaware, US. Liability of investors is limited. Van Eck Global serves as the investment advisor to the US ETFs. MVIL is, on behalf of the Trust, the authorised intermediary for the offering of CDIs over the Fund Shares and AQUA Product Issuer in respect of the CDIs and corresponding Fund Shares traded on ASX. Investing in international markets has specific risks which are in addition to the typical risks associated with investing in the Australian market. Investors must be willing to accept a high degree of volatility in the performance of the US ETFs.
Market Vectors® and Van Eck® are registered trademarks of Van Eck Global.