Brexit: 5 things you need to know and 5 strategies using exchange … · In this webinar we will…...

Brexit: 5 things you need to know and 5 strategies using exchange traded products

Important Information

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 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 is not a recommendation to make any investment or adopt any investment strategy. BetaShares is not a tax adviser and this information should be construed as tax advice. BetaShares assumes no responsibility for reliance on this information. Gearing magnifies gains and losses and may not be an appropriate strategy for all investors. 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 and tax advice in light of their individual circumstances.

Confidential – may not be distributed without the consent of BetaShares capital

In this webinar we will…

1. Discuss 5 key things you need to know about the Brexit

2. Address 5 investment strategies you may wish to consider

a) To defend/protect portfolios if you're bearish or cautious

b) To take advantage of market opportunities if bullish


Your presenters

David Bassanese, BetaShares Chief Economist Formerly with: • AFR • Macquarie Bank • OECD • Treasury

David is the author of two investment books, including Australia’s most comprehensive ‘Australian Guide to ETFs’

Tania Smyth, National Manager – Adviser Services Formerly with: • Commonwealth Bank • Royal Bank of Scotland • ABN AMRO

Brexit: 5 things you need to know

Address ways to manage possible market fallout

a) Defend/reduce risk

b) Take advantage of market opportunities

Agenda


1. Short-term relief rally likely


• Why the sell-off?

• Markets were wrongly positioned prior to vote…

• …then needed to price in new uncertainty

• Why a potential rebound?

• UK effects likely contained, and actual exit from EU will take time

• Central banks primed to act

Sterling gets “pounded” British pound vs $A


Source: Incredible Charts

At least, UK still small on global scale


Source: IMF, World Economic Outlook; and IMF staff calculations

2. Longer-term, Brexit adds to global risks


• US economy facing capacity constraints/weak earnings

• UNR rate 4.7%, wages lifting

• Business investment is weakening

• Profit margins declining from peak levels

• China economy still struggling

• Recent stimulus boost fading

• Growth vs. restructuring debate intense

• Equity markets already overvalued

• US Forward PE ratio 16.4 as of Friday, vs 14.5 avg. & 17.4 early 2015

US earnings flat-lining


20

40

60

80

100

120

140

0

500

1000

1500

2000

2500

Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

S&P 500 Prices & Earnings

S&P 500 Prices [LHS]

Forward earnings [RHS]

Price Index EPS Index

Source: BetaShares, Bloomberg

US equity valuations elevated


8

10

12

14

16

18

20

Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

S&P 500 Forward PE Ratio times forward earnings

Source: BetaShares, Bloomberg

3. Short-term negative impacts to UK likely high, though (possible) long-run benefit


• Biggest drag on economy will be business uncertainty

• Negotiations about post-EU environment will drag out and outcomes highly uncertain

• Key manufacturing and finance sectors at risk

• UK break-up?

• Long-run, UK could benefit through lower regulation, targeted skilled migration, non-EU

trade deals

Past examples of trade disruption


Tough debate: access vs independence


EU EEA “Norway” Bespoke “Swiss” WTO

High EU market access Yes Yes Yes No

Contribute to EU Budget Yes Yes Yes No

Border control No No No Yes

Need to comply with EU rules Yes Yes (some exceptions

Yes (some exceptions)

No

Source: IMF

Key sectors at risk


Source: Open Europe

Average EU tariff under WTO MFN rules is low (around 1-2%), but certain key sector at risk plus non-tariff barriers to contend with

% exported to EU

EU tariff/restrictions

Cars 35% 10%

Financial services 34% Access restrictions

Food, beverages & tobacco 60% 20%

Chemicals 56% 4.6%

Professional services 30% Access restrictions

4. Short-term EU negative impacts low, but long-run costs high


• UK exports to EU equal 13% of UK GDP

• EU exports to UK equal 3% of EU GDP

• But,

• A successful UK would add to pressure of EU dis-integration

• Rise of populist right-wing parties a worry, combined with weak economic growth

• New forms of communication and “narrow-casting” add to capacity for division

5. Australian impact


• Direct impact limited

• UK fifth largest economy in the word, but accounts for 2.5% of global GDP

• 13th ranked merchandise export market, taking 2% exports (gold, alcohol)

• 3rd ranked service export market, taking 8% exports (tourism, finance)

• Main impact indirect though effect on global markets

• Likely market volatility adds to case for August RBA rate cut

Summary


1. Relief rally likely in short-term, not a GFC mark 2

2. Brexit adds to current global worries

3. UK short-term cost high, for uncertain future pay-off

4. Longer-run challenges for Europe remain

5. Australian direct effects limited, still captive to financial market fall out

1. Retreat to traditional safe havens

2. Take a more cautious view to equities investment

3. Profit from continued downturn

4. Short term bounce

5. Long term recovery

Tactically invest based on your diverse range of views


Retreat to traditional safe havens

• Gold

BetaShares Gold Bullion ETF – Currency Hedged (ASX Code QAU)

• Cash

BetaShares Australian High Interest Cash ETF (ASX Code AAA)

• US Dollar

BetaShares US Dollar ETF (ASX Code USD)


ASX: AAA

ASX: USD

ASX: QAU

Retreat to traditional safe havens


Details on actual gold bullion which backs the QAU ETF - located on BetaShares’ website

• Number of bars held • Brand • Bar No • Shape • Assay • Weight (Gross and Fine)

Institutional grade risk management delivered in exchange traded products • Cost-effective • Available to any investor • Quoted and traded on the ASX

A more cautious view to equities investment


FUND NAME ASX TICKER STRATEGY

BETASHARES AUSTRALIAN DIVIDEND HARVESTER FUND (MANAGED FUND) HVST • Dividend rotation strategy on large cap Australian

shares + risk management strategy • Monthly income

BETASHARES MANAGED RISK AUSTRALIAN SHARE FUND (MANAGED FUND)

AUST • Largest 200 Australian shares by market capitalisation

• Risk management strategy

BETASHARES MANAGED RISK GLOBAL SHARE FUND (MANAGED FUND) WRLD • Diversified exposure to global shares (developed

markets) • Risk management strategy

A more cautious view to equities investment


Selected periods when increased market volatility was associated with market declines

Source: Milliman Financial Risk Management LLC, 31/12/1991-30/09/2015. 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.

S&P/ASX 200 Index (1992-2015): Cumulative equity return and volatility

BetaShares BEAR Suite of Funds • BetaShares Australian Equities Bear Hedge Fund (ASX Code BEAR)

• BetaShares Australian Equities Strong Bear Hedge Fund (ASX Code BBOZ)

• BetaShares U.S. Equities Strong Bear Hedge Fund – Currency Hedged (ASX Code BBUS)

Profit from continued downturn


ASX: BEAR

ASX: BBOZ

ASX: BBUS

Performance of BetaShares BEAR Fund v. S&P/ASX 200 Index (6/7/2012-29/2/2016)

Profit from continued downturn – BEAR performance example


Source: BetaShares website, 29 February 2016. Past performance is not an indicator of future performance. The Fund’s value can be expected to go down if the Australian sharemarket (S&P/ASX 200 index) goes up. 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.

Currency • BetaShares British Pound ETF (ASX Code POU)

• BetaShares Euro ETF (ASX Code EEU) Geared Suite of Funds • BetaShares Geared Australian Equity Fund (hedge fund) (ASX Code GEAR)

• BetaShares Geared U.S. Equity Fund – Currency Hedged (hedge fund) (ASX Code GGUS)

Short-term bounce


ASX: POU ASX: EEU

ASX: GEAR ASX: GGUS

Currency • BetaShares British Pound ETF (ASX Code POU)

• BetaShares Euro ETF (ASX Code EEU) International Equities • BetaShares NASDAQ 100 ETF (ASX Code NDQ)

• BetaShares Wisdomtree Europe ETF – Currency Hedged (ASX Code HEUR)

• BetaShares Wisdomtree Japan ETF – Currency Hedged (ASX Code HJPN)

Long-term recovery


ASX: POU ASX: EEU

ASX: NDQ ASX: HEUR ASX: HJPN

BetaShares WisdomTree Europe ETF – Currency Hedged Product Factsheet

Key Information

ASX Code HEUR

Bloomberg Code HEUR AU

Iress Code HEUR.AXW

# of components 128

Asset backing Equities

Management Fee 0.51% p.a

Expense recovery Estimated at 0.07% p.a

ETF Inception Date 10 May 2016

Top 10 Exposures 30 April 2016

Sector Allocation 30 April 2016

Product Name: BetaShares WisdomTree Europe ETF – Currency Hedged

Index Tracked & Description of Index

Aims to track the performance of the WisdomTree Hedged Europe Equity Index, which is designed to provide exposure to the largest dividend-paying European companies that generate at least a portion of their revenues from outside of Europe, hedged to Australian dollars

Company Index Weighting

ANHEUSER-BUSCH INBEV SA/NV 6.3

SIEMENS AG-REG 5.3 UNILEVER NV-CVA 4.8 TELEFONICA SA 4.6 BANCO SANTANDER SA 4.4 SANOFI 4.0 DAIMLER AG-REGISTERED SHARES 3.9

BANCO BILBAO VIZCAYA ARGENTA 3.5

BAYER AG-REG 3.0 SAP SE 2.9


ASX: HEUR

Australian Equities Global Equities Equity Income Managed Risk/

Defensive Equity Cash

QOZ QFN QRE

NDQ UMAX QUS FUEL

WRLD HEUR HJPN

HVST YMAX

AUST WRLD

AAA

Short Geared Currency Commodities Active

BEAR BBOZ BBUS

GEAR GGUS

USD POU EEU

QAU OOO QCB

GLIN RENT

BetaShares Product Range


Considerations

Risk factors include: • Market Risk (Equity Funds)

• Currency Risk (POU and USD)

• Risk Management strategy may not work as expected (Risk Managed Funds)

• Geared and Short Funds may not be suitable strategies for all investors (GEAR,

GGUS, BBUS, BEAR, BBOZ)

• The Short Funds’ strategy of seeking returns that are negatively correlated to market returns is the opposite of most managed funds (BEAR, BBOZ, BBUS)

• Investors should seek professional financial advice before investing, and monitor their investment actively

Questions?

Keep in touch


BetaShares Client Service

1300 487 577

[email protected]

Brexit: 5 things you need to know and 5 strategies using exchange … · In this webinar we will…...

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