1 00:00:05,680 --> 00:00:07,920 Speaker 1: Welcome to the Fear and Greed Business Interview. I'm sure 2 00:00:08,039 --> 00:00:10,319 Speaker 1: Alma Fear and Greed is working with the team at 3 00:00:10,400 --> 00:00:13,960 Speaker 1: Vanguard to bring you a series of episodes busting some 4 00:00:14,000 --> 00:00:16,920 Speaker 1: of the myths around investing and giving you the information 5 00:00:17,040 --> 00:00:20,200 Speaker 1: you need to help to make informed decisions. Today, we're 6 00:00:20,280 --> 00:00:24,520 Speaker 1: taking a close look at ETFs exchange traded funds. Australian 7 00:00:24,600 --> 00:00:28,120 Speaker 1: ETF assets sailed past the two hundred billion dollar mark 8 00:00:28,440 --> 00:00:32,920 Speaker 1: earlier this year, with investors particularly drawn to index tracking ETFs. 9 00:00:33,200 --> 00:00:35,920 Speaker 1: But what role do they play in an investment portfolio, 10 00:00:35,960 --> 00:00:38,319 Speaker 1: What are some of the mistakes investors make, and how 11 00:00:38,440 --> 00:00:41,080 Speaker 1: can investors use ETFs to make the most of trends 12 00:00:41,159 --> 00:00:44,720 Speaker 1: like the AI boom. Vanguard knows this space better than most. 13 00:00:44,720 --> 00:00:47,440 Speaker 1: It's one of the world's largest global investment management companies 14 00:00:47,440 --> 00:00:50,800 Speaker 1: with more than fourteen point seven trillion dollars in assets 15 00:00:50,840 --> 00:00:53,519 Speaker 1: under management globally. Four and a half trillion of that 16 00:00:53,800 --> 00:00:56,720 Speaker 1: is in ETFs. As always, the information in this episode 17 00:00:56,800 --> 00:00:59,520 Speaker 1: is general in nature. It doesn't take into account your 18 00:00:59,560 --> 00:01:02,360 Speaker 1: own circuit instances. You should do your own research and 19 00:01:02,400 --> 00:01:06,600 Speaker 1: see professional advice before making investment decisions. Adam Desanctus is 20 00:01:06,640 --> 00:01:10,160 Speaker 1: the hitd of ATF Capital Markets at vaning God Australia, 21 00:01:10,200 --> 00:01:12,440 Speaker 1: which is a great supporter of this podcast. Adam mocom 22 00:01:12,440 --> 00:01:13,080 Speaker 1: to fear and great. 23 00:01:13,640 --> 00:01:14,920 Speaker 2: Thanks Sean, it's great to be here. 24 00:01:15,400 --> 00:01:19,920 Speaker 1: Why have ATFS become so popular among Australian investors. 25 00:01:20,200 --> 00:01:22,000 Speaker 2: Yeah, Sean, it's been a very exciting time to be 26 00:01:22,000 --> 00:01:26,000 Speaker 2: close to ETFs. ETF growth has really been a global phenomenon, 27 00:01:26,400 --> 00:01:29,080 Speaker 2: but to lift the lid here on the Australia market, 28 00:01:29,080 --> 00:01:32,279 Speaker 2: we've seen exponential growth really over the last ten years. 29 00:01:32,480 --> 00:01:35,160 Speaker 2: There's really three main drivers that I point to explaining 30 00:01:35,200 --> 00:01:38,880 Speaker 2: the growth. The first is investors really just realizing the 31 00:01:38,920 --> 00:01:44,440 Speaker 2: benefits of ETFs diversification, low cost and the additional liquidity benefits. 32 00:01:44,800 --> 00:01:48,560 Speaker 2: The second part is the adoption from retail investors. You know, 33 00:01:48,600 --> 00:01:51,560 Speaker 2: particularly since twenty twenty when we saw the pandemic, there's 34 00:01:51,600 --> 00:01:53,600 Speaker 2: just been an explosion both in terms of a UM 35 00:01:53,840 --> 00:01:57,240 Speaker 2: and uptick from the retail investors and we think that 36 00:01:57,320 --> 00:02:00,120 Speaker 2: will will continue. And then lastly, just I think it's 37 00:02:00,000 --> 00:02:03,279 Speaker 2: it's the index revolution playing out in the Asia Pac region. 38 00:02:03,360 --> 00:02:05,760 Speaker 2: We saw this happen in the US and Europe so far, 39 00:02:05,840 --> 00:02:08,520 Speaker 2: and we think that you know, investors choosing to put 40 00:02:08,639 --> 00:02:11,880 Speaker 2: cash flow into index tracking products will be a good 41 00:02:11,880 --> 00:02:13,320 Speaker 2: tail when for the Australian market. 42 00:02:14,160 --> 00:02:17,200 Speaker 1: Okay, it's interesting the tail wind for the Australian market, 43 00:02:17,320 --> 00:02:21,040 Speaker 1: just the fact how important ETFs are for the overall 44 00:02:21,120 --> 00:02:24,160 Speaker 1: market now compared to five years ago, little ten, or 45 00:02:24,160 --> 00:02:25,040 Speaker 1: fifteen years ago. 46 00:02:25,639 --> 00:02:27,760 Speaker 2: Yeah. Absolutely, And I think I think it goes back 47 00:02:27,800 --> 00:02:30,160 Speaker 2: to just the benefits of et apps and when you 48 00:02:30,160 --> 00:02:33,440 Speaker 2: think about them, whether you're an institutional investor, a financial advisor, 49 00:02:33,560 --> 00:02:36,200 Speaker 2: or a retail investor, you know, each of those cohorts 50 00:02:36,280 --> 00:02:39,160 Speaker 2: are finding ways to put ETFs into their investment strategies. 51 00:02:39,560 --> 00:02:43,280 Speaker 1: Okay, so when we talk about ETFs, they're not a 52 00:02:43,280 --> 00:02:47,639 Speaker 1: homogenous group. There's all types of ETFs. Do Investors tend 53 00:02:47,880 --> 00:02:52,200 Speaker 1: to buy several ets so they tend to stick to 54 00:02:52,240 --> 00:02:53,840 Speaker 1: one that they like. It might be the market, it 55 00:02:53,919 --> 00:02:55,919 Speaker 1: might be an ESG et if it might be. I'm 56 00:02:55,960 --> 00:02:59,560 Speaker 1: just interested in how investors think about ETFs and invest 57 00:02:59,600 --> 00:03:00,160 Speaker 1: in them. 58 00:03:00,720 --> 00:03:03,520 Speaker 2: Yeah. Absolutely. So there's kind of two approaches in terms 59 00:03:03,560 --> 00:03:06,080 Speaker 2: of how investors are are thinking about ETFs. You know, 60 00:03:06,440 --> 00:03:09,520 Speaker 2: one way to build a portfolio might be from from 61 00:03:09,560 --> 00:03:12,480 Speaker 2: the bottom up, starting with more of a building block approach. 62 00:03:12,919 --> 00:03:15,360 Speaker 2: So in that situation, you might be picking sort of 63 00:03:15,360 --> 00:03:18,320 Speaker 2: a handful of ETFs and you know, including some of 64 00:03:18,360 --> 00:03:20,519 Speaker 2: the themes that you mentioned and trying to build a 65 00:03:21,000 --> 00:03:24,120 Speaker 2: portfolio that way. The other way is more of a 66 00:03:24,160 --> 00:03:27,560 Speaker 2: top down approach. So one of the popular ways investors 67 00:03:27,600 --> 00:03:32,720 Speaker 2: are actually accessing broad diversified funds these days are through 68 00:03:32,880 --> 00:03:37,280 Speaker 2: diversified funds, also known as multi asset funds, and you know, 69 00:03:37,320 --> 00:03:39,480 Speaker 2: these are ways. It's you can think about a multi 70 00:03:39,520 --> 00:03:42,120 Speaker 2: asset fund as a sort of a combination of six 71 00:03:42,160 --> 00:03:46,280 Speaker 2: to seven ETFs across different asset classes. And it's for 72 00:03:46,360 --> 00:03:49,280 Speaker 2: the investors that are a bit overwhelmed by all the choices, 73 00:03:49,600 --> 00:03:52,280 Speaker 2: and it's a really simple way, and the rebalancing is 74 00:03:52,320 --> 00:03:54,760 Speaker 2: done from the issue. Where just a really simple way 75 00:03:54,800 --> 00:03:57,119 Speaker 2: to get access to funds. And you know, we see 76 00:03:57,160 --> 00:03:59,960 Speaker 2: that those products continuing to be popular among retail mesters. 77 00:04:00,720 --> 00:04:06,320 Speaker 1: Stay with me, Adam, we'll be back in a minute. 78 00:04:09,520 --> 00:04:12,880 Speaker 1: My guest this morning is Adam Desanctus from vain God, Australia. 79 00:04:14,480 --> 00:04:16,480 Speaker 1: What are some of the risks with atfs? So we've 80 00:04:16,480 --> 00:04:19,120 Speaker 1: been talking about the benefits, but every investment has risk 81 00:04:19,279 --> 00:04:21,479 Speaker 1: as well. What are some of the things that investors 82 00:04:21,520 --> 00:04:22,320 Speaker 1: should be aware of. 83 00:04:23,160 --> 00:04:27,120 Speaker 2: Yeah, absolutely. I'll focus in on two common mistakes that 84 00:04:27,440 --> 00:04:31,160 Speaker 2: we see investors sometimes you know, run into in their 85 00:04:31,200 --> 00:04:35,599 Speaker 2: in their portfolios, and one is over diversification and the 86 00:04:35,720 --> 00:04:39,760 Speaker 2: other is perhaps holding too many niche ETFs. So on 87 00:04:39,839 --> 00:04:43,919 Speaker 2: the first point, more is not always better. You know, 88 00:04:44,000 --> 00:04:46,839 Speaker 2: sometimes we see portfolios that have you know, many ETFs 89 00:04:46,880 --> 00:04:49,440 Speaker 2: in them, and investors might actually be doubling up on 90 00:04:49,520 --> 00:04:53,000 Speaker 2: exposure and paying maybe twice or three times for the 91 00:04:53,080 --> 00:04:56,880 Speaker 2: same exposure. So think about maybe holding three ETFs in 92 00:04:57,160 --> 00:04:59,560 Speaker 2: OUSI equities, you know, that would be one example. So 93 00:04:59,600 --> 00:05:02,080 Speaker 2: it's really a important for investors to just understand the 94 00:05:02,120 --> 00:05:05,240 Speaker 2: underlying companies that that they're holding. I think the second 95 00:05:05,240 --> 00:05:09,400 Speaker 2: one would be starting a portfolio with ETFs that are 96 00:05:09,400 --> 00:05:12,200 Speaker 2: a bit too niche or narrow. So there's been quite 97 00:05:12,240 --> 00:05:16,000 Speaker 2: a rise in sector funds and thematics and things in 98 00:05:16,040 --> 00:05:18,880 Speaker 2: that space. And if you start a portfolio off with 99 00:05:19,080 --> 00:05:22,800 Speaker 2: something that's too narrow relative to the to the global benchmark, 100 00:05:22,800 --> 00:05:24,479 Speaker 2: you might have a lot of holes and gaps and 101 00:05:24,680 --> 00:05:27,360 Speaker 2: you might not have the proper level of diversification that 102 00:05:27,720 --> 00:05:28,720 Speaker 2: would otherwise suit you. 103 00:05:29,400 --> 00:05:31,320 Speaker 1: Now, not every ATF is going to be the same 104 00:05:31,400 --> 00:05:34,800 Speaker 1: odd that because the people like van Got provide atfs 105 00:05:34,839 --> 00:05:37,960 Speaker 1: for investors. As an investor, though, what is it the 106 00:05:38,000 --> 00:05:42,360 Speaker 1: things that I'm looking for from my ATF provider, Because 107 00:05:42,440 --> 00:05:43,719 Speaker 1: it's easy to think, I kin, I'm just going to 108 00:05:43,720 --> 00:05:45,560 Speaker 1: buy the market, I'm going to buy golf stocks or whatever. 109 00:05:45,560 --> 00:05:48,520 Speaker 1: I get that, But surely what van Got put that 110 00:05:48,520 --> 00:05:51,080 Speaker 1: compared to a competitor, they might be differences there. 111 00:05:52,000 --> 00:05:54,880 Speaker 2: Yeah, absolutely, I mean I think for investors there's there's 112 00:05:54,880 --> 00:05:56,960 Speaker 2: sort of three things that point them in the direction 113 00:05:57,000 --> 00:05:59,400 Speaker 2: of in terms of the due diligence process when looking 114 00:05:59,440 --> 00:06:01,800 Speaker 2: at ETF. You know, the first is making sure that 115 00:06:01,839 --> 00:06:05,520 Speaker 2: the ETF aligns with their long term financial goals, risk tolerance, 116 00:06:05,560 --> 00:06:07,760 Speaker 2: and plan. And you know that's always going to be 117 00:06:07,800 --> 00:06:11,280 Speaker 2: the first place where we would recommend investors start knowing 118 00:06:11,320 --> 00:06:14,720 Speaker 2: your provider. Though, apart from market forces, how well on 119 00:06:14,800 --> 00:06:18,000 Speaker 2: ETF performs can also depend on how well it's managed, 120 00:06:18,040 --> 00:06:20,440 Speaker 2: So I think you want to pick a reputable and 121 00:06:21,000 --> 00:06:23,080 Speaker 2: well known fund manager with a good experience and a 122 00:06:23,120 --> 00:06:27,120 Speaker 2: good track record. Comparing cost is always another important one 123 00:06:27,240 --> 00:06:29,960 Speaker 2: that we that we always bring up. Costs come in 124 00:06:30,000 --> 00:06:32,440 Speaker 2: two forms for ETFs, and it's important to make the distinction. 125 00:06:32,560 --> 00:06:35,760 Speaker 2: So the management expense ratio where the mer is going 126 00:06:35,839 --> 00:06:38,600 Speaker 2: to be one cost that investors, a lot of investors 127 00:06:38,600 --> 00:06:41,960 Speaker 2: are acutely aware of and making sure that you're you know, 128 00:06:42,040 --> 00:06:44,040 Speaker 2: minimizing costs. Costs are one of the things that you 129 00:06:44,320 --> 00:06:46,400 Speaker 2: have fully in your control as an investor. So to 130 00:06:46,400 --> 00:06:49,120 Speaker 2: minimize costs on the on the MR side and then 131 00:06:49,240 --> 00:06:52,920 Speaker 2: on the trading side. Because ETFs are exchange listed, the 132 00:06:52,920 --> 00:06:56,400 Speaker 2: ETF bit ass spread is another really important cost that 133 00:06:56,800 --> 00:07:01,200 Speaker 2: I would say investors probably have lessamiliarity with, but it 134 00:07:01,240 --> 00:07:04,279 Speaker 2: can be just as important when trading any security on 135 00:07:04,560 --> 00:07:08,880 Speaker 2: in exchange. So yeah, overall, aligned to your allocation, know 136 00:07:09,000 --> 00:07:11,320 Speaker 2: your provider, and also compare costs. 137 00:07:11,920 --> 00:07:14,240 Speaker 1: Okay, so I've done that, I've worked out I want 138 00:07:14,240 --> 00:07:16,600 Speaker 1: to go with let's use Van God as the example 139 00:07:17,120 --> 00:07:19,040 Speaker 1: and on how there's lots going on with II. I 140 00:07:19,080 --> 00:07:23,000 Speaker 1: keep writing about II, there's a boom going on. What's 141 00:07:23,040 --> 00:07:25,280 Speaker 1: the next step. How do I maank shure I don't 142 00:07:25,280 --> 00:07:28,840 Speaker 1: get caught in the bus part of the boom or 143 00:07:29,000 --> 00:07:31,880 Speaker 1: fully understand what I'm investing in. Yeah? 144 00:07:31,920 --> 00:07:34,640 Speaker 2: Absolutely, So I think the first point is making sure 145 00:07:34,640 --> 00:07:37,720 Speaker 2: that you have really clear financial goals and making sure 146 00:07:37,760 --> 00:07:40,520 Speaker 2: that any investment that you put into the portfolio. Is 147 00:07:41,040 --> 00:07:43,840 Speaker 2: not just extra cash that is being invested, you know, 148 00:07:44,200 --> 00:07:45,920 Speaker 2: in an ETF that you might have heard about at 149 00:07:46,040 --> 00:07:48,600 Speaker 2: a barbecue. Making sure that you know any of those 150 00:07:48,680 --> 00:07:51,240 Speaker 2: ETFs you're choosing actually go back to your to your 151 00:07:51,280 --> 00:07:54,600 Speaker 2: long term financial goals and the other two two things 152 00:07:54,600 --> 00:07:57,160 Speaker 2: I would say do your research on ETFs. I would 153 00:07:57,200 --> 00:07:59,840 Speaker 2: say there's been an evolution in the space. It used 154 00:07:59,880 --> 00:08:03,239 Speaker 2: to be that they were all index based, market cap weighted, 155 00:08:03,600 --> 00:08:05,720 Speaker 2: and then this uh, you know, as that part of 156 00:08:05,760 --> 00:08:08,360 Speaker 2: the market became saturated, issuer started to launch more of 157 00:08:08,360 --> 00:08:11,200 Speaker 2: these thematic products. And there's two key risks to look 158 00:08:11,200 --> 00:08:13,880 Speaker 2: out for there, you know, one is volatility. Those products 159 00:08:13,880 --> 00:08:16,200 Speaker 2: are inherently more volatile than a broad based fund, So 160 00:08:16,240 --> 00:08:20,120 Speaker 2: it's really important to understand what it is you're buying 161 00:08:20,400 --> 00:08:23,280 Speaker 2: and if it if it does, behave differently than what 162 00:08:23,320 --> 00:08:25,680 Speaker 2: you might expect a normal market cap waight to BTF 163 00:08:26,000 --> 00:08:28,160 Speaker 2: to do. And then secondly it's just be careful of 164 00:08:28,240 --> 00:08:31,160 Speaker 2: market timing. The challenge of market timing is you have 165 00:08:31,200 --> 00:08:36,120 Speaker 2: to get it right twice buying and selling. So some 166 00:08:36,160 --> 00:08:38,800 Speaker 2: of these, you know, some of the real niche thematic products, 167 00:08:39,320 --> 00:08:42,360 Speaker 2: they either won you know, the fad might have already 168 00:08:42,360 --> 00:08:44,320 Speaker 2: played out and you're investing sort of you know, on 169 00:08:44,360 --> 00:08:46,960 Speaker 2: the down swing, or there might not be long term 170 00:08:47,000 --> 00:08:49,800 Speaker 2: investment merit in the idea, and so they're actually if 171 00:08:49,800 --> 00:08:52,160 Speaker 2: there is a downturn, it might not ever come back. 172 00:08:52,400 --> 00:08:55,720 Speaker 2: So just doing due diligence in terms of like what 173 00:08:55,840 --> 00:08:59,079 Speaker 2: is really under the hood, it's critically important for investors. 174 00:09:00,080 --> 00:09:02,680 Speaker 1: Wrapping this up, any parting words of advice for someone 175 00:09:03,000 --> 00:09:04,640 Speaker 1: looking to buy an ATF. 176 00:09:04,960 --> 00:09:07,600 Speaker 2: Yeah, I think it all goes back to control what 177 00:09:07,679 --> 00:09:10,240 Speaker 2: you can control as an investor. You know, we have 178 00:09:10,400 --> 00:09:13,800 Speaker 2: four principles here at Vanguard, and the central theme that 179 00:09:13,840 --> 00:09:17,040 Speaker 2: links them all together is they are with an investor's control. 180 00:09:17,280 --> 00:09:20,439 Speaker 2: So maybe less about buying yout apps, it's more about 181 00:09:20,480 --> 00:09:24,920 Speaker 2: clear financial goals, invest in a balanced portfolio, minimize costs 182 00:09:24,920 --> 00:09:27,960 Speaker 2: when choosing products. And then also this is potentially the 183 00:09:28,000 --> 00:09:30,520 Speaker 2: hardest one, have the discipline to stick to your plan 184 00:09:31,160 --> 00:09:33,600 Speaker 2: even when others around you might be reacting to short 185 00:09:33,679 --> 00:09:34,920 Speaker 2: term market fluctuations. 186 00:09:35,600 --> 00:09:38,240 Speaker 1: Fantastic, Adam, thank you for talking to fear and greed. 187 00:09:38,520 --> 00:09:39,640 Speaker 2: Thanks Sean. Great to be here. 188 00:09:40,160 --> 00:09:43,920 Speaker 1: That was Adam Desanctus, head of ETF Capital Markets at Vanguard, 189 00:09:43,880 --> 00:09:47,880 Speaker 1: Australia invest strong and steady with Vanguard. Visit Vanguard dot 190 00:09:47,880 --> 00:09:50,240 Speaker 1: com dot au for more information and to read the 191 00:09:50,320 --> 00:09:53,880 Speaker 1: relevant pds and TMD and consider if a product is 192 00:09:54,000 --> 00:09:56,360 Speaker 1: right for you before deciding. This is the Fear and 193 00:09:56,400 --> 00:09:58,840 Speaker 1: Greed Business Interview. Join us every morning for the full 194 00:09:58,840 --> 00:10:01,240 Speaker 1: episode of Fear and Greed Daily business years for people 195 00:10:01,240 --> 00:10:07,640 Speaker 1: who make their own decisions. I'm shanelma Enjoy your day.