1 00:00:05,320 --> 00:00:07,600 Speaker 1: Welcome to the Fear and Greed Business Interview. I'm sure 2 00:00:07,680 --> 00:00:11,280 Speaker 1: almart ASX listed exchange traded funds are on track for 3 00:00:11,360 --> 00:00:14,120 Speaker 1: record growth this year after a surge of investor inflows 4 00:00:14,200 --> 00:00:18,160 Speaker 1: during the September quarter. There's been huge interest in ETFs 5 00:00:18,160 --> 00:00:21,880 Speaker 1: for many reasons, relatively low cost, diversification and access to 6 00:00:21,920 --> 00:00:25,760 Speaker 1: different areas of the market from commodities to currencies, options, strategies, 7 00:00:25,800 --> 00:00:28,400 Speaker 1: all sorts of things. But like any investment, you need 8 00:00:28,440 --> 00:00:33,280 Speaker 1: to understand what you're buying. The inaugural Investmart ETF Scorecard 9 00:00:33,320 --> 00:00:36,560 Speaker 1: report gives the ranking of ETFs based on their performance 10 00:00:36,560 --> 00:00:38,480 Speaker 1: to the end of August. It tells us the best 11 00:00:38,560 --> 00:00:41,879 Speaker 1: and worst performing ets and gives everything in between a 12 00:00:42,000 --> 00:00:45,080 Speaker 1: star rating out of five. Remember this is general information 13 00:00:45,159 --> 00:00:47,199 Speaker 1: only and you should always seek professional advice before making 14 00:00:47,280 --> 00:00:51,760 Speaker 1: investment decisions. Ron Hodge is the group CEO of Investment Ron. 15 00:00:51,920 --> 00:00:53,040 Speaker 1: Welcome to Fear and Greed. 16 00:00:53,600 --> 00:00:55,880 Speaker 2: Thank you Sean for having us Ron. 17 00:00:55,960 --> 00:00:59,240 Speaker 1: You've been thinking about ets four years. I'm about to 18 00:00:59,240 --> 00:01:02,160 Speaker 1: say decades. I think it wasn't a legislative change about 19 00:01:02,160 --> 00:01:04,920 Speaker 1: ten years ago really kicked the industry off. Why haven't 20 00:01:04,920 --> 00:01:07,640 Speaker 1: we had a star rating system yet? Particularly given how 21 00:01:07,720 --> 00:01:09,520 Speaker 1: popular ETFs have become. 22 00:01:10,600 --> 00:01:12,000 Speaker 2: Yeah, it's a good question, Sean. 23 00:01:12,440 --> 00:01:15,319 Speaker 3: I think you know, we've been doing star ratings for 24 00:01:15,440 --> 00:01:17,440 Speaker 3: a long time. We just you know, the problem is 25 00:01:17,480 --> 00:01:20,880 Speaker 3: we haven't really told anybody, which which you know is 26 00:01:21,040 --> 00:01:23,360 Speaker 3: not a great thing. But we use them internally. We've 27 00:01:23,360 --> 00:01:28,839 Speaker 3: been using them internally for curating our own expert portfolios 28 00:01:28,880 --> 00:01:32,759 Speaker 3: of ETFs for our own customers, and we've been doing that. 29 00:01:32,920 --> 00:01:35,039 Speaker 3: You know, we're about to hit ten year anniversary for 30 00:01:35,040 --> 00:01:37,280 Speaker 3: a number of those portfolios we've been doing for a 31 00:01:37,319 --> 00:01:40,240 Speaker 3: long time. I think one of the reasons why we 32 00:01:40,280 --> 00:01:42,440 Speaker 3: came out with this report, and this is our first 33 00:01:42,560 --> 00:01:46,120 Speaker 3: time we've come out with this scorecard ETF scorecard is 34 00:01:46,160 --> 00:01:49,080 Speaker 3: there's lots of different reports in the marketplace, as you know, 35 00:01:49,480 --> 00:01:53,680 Speaker 3: from ETF providers, and most of those are talking about 36 00:01:53,720 --> 00:01:56,640 Speaker 3: the flows the new ETF to market. We're going to 37 00:01:56,720 --> 00:02:00,240 Speaker 3: hit record highs this year for the ETF industry, probably 38 00:02:00,240 --> 00:02:03,160 Speaker 3: about two hundred and fifty billion. Most people believe that 39 00:02:03,200 --> 00:02:07,520 Speaker 3: will reach five hundred billion by twenty thirty. The problem 40 00:02:07,600 --> 00:02:10,680 Speaker 3: is is that nobody really tells you which ETF is 41 00:02:10,720 --> 00:02:14,280 Speaker 3: good compared to another ETF, And like shares, there's good 42 00:02:14,280 --> 00:02:17,160 Speaker 3: the bad and the ugly, and ETFs are exactly the same. 43 00:02:17,200 --> 00:02:20,320 Speaker 3: And now as soon as you come up with something 44 00:02:20,400 --> 00:02:22,760 Speaker 3: like an ETF, everybody else gets involved, and so then 45 00:02:22,800 --> 00:02:25,160 Speaker 3: they start getting cute and fancy rather than just a 46 00:02:25,200 --> 00:02:29,000 Speaker 3: pure passive tracking ETF. Then they start using synthetics and 47 00:02:29,040 --> 00:02:32,239 Speaker 3: they start having active ETFs, and then everything becomes a 48 00:02:32,280 --> 00:02:34,800 Speaker 3: little bit murky, and so you really don't know which 49 00:02:34,840 --> 00:02:37,960 Speaker 3: ETF you know, what's the difference between the ETFs and 50 00:02:38,000 --> 00:02:39,720 Speaker 3: which ones are good and which ones are bad. So 51 00:02:40,320 --> 00:02:42,040 Speaker 3: that's what we thought. Even though we've been using these 52 00:02:42,040 --> 00:02:44,400 Speaker 3: star ratings internally for a long time, we thought it 53 00:02:44,440 --> 00:02:46,640 Speaker 3: was time to shed some light on how we do 54 00:02:46,680 --> 00:02:47,840 Speaker 3: it and why we think it's important. 55 00:02:48,040 --> 00:02:50,519 Speaker 1: Okay, and these star ratings aren't just about returns. There's 56 00:02:50,560 --> 00:02:51,400 Speaker 1: more to it than that. 57 00:02:52,240 --> 00:02:55,040 Speaker 2: Yeah, I think there's. So we do it in two ways. 58 00:02:55,120 --> 00:03:00,520 Speaker 3: So the methodology is, so for the passive index tracking ETF, 59 00:03:00,639 --> 00:03:03,560 Speaker 3: so take you know, something that tracks the ASX two hundred, 60 00:03:03,639 --> 00:03:05,919 Speaker 3: So they buy every one of those stocks in the 61 00:03:05,960 --> 00:03:09,000 Speaker 3: two hundred weighted according to its market cap. 62 00:03:09,320 --> 00:03:11,079 Speaker 2: That's a passive index. 63 00:03:11,440 --> 00:03:12,880 Speaker 3: And so you have ones on the S and P 64 00:03:12,960 --> 00:03:16,959 Speaker 3: five hundred, you have ones on everything those we look 65 00:03:16,960 --> 00:03:19,760 Speaker 3: at five things. We look at the size of the fund, 66 00:03:20,200 --> 00:03:24,040 Speaker 3: we look at the fees at chargers, we look at 67 00:03:24,200 --> 00:03:27,920 Speaker 3: the liquidity of that ETF, we look at the spread 68 00:03:27,960 --> 00:03:31,360 Speaker 3: of that ETF, and we're also getting back to your point, 69 00:03:31,760 --> 00:03:35,040 Speaker 3: we look at how well that tracks the index. Now, obviously, 70 00:03:35,720 --> 00:03:37,640 Speaker 3: if it's doing a good job, it's supposed to track 71 00:03:37,680 --> 00:03:41,080 Speaker 3: it pretty much exactly probably less it's fees on the 72 00:03:41,120 --> 00:03:43,920 Speaker 3: active ETFs, which are those other ones I'm talking about 73 00:03:43,960 --> 00:03:47,360 Speaker 3: that are becoming pretty not popular, but a lot of 74 00:03:47,360 --> 00:03:48,960 Speaker 3: people are listing them at the moment. 75 00:03:49,720 --> 00:03:51,840 Speaker 2: Those ones we look at the same sort of. 76 00:03:51,840 --> 00:03:56,320 Speaker 3: Four as that liquidity, size, fees, spread, but we then 77 00:03:56,400 --> 00:04:00,280 Speaker 3: look at their entire job is to outperform the index. 78 00:04:00,560 --> 00:04:03,800 Speaker 3: So we look at that at how well it outperforms 79 00:04:03,800 --> 00:04:07,360 Speaker 3: the index over one year, two year, three year, five years, 80 00:04:07,400 --> 00:04:08,320 Speaker 3: seven year, and ten year. 81 00:04:08,720 --> 00:04:10,520 Speaker 1: Say with me, Ron, we'll be back in a minute. 82 00:04:17,400 --> 00:04:21,520 Speaker 1: I'm speaking to Ron Hodge Group CEO of investment. Okay, 83 00:04:21,600 --> 00:04:26,360 Speaker 1: so what's the top rated ETF then, as per your 84 00:04:26,760 --> 00:04:28,760 Speaker 1: report up to the end of August, wasn't it? 85 00:04:29,520 --> 00:04:29,719 Speaker 2: Yeah? 86 00:04:29,760 --> 00:04:32,880 Speaker 3: Correct, So the top performing ETF for us, and this 87 00:04:32,960 --> 00:04:36,160 Speaker 3: is you know, this is really interesting because the top 88 00:04:36,200 --> 00:04:40,280 Speaker 3: performing ETF is the Beta shares geared US equity fund. Now, 89 00:04:40,320 --> 00:04:45,440 Speaker 3: if you think about that, now, US equities, well, international equity, 90 00:04:45,520 --> 00:04:49,320 Speaker 3: especially US equities has done what thirty six percent over 91 00:04:49,360 --> 00:04:52,799 Speaker 3: the last year, and I think the Australian all lords 92 00:04:52,800 --> 00:04:56,239 Speaker 3: has done about sixteen percent, So the international stop market 93 00:04:56,320 --> 00:05:00,360 Speaker 3: is really outperformed over the last year compared to others. Now, 94 00:05:00,360 --> 00:05:02,240 Speaker 3: this is the NASDAD, So then you're looking at the 95 00:05:02,279 --> 00:05:05,479 Speaker 3: Magnificent seven. So you're looking at you know, the Googles, 96 00:05:05,520 --> 00:05:08,840 Speaker 3: the Apples, and the Vedas are so forth. And then 97 00:05:08,880 --> 00:05:12,159 Speaker 3: you've got gearing on top of that. So if those 98 00:05:12,200 --> 00:05:15,360 Speaker 3: stocks are doing well, you've also got gearing and that 99 00:05:15,440 --> 00:05:19,600 Speaker 3: makes it outperforming this year. I think the inch Well 100 00:05:19,640 --> 00:05:21,760 Speaker 3: you're probably gonna ask me, now, what's the worst performer? 101 00:05:24,120 --> 00:05:26,919 Speaker 1: Yeah, no, no, absolutely, so I get that. Well, actually, 102 00:05:26,920 --> 00:05:29,000 Speaker 1: before we get onto the worst performer, then, like just 103 00:05:29,040 --> 00:05:33,880 Speaker 1: on those numbers, do ETFs outperform Active ETFs in this 104 00:05:33,960 --> 00:05:40,520 Speaker 1: instance outperform the passive outcome hugely or not? 105 00:05:40,520 --> 00:05:42,600 Speaker 3: Not generally not over the long term, you have this 106 00:05:42,600 --> 00:05:45,400 Speaker 3: thing called reversion to the means. So over the long 107 00:05:45,520 --> 00:05:48,640 Speaker 3: term the active ones are more volatile, though they'll be 108 00:05:48,640 --> 00:05:50,560 Speaker 3: better than the index. Some years, they'll be worse in 109 00:05:50,640 --> 00:05:52,680 Speaker 3: other years, and over a very long period of time 110 00:05:52,800 --> 00:05:54,760 Speaker 3: they'll probably be close to the index. 111 00:05:54,839 --> 00:05:56,479 Speaker 2: Left their fees now. 112 00:05:56,279 --> 00:06:00,440 Speaker 3: Because they charge more fees then generally speaking, as you know, 113 00:06:00,560 --> 00:06:03,320 Speaker 3: numerous reports show, like the Spidda report and whatever else, 114 00:06:03,360 --> 00:06:07,600 Speaker 3: most active FuMB managers underperform their index. And that's really why, 115 00:06:07,760 --> 00:06:10,240 Speaker 3: because it's very hard for a fund manager to get 116 00:06:10,279 --> 00:06:12,880 Speaker 3: it right every year for a very long period of time, 117 00:06:13,120 --> 00:06:14,840 Speaker 3: and so you have this what they call reversion to 118 00:06:14,880 --> 00:06:15,200 Speaker 3: the mean. 119 00:06:15,720 --> 00:06:18,560 Speaker 1: Okay, so let's get on to the worst performing ETF. 120 00:06:19,600 --> 00:06:24,440 Speaker 3: So the worst performing ETF was so it was the 121 00:06:24,480 --> 00:06:28,400 Speaker 3: global x Ultra short NAS deck, so it was short 122 00:06:28,440 --> 00:06:31,520 Speaker 3: the NAS deck. OU so you've got the top performing 123 00:06:32,040 --> 00:06:34,640 Speaker 3: it's long the index and that beta shares one would 124 00:06:34,680 --> 00:06:37,600 Speaker 3: be a passive index, so it's just basically taken the 125 00:06:37,720 --> 00:06:42,040 Speaker 3: US equity gear US global shares and then you've got 126 00:06:42,279 --> 00:06:45,760 Speaker 3: the alternative. Made the wrong bet and they shorted the 127 00:06:45,880 --> 00:06:49,360 Speaker 3: NAS deck. So you can see how and I think 128 00:06:49,600 --> 00:06:51,760 Speaker 3: when you look at the ten best performers and the 129 00:06:51,800 --> 00:06:55,919 Speaker 3: ten worst performers, they're both littered by these what we 130 00:06:55,920 --> 00:06:58,159 Speaker 3: would call thematic ETF. 131 00:06:58,279 --> 00:06:59,359 Speaker 2: You know, they pick a theme. 132 00:06:59,400 --> 00:07:01,599 Speaker 3: You know, these ones are picking or they pick a 133 00:07:01,920 --> 00:07:05,000 Speaker 3: particular sector. You know, we've got some of the top 134 00:07:05,000 --> 00:07:08,880 Speaker 3: performers are also lithium, some of them are. You know, 135 00:07:08,960 --> 00:07:12,880 Speaker 3: you've got semiconductors in there. You've got climate change leaders, 136 00:07:13,040 --> 00:07:15,240 Speaker 3: and then you've got a crypto one in there. You 137 00:07:15,240 --> 00:07:17,000 Speaker 3: know that's in the top ten. And then you go, 138 00:07:17,080 --> 00:07:18,760 Speaker 3: this is over one year, and then you go on 139 00:07:18,800 --> 00:07:22,160 Speaker 3: the worst ten. You have things like, you know, shorter 140 00:07:22,240 --> 00:07:25,680 Speaker 3: than nas deck. You've got us Equity strong bear, so 141 00:07:25,720 --> 00:07:28,840 Speaker 3: that'd be obviously another short one. You've got hydrogen, you've 142 00:07:28,880 --> 00:07:32,400 Speaker 3: got green medals, you've got China, you. 143 00:07:32,360 --> 00:07:34,440 Speaker 2: Know things, You've got themes. 144 00:07:34,480 --> 00:07:36,800 Speaker 3: You've got very you know whereas we believe, you know, 145 00:07:36,920 --> 00:07:41,960 Speaker 3: be very diversified across sectors, across asset classes, and different 146 00:07:41,960 --> 00:07:45,600 Speaker 3: asset classes perform at different times, and you know over 147 00:07:45,680 --> 00:07:49,240 Speaker 3: time you will do okay in the themes one. If 148 00:07:49,280 --> 00:07:51,280 Speaker 3: you do well and you get it right, you're going 149 00:07:51,360 --> 00:07:52,680 Speaker 3: to win and be in the top ten. You're going 150 00:07:52,720 --> 00:07:55,080 Speaker 3: to be pretty happy with yourself. But if you get 151 00:07:55,120 --> 00:07:57,040 Speaker 3: it wrong, you're going to be in the bottom ten. 152 00:07:57,080 --> 00:07:59,600 Speaker 3: You're most likely going to lose money. And it hasard 153 00:07:59,640 --> 00:08:03,800 Speaker 3: a guess that, you know, the the top ten this year, 154 00:08:04,640 --> 00:08:06,320 Speaker 3: not every one of them will be in the top 155 00:08:06,360 --> 00:08:09,840 Speaker 3: ten next year. You know, it's just the way markets work. 156 00:08:10,040 --> 00:08:12,840 Speaker 3: As you know, you've been around long enough, Sean, you know, 157 00:08:12,920 --> 00:08:16,920 Speaker 3: what's popular today is not popular tomorrow, necessarily. 158 00:08:16,800 --> 00:08:18,680 Speaker 1: When it comes to the Star system. So applying the 159 00:08:18,720 --> 00:08:21,920 Speaker 1: Star system to the top ten and bottom ten, presumably 160 00:08:21,920 --> 00:08:24,840 Speaker 1: they get some sort of points for doing well. But 161 00:08:24,920 --> 00:08:26,800 Speaker 1: I just noticed in that least there are actually some 162 00:08:27,320 --> 00:08:32,440 Speaker 1: two star strong performance and presume that's because of long 163 00:08:32,520 --> 00:08:36,480 Speaker 1: term performance correct fees correct. 164 00:08:36,480 --> 00:08:38,640 Speaker 3: So it was really interesting because you know, I would 165 00:08:38,760 --> 00:08:42,040 Speaker 3: rather do this report completely on five year returns. The 166 00:08:42,120 --> 00:08:47,760 Speaker 3: problem is is that media and also investors, retail investors 167 00:08:47,800 --> 00:08:50,400 Speaker 3: in general, don't look that far out and they look 168 00:08:50,559 --> 00:08:53,640 Speaker 3: more at you know, one year returns, and we think 169 00:08:53,640 --> 00:08:55,880 Speaker 3: that's a really bad you know, that's a problem with 170 00:08:55,920 --> 00:08:59,160 Speaker 3: the retail market looking at very short term returns. But 171 00:08:59,200 --> 00:09:02,000 Speaker 3: that's why, because we're looking at performance over the long 172 00:09:02,120 --> 00:09:04,680 Speaker 3: term and the tracking record over the long term. So 173 00:09:04,800 --> 00:09:07,800 Speaker 3: our five star ratings are based on five year, three 174 00:09:08,440 --> 00:09:11,040 Speaker 3: three one year, two year, three year, five year, seven year, 175 00:09:11,040 --> 00:09:13,320 Speaker 3: and ten years. I remember, most ETFs probably haven't even 176 00:09:13,360 --> 00:09:16,439 Speaker 3: been around for ten years. There's only a handful when 177 00:09:16,480 --> 00:09:17,480 Speaker 3: it started off back then. 178 00:09:17,920 --> 00:09:20,000 Speaker 1: Do you think ETFs, the growth of ETFs is here 179 00:09:20,000 --> 00:09:22,199 Speaker 1: to stay. Do you think we're going to see when 180 00:09:22,240 --> 00:09:24,520 Speaker 1: you suggested that we might see doubling in the next 181 00:09:25,000 --> 00:09:28,040 Speaker 1: few years. What is it about ETFs that people like 182 00:09:28,120 --> 00:09:29,360 Speaker 1: so much? 183 00:09:29,640 --> 00:09:34,400 Speaker 3: I honestly believe ETFs are around forever and will continue 184 00:09:34,440 --> 00:09:34,839 Speaker 3: to grow. 185 00:09:35,000 --> 00:09:36,559 Speaker 2: I think the. 186 00:09:36,559 --> 00:09:39,959 Speaker 3: Reason why ETFs are so popular is it's such an 187 00:09:40,080 --> 00:09:43,600 Speaker 3: easy thing to buy and sell on market. It provides 188 00:09:43,720 --> 00:09:48,439 Speaker 3: instant diversification and access to markets that are pretty hard 189 00:09:48,480 --> 00:09:51,720 Speaker 3: to access, you know, like it's a lot easier these days. 190 00:09:51,720 --> 00:09:55,120 Speaker 3: So I guess access international shares. But if we only 191 00:09:55,200 --> 00:09:57,360 Speaker 3: just go back a few years Ego Sewan, you know 192 00:09:57,520 --> 00:09:59,920 Speaker 3: that most of the brokers didn't even allow you to 193 00:10:00,200 --> 00:10:03,560 Speaker 3: to trade international shares. Then you've got the bend forty 194 00:10:03,600 --> 00:10:06,200 Speaker 3: forms and you know all the tax implications of trading 195 00:10:06,559 --> 00:10:10,520 Speaker 3: direct international shares. If you can actually buy them through 196 00:10:10,800 --> 00:10:13,320 Speaker 3: an ETF that's listed on the Australian Stock has change 197 00:10:13,400 --> 00:10:14,600 Speaker 3: is domicilde in Australia. 198 00:10:14,800 --> 00:10:16,400 Speaker 2: You don't have all those tax problems. 199 00:10:16,600 --> 00:10:19,800 Speaker 3: It's access and the ease I reckon that makes ETFs 200 00:10:19,840 --> 00:10:21,800 Speaker 3: and diversification and low fees. 201 00:10:22,040 --> 00:10:24,320 Speaker 2: You know, they're the number of these ETFs are on 202 00:10:24,480 --> 00:10:27,440 Speaker 2: four basis points. I mean, that's crazy. 203 00:10:27,800 --> 00:10:31,840 Speaker 3: Most fund managers charge probably one to one point two. 204 00:10:32,440 --> 00:10:34,640 Speaker 2: You know, that's come down a lot in You know, when. 205 00:10:34,480 --> 00:10:36,640 Speaker 3: I first started this business, they were like two three 206 00:10:36,679 --> 00:10:40,880 Speaker 3: percent entry fees of four to eight percent. So ETFs 207 00:10:40,920 --> 00:10:43,040 Speaker 3: are I think are very much here to stay. 208 00:10:43,520 --> 00:10:45,120 Speaker 1: Ron, thank you for talking to Fear and Greed. 209 00:10:45,640 --> 00:10:47,200 Speaker 2: Thank you very much Sean for having us. 210 00:10:47,440 --> 00:10:50,400 Speaker 1: That was Ron Hodge Group, CEO of Investment. This is 211 00:10:50,440 --> 00:10:52,839 Speaker 1: the Fear and Greed Business Interview. Remember this is general 212 00:10:52,840 --> 00:10:55,760 Speaker 1: information only and you should seek professional advice before making 213 00:10:55,800 --> 00:10:58,840 Speaker 1: investment decisions. Join us every morning for the full episode 214 00:10:58,840 --> 00:11:00,600 Speaker 1: of Fear and Greed. Business News is for people who 215 00:11:00,640 --> 00:11:05,040 Speaker 1: make their own decisions. I'm shanelma. Enjoy your day.