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Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm

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Speaker 1: James Kirby, the editor at The Australian. Yeah, welcome aboard everybody.

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Speaker 1: Just before we start today's show, I want to just

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Speaker 1: deal with something. Thank you everybody who contacted us through

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Speaker 1: the email of the Money Puzzle at the Australian dot

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Speaker 1: com dot au in the last few days about the

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Speaker 1: fire movement. I knew there would be a response. It's

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Speaker 1: funny it took a week or two rather than a

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Speaker 1: day or two, but here they come, and lots of

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Speaker 1: correspondents and questions about the fire movement, and fair enough

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Speaker 1: a few people saying, well, you know, James Gerard was

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Speaker 1: on basically offering a critique of the fire movement and

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Speaker 1: the fire movement financial independence, retire early movement. They should

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Speaker 1: have the right to come on and give their side

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Speaker 1: of the story, which they certainly do, and I will

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Speaker 1: do that. Just give me a chance to There's two things.

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Speaker 1: First of all, I've got to find some time to

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Speaker 1: get them on the show. And I have to choose

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Speaker 1: who the spokesman, the most appropriate spokesperson might be for

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Speaker 1: the farm movement. So we will sort that out asap.

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Speaker 1: All right, okay, speaking about the email box every day

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Speaker 1: without failure. There are questions about exchange traded funds ETFs.

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Speaker 1: It's easily the top subject. And I'm not surprised because

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Speaker 1: exchange traded funds have become a gateway to the market,

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Speaker 1: particularly for people who are starting investing early investors. But

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Speaker 1: just as easily they are very popular with can I

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Speaker 1: call them sophisticated investors, experienced investors who have a kind

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Speaker 1: of what they call a core and satellite approach, so

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Speaker 1: they have ETFs to cover off certain areas of investing.

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Speaker 1: It might be the American share market, or it might

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Speaker 1: be bonds, or it might be emerging markets or whatever.

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Speaker 1: And they have become so popular, of course, understandably, just

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Speaker 1: as I'm starting to understand them, and just as i

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Speaker 1: think I've imparted what you need to know about them,

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Speaker 1: of course, they're shifting. Goalposts are shifting as to what

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Speaker 1: they actually are. So I've had a few people on

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Speaker 1: the show before about ETFs, always to good response. So

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Speaker 1: we've had Robin Bowerman from Vanguard, We've had David Bassenesi

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Speaker 1: from Beta Shares, and today my guest is from the

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Speaker 1: Global x Group. Global X You may not know, but

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Speaker 1: what's upon a time they were called ETF and that

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Speaker 1: was an organization which launched the first the original of

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Speaker 1: the species, the first ever ETF in Australia which I

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Speaker 1: remember reporting upon at the time. I think it was

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Speaker 1: Downtel ninety seven and it was a goal DTF, which

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Speaker 1: remains the biggest goal DTF in the market, about three

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Speaker 1: and a half billion in the market today. Looking over all,

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Speaker 1: that is Mark Jocum, he is at the global X Group,

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Speaker 1: is an investment strategist there.

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Speaker 2: How are you Mark, Hi, James, thanks so much for

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Speaker 2: having me on the show. Really looking forward to it.

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Speaker 1: Did I get the history right?

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Speaker 2: There?

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Speaker 1: Was it ninety seven?

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Speaker 2: So we launched the first gold ETF in two thousand

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Speaker 2: and three, but we started looking at the first ETF

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Speaker 2: came in nineteen ninety one in Canada. But yes, as

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Speaker 2: you alluded to, Australia, we were the first country to

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Speaker 2: launch a gold exchange traded product. And we've seen a

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Speaker 2: range of gold ETFs come after that, but we were

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Speaker 2: the first. And yeah, we're now we're recording this twenty

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Speaker 2: twenty four, so yeah, twenty one years we've been in

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Speaker 2: the market with it.

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Speaker 1: And money pouring into that one at the moment, I expect.

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Speaker 2: Yeah, I mean, we've seen a lot of interest within

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Speaker 2: gold exchange traded funds, in particular around geopolitical risk. There

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Speaker 2: was inflation obviously, and also with interest rates coming down

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Speaker 2: that usually bodes quite well for the other medal. So

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Speaker 2: the last few months have been successive inflows into ETFs,

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Speaker 2: which contradicts the last you know, twelve to eighteen months,

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Speaker 2: which is actually funny enough been our flows. So it

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Speaker 2: just shows that even investors are investing into gold at

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Speaker 2: the all time highs at the moment because they wanted

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Speaker 2: for that defensive capability, yes.

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Speaker 1: Just to use that as a sort of proxy for

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Speaker 1: the whole area. So, I mean, et has a very

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Speaker 1: useful anyway, folks, because you can buy, as I say,

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Speaker 1: you can buy the American share market, or you can

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Speaker 1: buy the European share market. You can buy emerging markets

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Speaker 1: or bonds, which what it doesn't gives access to people.

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Speaker 1: There was most people still never buy bonds, but it

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Speaker 1: was a way in. I don't know if it's the

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Speaker 1: best way in. We haven't time to talk about that,

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Speaker 1: but it's a way in. And similarly with gold, I mean,

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Speaker 1: really the people who were gold investors. They had gold

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Speaker 1: bars and they had them in vaults, and they paid

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Speaker 1: an awful lot to keep those bars insured and all

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Speaker 1: that sort of thing, and it was very difficult and

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Speaker 1: you really had to be either a bit obsessional or

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Speaker 1: very wealthy to have gold up until this CTF was launched.

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Speaker 1: So it's a good example really of how they did

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Speaker 1: change everything. And I'm want to begin with something. I'm

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Speaker 1: going to begin by giving you a free kick mark,

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Speaker 1: but it's worth introducing to people why ETFs have been successful.

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Speaker 1: And we know that they are at their best they're

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Speaker 1: simple and low fee, but also there was a habit

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Speaker 1: what was upon a time you could only buy an

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Speaker 1: Australian investor every day investor could only buy funds in

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Speaker 1: the way of managed funds, and there was big fund

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Speaker 1: houses Platinum and Perpetual and Magellan, and they were all

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Speaker 1: big names and they have all in various ways, faded

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Speaker 1: rapidly and shrunk. And one of the reasons you've put

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Speaker 1: to me is what they call closet indexing. Explain what

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Speaker 1: that is and the critique that your industry, the ETF

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Speaker 1: industry has about closet indexing.

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Speaker 2: Yeah, it's a really interesting phenomenon, James, where you've got

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Speaker 2: this idea of closet indexing, which is just another way

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Speaker 2: to describe fund managers who are masquerading themselves as active

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Speaker 2: fund managers, but their portfolios closely resemble index funds. And

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Speaker 2: I think that's really important now with the polariferation of ETFs,

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Speaker 2: that investors actually look under the hood of their active

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Speaker 2: manager to see what are the underlying holdings. Are they

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Speaker 2: traditionally different from a benchmark or an index ETF, because

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Speaker 2: if you look at some of the top fund managers

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Speaker 2: out there, a lot of them have very similar holdings

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Speaker 2: in terms of you know, when you look at the

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Speaker 2: top ten holdings to a low cost index ETF, the

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Speaker 2: only difference with them is they charge significantly higher fees,

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Speaker 2: and usually just the simple arithmetic of the share market

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Speaker 2: is they normally underperform by the amount of their fees.

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Speaker 2: So I think not necessarily saying that the likes of

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Speaker 2: you know, Magellan and Perpetual were closet indexes per se,

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Speaker 2: but I think the key push is that investors really

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Speaker 2: push for greater transparency from their fund managers.

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Speaker 1: So what you're saying is that once upon a time

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Speaker 1: or still I go when I buy a fund, it's

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Speaker 1: called the Australian Share Funded, it's from white Box managers

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Speaker 1: and it's a managed fund. And when I look inside,

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Speaker 1: I find that the top stocks are the four banks,

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Speaker 1: the big two miners, calls and worldwords, et cetera. And

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Speaker 1: then you're saying to me, why did you just buy

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Speaker 1: an ETF on the Australian share markets. It's got much

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Speaker 1: lower fees. It's going to outperform active managers invariably. That is,

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Speaker 1: it's going to do better anyway nine times out of ten.

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Speaker 1: And on top of that, if you look inside the ETF,

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Speaker 1: it's going to have the big four banks, the big

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Speaker 1: two miners, and the big two supermarkets. So why bother

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Speaker 1: go to the active person if they're not being active?

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Speaker 1: This is this? The point is that. Okay, that's the

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Speaker 1: point you're making. Now here's the thing. That's all fine,

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Speaker 1: and I don't disagree with it for one minute. More recently,

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Speaker 1: do you act globalix do you offer active ETFs?

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Speaker 2: So within Australian business, no, we don't offer active ETFs.

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Speaker 2: We have traditionally been index based ETFs and all that

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Speaker 2: is it follows just a rules based methodology to classify

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Speaker 2: a particular investment. That being said, we have seen a

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Speaker 2: range of different active ETFs come to the market as well,

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Speaker 2: which I'm happy to dive into as well.

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Speaker 1: So just to clear the air for everybody. So for

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Speaker 1: a long time, an ETF was always the same thing.

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Speaker 1: It was an index. So if you boat the Vanguard

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Speaker 1: or Better Shares or Global X, American Wall Street SMP

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Speaker 1: index fund, you were buying the S and P. Every

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Speaker 1: single stock in it was represented in that fund proportionately

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Speaker 1: as they are on the actual market. It's very easy

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Speaker 1: to understand, and it acted in a certain way. Now

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Speaker 1: more recently, whether I'm sure you're not going to rule

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Speaker 1: out doing active ETFs anyway, and a lot of your

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Speaker 1: competitors already offer them. James Gerard, who already triggered the

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Speaker 1: debate on the fire movement a few weeks ago, also said,

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Speaker 1: possibly on that same show, that I found this really

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Speaker 1: interesting that the new style active ETFs, where an ATF,

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Speaker 1: for instance, will give it a good easy example electric

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Speaker 1: car ETF right where they simply say we're going to

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Speaker 1: buy a bunch of e let to car stocks, choose

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Speaker 1: them for you, and then we're going to let that

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Speaker 1: run and you can see how it goes. He said

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Speaker 1: that traditionally tfs like you've just been talking about that

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Speaker 1: dominate your company and your offerings. That they beat active

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Speaker 1: ETFs just like they beat active fund managers. Is that

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Speaker 1: the case?

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Speaker 2: I think when it comes to this whole active versus

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Speaker 2: passive it really depends on one in investors timeframe. Because

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Speaker 2: the one thing you see, James, is some active fund

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Speaker 2: managers can be passive over the short term, but over

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Speaker 2: the long term it's a really different story.

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Speaker 1: But do you know, do active ETFs are they beaten

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Speaker 1: by passive btfs?

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Speaker 2: Is there a need to suggest that, Yeah, majority of

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Speaker 2: the time they are.

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Speaker 1: Okay, just hold that thought. Why do they offer activetfs

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Speaker 1: if the industry knows that passive btfs would beat them.

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Speaker 2: It's about distribution at the end of the day, James.

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Speaker 2: So a lot of active ETFs have seen, or active

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Speaker 2: managers have seen the flight of money that's even unlisted

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Speaker 2: managed funds and going into the ETF rapper. So for them,

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Speaker 2: it's really about distribution because people want the transparency of

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Speaker 2: an ETF, they want the liquidity of the ETF, and

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Speaker 2: they want the tax efficiency of an ETF. They've seen

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Speaker 2: a lot of success, particularly the Australian active fund managers

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Speaker 2: have seen the success of the US and their ETF market,

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Speaker 2: where around about a third of the flows in the

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Speaker 2: US ETF market are going to active funds. But just

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Speaker 2: because you know it looks like an ETF and it

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Speaker 2: acts like an ETF doesn't mean that naturally money's going

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Speaker 2: to go towards it. And you've actually seen outflows come

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Speaker 2: from active ETFs, so you're right, there has been a

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Speaker 2: barrage of new ETFs. In fact, last year over half

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Speaker 2: of the new ETFs were active ETFs. They around they

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Speaker 2: account for around about thirty percent of the market, but

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Speaker 2: they're not seeing the same level of flows, which is

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Speaker 2: really interesting.

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Speaker 1: Okay, so you're saying it was a response basically to

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Speaker 1: customer demand, that this was offered by the industry. But

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Speaker 1: having said that, it's really worth hearing this, folks, active

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Speaker 1: ETF beaten by passivelytfs. I have to say that I

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Speaker 1: don't know why I certainly would ever buy an active

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Speaker 1: ETF ever if they are beaten by pacive tfs. I

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Speaker 1: just don't see why you would tell me I'm wrong.

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Speaker 1: Let's hear from you. I can be intellectually seduced by

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Speaker 1: arguments you know about various market weighted ETFs, et cetera,

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Speaker 1: et cetera. But in the end, aren't you being seduced

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Speaker 1: by the old fashioned notion that someone is going to

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Speaker 1: be smarter than the market.

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Speaker 2: But the harsh reality is of the fund managers who

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Speaker 2: can actively outperform, you know, very few can do it,

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Speaker 2: and over a long period of time, only one to

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Speaker 2: two percent of them can do it for multiple periods.

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Speaker 2: So even if you can pick the active fund manager

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Speaker 2: in one year, doesn't mean that they are necessarily going

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Speaker 2: to perform in the other year. And you know, twenty

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Speaker 2: twenty three was a great year where you know, there

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Speaker 2: was meant to be market volatility, which seemed favorable for

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Speaker 2: active managers, And funnily enough, research actually indicates that the

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Speaker 2: optimal conditions for their outperformance is actually low volatility, which

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Speaker 2: is contrary to belief, high correlations and this high stocks dispersions.

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Speaker 2: But that only occurs around about two percent of the

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Speaker 2: time when it comes to markets, So it's a you

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Speaker 2: really got to be quite picked that right point in

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Speaker 2: time and also pick the right fund manager. And the

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Speaker 2: harsh evidence says that index based investing has outperform active,

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Speaker 2: but investors do want that active piece, particularly if for

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Speaker 2: funds that have high active share, just to add a

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Speaker 2: bit of spice to the portfolio. So that's where a

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Speaker 2: lot of people are seeing the use of.

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Speaker 1: It to turn back their own hunt or back their

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Speaker 1: own instincts or whatever. When that comes up. Okay, very interesting.

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Speaker 1: We're going to take a break and we'll come back

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Speaker 1: and we'll talk. We're going to talk talk to Mark

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Speaker 1: about the ETF scene and how it's unfolding, where most

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Speaker 1: people put their money and what sort of trends he's

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Speaker 1: starting to distinguish in our market here in the Australian

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Speaker 1: see Okay, back in the moment. Hello, and welcome back

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Speaker 1: to the Australian's Money Puzzle. I'm James Kirby and I'm

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Speaker 1: talking to Mark Jolkom of the Global X Index Funds

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Speaker 1: and ETF Group, one of the big operators in the

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Speaker 1: local market for ETFs. Mark tell me, I look at

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Speaker 1: the figures. It seems to me most people once they've

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Speaker 1: bought their Australian share market ETF, what happens after that?

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Speaker 1: What does the data tell you? What do most people

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Speaker 1: do after that?

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Speaker 2: Well? Finding enough. This year, James, it has really been

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Speaker 2: about global shares, and I think that's the great use

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Speaker 2: of exchange traded funds is you know, you can buy

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Speaker 2: your Ossie stocks, you can buy your Aussie ETFs, but

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Speaker 2: global shares have actually really opened up access for investors

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Speaker 2: to gain access to leading global companies using a low

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Speaker 2: cost rapper like an ETF. And you've seen gradually over time.

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Speaker 2: You know, if I go back to when the ETF

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Speaker 2: market first started, it was really dominated by ozzie shares

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Speaker 2: and commodities, gold being one of them that we spoke

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Speaker 2: about earlier. But now the majority of the actual ETF

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Speaker 2: market is global shares, and that's because ETFs are used

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Speaker 2: as that vehicle for accessing these international opportunities. So far

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Speaker 2: this year, it's been very much a risk on sentiment, James,

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Speaker 2: where we've seen a lot of money coming out of

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Speaker 2: areas like cash and going into areas like global shares

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Speaker 2: because we've seen the rise of the dominance of some

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Speaker 2: of these developed markets like the US. Last year was

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Speaker 2: a little bit different, where we saw a lot more

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Speaker 2: flows going into bond ETFs, particularly within things like floating

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Speaker 2: rate notes. And I think that's your point James. The

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Speaker 2: beautiful thing about an ETF is your listeners and investors

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Speaker 2: can access all these different asset classes that were once

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Speaker 2: cumbersome or hard to get exposure to via a low

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Speaker 2: cost ETF to provide that access point.

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Speaker 1: Cumbersome the perfect world. I should have thought of that earlier,

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Speaker 1: that's right. We're talking about the gold like that was cumbersome,

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Speaker 1: that's for sure. Or as for buying bonds, I mean, really,

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Speaker 1: where would you start and how money would you have?

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Speaker 1: And you try to have a ladder of maturities and

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Speaker 1: you know, we always had to do a short course

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Speaker 1: about how to even start. Okay, talking then about this

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Speaker 1: area of offshore. So you're telling me that the big

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Speaker 1: trend among Australian investors in their use of index funds

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Speaker 1: in ETFs is to buy global markets. Okay, what did

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Speaker 1: they buy? I'm guessing Wall Street, Nasdaq and then maybe

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Speaker 1: a global fund. But the global funds are going to

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Speaker 1: be seventy percent Wall Street anyway, aren't they Exactly?

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Speaker 2: And that's why a lot of you're seeing a lot

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Speaker 2: more this year is just going towards your general broad

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Speaker 2: market low cost ETFs. So you think about your entire

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Speaker 2: world access products but also some countries are becoming a

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Speaker 2: bit more popular. US is one area that a lot

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Speaker 2: of people want exposure to due to the Magnificent seven stocks,

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Speaker 2: but there's other regional pockets, like we're seeing a bit

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Speaker 2: of interest in Europe, We're seeing a lot more in India.

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Speaker 2: India is a very interesting one because it's almost going to,

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Speaker 2: you know, take over the lead of China and their

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Speaker 2: Merging Markets Index. Most of the flows are still going

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Speaker 2: towards your broad based, diversified ETFs, covering very broad market exposure,

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Speaker 2: and I think that's a very sensible way for a

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Speaker 2: majority of people to invest. But then they can take

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Speaker 2: a bit more tactical views, you know, if you want

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Speaker 2: to go into a particular country, a particular style, a

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Speaker 2: particular thematic. You know, a lot of people have been

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Speaker 2: talking about investing in things like copper uranium. You can

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Speaker 2: get very esoteric investment at exposure via an ETF, which

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Speaker 2: is such a great way for investors instead of having

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Speaker 2: to worry about pick all these stocks, especially if you're

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Speaker 2: trading international stocks. You don't want to have to open

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Speaker 2: up a brokerage account, change your Aussie dollars into US dollars,

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Speaker 2: handle all the paperwork and ETF.

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Speaker 1: Really, jenk Cluck, give us an example of what in

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Speaker 1: terms of those thematic ETFs or specialized ETFs. Is there

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Speaker 1: one in particular that's getting inflows at the moment.

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Speaker 2: Yeah, we're seeing a lot of interest within our copper

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Speaker 2: miners ETF. The TIC code for that is wire wire.

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Speaker 2: The reason for that, James, is everyone knows copper is

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Speaker 2: an incredibly important part of the global economy. It used

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Speaker 2: to be a bit of a proxy for what's going

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Speaker 2: on with economic activity. But it's slowly.

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Speaker 1: Transitioning doctor copper.

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Speaker 2: Yeah, doctor copper they called it. But it's slowly transitioning

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Speaker 2: into this secular commodity that's going to be driven by electrification, urbanization,

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Speaker 2: the rise of artificial intelligence. Because copper is used in

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Speaker 2: a lot of things. When you talk about renewable energy,

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Speaker 2: it's used in building things like wind turbines, solar panels.

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Speaker 2: If you look at data centers which are powering this

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Speaker 2: AI revolution, they require per gigawat of data, they require

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Speaker 2: sixty five thousand tons of copper. So if you're talking

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Speaker 2: about the use of AI and the electric cars, of

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Speaker 2: course exactly. So electric cars is a good example where

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Speaker 2: compared to an internal combustion engine, it requires four times

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Speaker 2: the amount of copper to use. So people are starting

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Speaker 2: to understand this broad case for copper, and it's predicted

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Speaker 2: to be in deficit for over the medium term as well,

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Speaker 2: which bodes quite well for the price. And a lot

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Speaker 2: of ossies wanting to get exposure to copper tend to

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Speaker 2: invest just in the Australian miners, and we've seen the

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Speaker 2: likes of BHP. They had a bit when it came

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Speaker 2: to some of the global companies. They've just sent up

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Speaker 2: a jo venture with London, which is a company that's

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Speaker 2: ly ETF, but there's a global range of companies that

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Speaker 2: investors maybe missing out on.

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Speaker 1: The BHP in there results clearly shifting towards copper, as

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Speaker 1: you say, the commodity of the future. Okay, Can I

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Speaker 1: just ask you though about the ETF whether they're specialized

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Speaker 1: or whether they're broadbrushed, so whether you're talking about a

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Speaker 1: copper ETF or an electric car RETF or a Wall

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Speaker 1: Street ETF. One of the things that's a criticism of ETFs,

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Speaker 1: and I'm not talking about some of the more sort

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Speaker 1: of arcade things that come up, but a very simple

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Speaker 1: one is that in buying everything, you buy all the rubbish,

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Speaker 1: and you buy all the bad stuff, and you buy

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Speaker 1: all the nasties, You buy all the ethically questionable, if

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Speaker 1: not downright dreadful companies. Because if I go and buy

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Speaker 1: a copper ETF, and it has a eighty seven or

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Speaker 1: eight hundred and seventy copper mining companies in there, and

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Speaker 1: it must buy everything that's on the market. By definition,

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Speaker 1: its promises to buy everything, so it must buy everything,

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Speaker 1: and that means it was also buy some pretty bad

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Speaker 1: companies that you would never buy ever, but you must

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Speaker 1: because it's an ETF. Is that a faiting of ETFs?

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Speaker 2: I think so, but I don't know if it's more

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Speaker 2: a bug or a feature, James, because the good thing

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Speaker 2: about an ETF is you're kind of expressing the view

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Speaker 2: of that intellectual humility that you don't really know who

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Speaker 2: are going to be the winners and losers. And naturally,

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Speaker 2: particularly the ETFs that weight the stocks by size or

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Speaker 2: by market cap, the market does a pretty good job

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Speaker 2: at kind of distilling all the information out in the

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Speaker 2: market to accurately price these particular securities. And I think

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Speaker 2: it's actually quite good to get exposure even though You're right,

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Speaker 2: there are a bunch of junk stocks that can come

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Speaker 2: into an index, but naturally the bigger players are going

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Speaker 2: to have a larger weight in your portfolio. So if

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Speaker 2: you didn't have exposure to some of the magnificent seven stocks,

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Speaker 2: you probably would have underperformed the market. And the harsh

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Speaker 2: reality is sixty seven percent of stocks underperform a basic

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Speaker 2: market index.

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Speaker 1: Yeah, it disputed to me, And that's an argument, a

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Speaker 1: very strong open on the business of price. But is

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Speaker 1: there any ethical dimension here, like, for instance, you think

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Speaker 1: ETFs should have more of a rule and voting, etc.

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Speaker 2: Yeah, I mean that gets into the political nature around ETFs,

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Speaker 2: and they are becoming a greater part of the global

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Speaker 2: share market. You're seeing that companies in the US ETF

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Speaker 2: issuers are starting to think about, well, how can they

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Speaker 2: actually outsource the proxy voting to all their individual investors,

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Speaker 2: Which is a very interesting topic because when you invest

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Speaker 2: in an ETF, you're really outsourcing that to the ETF

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Speaker 2: managers who uses an investment steward to vote on shareholders.

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Speaker 2: Behalf that being said, I don't know how many people

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Speaker 2: actually do want to vote when they go to the

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Speaker 2: meeting of a particular company, and especially if you're owning

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Speaker 2: a broad market ETF that holds hundreds of companies, going

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Speaker 2: to all the individual meetings and voting on them. Some

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Speaker 2: people will, especially some that have strong for instant sustainability

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Speaker 2: views ESG views, but for the vast majority they just

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Speaker 2: want low cost exposure. But I do see that as

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Speaker 2: a way of innovating in terms of ETFs, providing more access,

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Speaker 2: more choice and proxy voting is particularly an area that

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Speaker 2: could see some development in the ETF market.

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Speaker 1: All right, believe that that we will be back in

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Speaker 1: the moment, folks, I've got I have pre selected curative

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Speaker 1: a couple of questions strictly from our audience, strictly on ETFs.

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Speaker 1: So perhaps we will get through some of the questions

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Speaker 1: that have been boiling up at the money person in

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Speaker 1: recent times. Okay, back in a moment, Hello and welcome

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Speaker 1: back to the Australians Money Puzzle podcast. I'm James Kirby

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Speaker 1: with Mark Jocum of the Global X groupies the investment

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Speaker 1: strategists there now, Mark, these questions are several of them

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Speaker 1: willfully break our golden rule of keeping questions short. I

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Speaker 1: don't know how I can shorten some of them. But

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Speaker 1: if you bear with me, I'll just try and go

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Speaker 1: through them, and I'll try and paraphrase to the extent

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Speaker 1: I can without losing the nature of the question. I'll

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Speaker 1: just take an easy one for us from Adam. Dear James,

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Speaker 1: can you outline what is meant by an open ended ETF,

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Speaker 1: How do such open ended ETFs adjust their prices to

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Speaker 1: reflect underlying assets? And is there such a thing as

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Speaker 1: a closed ENDTF? Okay, Mark Jocom investment strategist. What's an

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Speaker 1: open ended DTF and is there a closed ended one? Yeah?

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Speaker 2: So great question, Adam. Very simply, open ended just means

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Speaker 2: that units can be created or destroyed based on the

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Speaker 2: underlying demand. So when there's demand for a particular product,

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Speaker 2: to the fact that it's open ended means that these

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Speaker 2: market makers or authorized participants can come in and either

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Speaker 2: create new units or end up redeeming units. And the

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Speaker 2: reason why open ended is important is because and your

432
00:23:03,640 --> 00:23:06,280
Speaker 2: other question was around how it's reflected based on the NAV,

433
00:23:06,680 --> 00:23:09,080
Speaker 2: is that the price of the ETF will track very

434
00:23:09,080 --> 00:23:11,399
Speaker 2: closely to the net asset value the NAV or the

435
00:23:11,480 --> 00:23:13,760
Speaker 2: NAV due to the actions of these big banks and

436
00:23:13,800 --> 00:23:16,960
Speaker 2: these market makers and authorized participants. Because if there's a

437
00:23:16,960 --> 00:23:20,000
Speaker 2: difference between the price of an ETF and the NAVE

438
00:23:20,160 --> 00:23:23,119
Speaker 2: of an ETF the net asset value, that's an arbitrage

439
00:23:23,119 --> 00:23:26,280
Speaker 2: opportunity for these very smart institutions to actually make some

440
00:23:26,320 --> 00:23:29,000
Speaker 2: money in terms of either buying or selling the underlying

441
00:23:29,040 --> 00:23:32,359
Speaker 2: ETF versus the security. So if an ETF price trades

442
00:23:32,400 --> 00:23:34,760
Speaker 2: at a discount to it's a net asse of value.

443
00:23:34,880 --> 00:23:37,159
Speaker 2: The market maker will go in buy the ETF and

444
00:23:37,160 --> 00:23:39,199
Speaker 2: then sell the underlying to profit the difference, And that

445
00:23:39,240 --> 00:23:42,720
Speaker 2: way attracts close to NAV And then your other question

446
00:23:42,920 --> 00:23:45,879
Speaker 2: was around are they close ended ETFs. The answer is

447
00:23:46,000 --> 00:23:48,320
Speaker 2: yes they are, but they're not called ETFs. They called

448
00:23:48,359 --> 00:23:51,359
Speaker 2: list in investment companies or licks. So these are different.

449
00:23:51,359 --> 00:23:53,119
Speaker 2: Where these are similar in terms of the fact that

450
00:23:53,160 --> 00:23:55,119
Speaker 2: they do expose to a broad out their clalth.

451
00:23:55,440 --> 00:23:56,959
Speaker 1: I don't want to go down this kind of rabbit hole.

452
00:23:56,960 --> 00:23:59,440
Speaker 1: But l I see isn't identical to an DF. I

453
00:23:59,480 --> 00:24:02,440
Speaker 1: mean they select the now shares their wish. Isn't that right?

454
00:24:02,480 --> 00:24:05,440
Speaker 1: Why the ETF doesn't select them? It literally takes what's

455
00:24:05,480 --> 00:24:05,920
Speaker 1: on the board.

456
00:24:06,000 --> 00:24:08,879
Speaker 2: Yeah, And I think the main one is around the

457
00:24:08,920 --> 00:24:11,120
Speaker 2: structure of them. There's only a fixed pool of capital,

458
00:24:11,160 --> 00:24:12,880
Speaker 2: so there's only a fixed amount of shares out there.

459
00:24:12,960 --> 00:24:15,440
Speaker 2: The reason that some of them trade at a large

460
00:24:15,480 --> 00:24:18,680
Speaker 2: discount to their NTAA, or sometimes they trade at a premium,

461
00:24:18,800 --> 00:24:20,800
Speaker 2: is because there is no market maker. There is no

462
00:24:20,920 --> 00:24:24,359
Speaker 2: authorized participants that are creating and redeeming these shares. And

463
00:24:24,400 --> 00:24:26,760
Speaker 2: I think that managers don't really have an incentive to

464
00:24:26,760 --> 00:24:28,520
Speaker 2: close that discount because at the end of the day,

465
00:24:28,760 --> 00:24:31,040
Speaker 2: it's a closed pool of capital. They collect the fees,

466
00:24:31,080 --> 00:24:32,680
Speaker 2: so why would they want to close the discount.

467
00:24:32,760 --> 00:24:36,040
Speaker 1: Okay, we're very popular and remain popular, but there was

468
00:24:36,080 --> 00:24:38,320
Speaker 1: a period for the lic was the nearest thing in

469
00:24:38,359 --> 00:24:41,080
Speaker 1: some ways to They were more than a managed fund,

470
00:24:41,520 --> 00:24:44,280
Speaker 1: and they were very They were invented but way back

471
00:24:44,320 --> 00:24:46,639
Speaker 1: and some very big ones stood in the market. AFIC

472
00:24:46,760 --> 00:24:49,400
Speaker 1: and I'll go out of Adelaide, which was once connected

473
00:24:49,400 --> 00:24:51,960
Speaker 1: with Sardan Brandtman and he was on the board of

474
00:24:51,960 --> 00:24:54,080
Speaker 1: our that they tell us about that every time we

475
00:24:54,200 --> 00:24:57,720
Speaker 1: talked to them, and they remain popular. Some people see

476
00:24:57,720 --> 00:25:01,280
Speaker 1: them as a use for the Wilson Group has some

477
00:25:01,560 --> 00:25:06,800
Speaker 1: They remain an interesting variation on the managed fund where

478
00:25:06,840 --> 00:25:11,440
Speaker 1: you are using the brain power of some leading managers

479
00:25:11,480 --> 00:25:14,600
Speaker 1: to pickstocks, but then the vehicle is a bit more

480
00:25:14,680 --> 00:25:17,520
Speaker 1: useful than than some straight managed funds. Okay, we'll leave

481
00:25:17,520 --> 00:25:19,560
Speaker 1: that to one side for the moment. I think that

482
00:25:19,640 --> 00:25:23,680
Speaker 1: answers your question, Adam. That's open ended ets. That's basically

483
00:25:23,680 --> 00:25:26,119
Speaker 1: how they work. That was the part of the magic

484
00:25:26,200 --> 00:25:30,359
Speaker 1: of these products that were all created once upon a time.

485
00:25:30,920 --> 00:25:33,600
Speaker 1: Go back to a man called Jack Bogel bog l

486
00:25:33,640 --> 00:25:35,720
Speaker 1: E who was the sort of godfather of all this

487
00:25:36,119 --> 00:25:38,720
Speaker 1: and created Devant Guard group, and you can read all

488
00:25:38,760 --> 00:25:42,320
Speaker 1: about it. I'm sure somewhere all right, question from yogesh

489
00:25:42,840 --> 00:25:48,000
Speaker 1: yog E s H. While looking in ETFs, I came

490
00:25:48,040 --> 00:25:52,720
Speaker 1: across a GEAR DTF. I'm unable to understand how they work?

491
00:25:52,760 --> 00:25:57,240
Speaker 1: Are you able to give the common understanding? Yes, of course,

492
00:25:57,440 --> 00:26:00,880
Speaker 1: I'm sure Mark Jocom would do that for you. Gear

493
00:26:01,040 --> 00:26:04,240
Speaker 1: Just to make it easy, folks, is course is an

494
00:26:04,240 --> 00:26:07,040
Speaker 1: index fund just like we're talking about. But they borrow

495
00:26:07,280 --> 00:26:09,920
Speaker 1: that's all. You don't get the negative gearing. That's the thing.

496
00:26:09,960 --> 00:26:11,760
Speaker 1: Of course, if you borrowed and bought the ET if

497
00:26:11,800 --> 00:26:13,879
Speaker 1: you'd get negative gearing. So you don't get it. So

498
00:26:13,920 --> 00:26:16,960
Speaker 1: maybe Mark would tell us all about that. Okay, would

499
00:26:16,960 --> 00:26:19,440
Speaker 1: you illuminate us their Mark.

500
00:26:20,760 --> 00:26:22,760
Speaker 2: Yeah, you're exactly right, James, and thanks to our guests

501
00:26:22,760 --> 00:26:26,000
Speaker 2: for the question. Geared ETFs pretty much use internal borrowing.

502
00:26:26,240 --> 00:26:28,080
Speaker 2: Saves you from having to go out to get a

503
00:26:28,080 --> 00:26:31,240
Speaker 2: margin loan to borrow to invest money. Sometimes the ETF

504
00:26:31,240 --> 00:26:33,679
Speaker 2: wrapper will do for you and the fund manager is

505
00:26:33,720 --> 00:26:36,560
Speaker 2: able to go out and get an institutional rate from

506
00:26:36,560 --> 00:26:38,560
Speaker 2: some of the large banks, they can get a loan

507
00:26:38,800 --> 00:26:41,600
Speaker 2: and they handle all the gearing process for you. There

508
00:26:41,640 --> 00:26:43,919
Speaker 2: is a difference with leverage gtfs, even though they may

509
00:26:43,960 --> 00:26:46,760
Speaker 2: see seen one and the same, where leverage gtfs use

510
00:26:46,800 --> 00:26:50,280
Speaker 2: a bit more financial magic by using derivatives like futures

511
00:26:50,280 --> 00:26:54,199
Speaker 2: contract to get magnified exposure, and that's what people who

512
00:26:54,359 --> 00:26:56,720
Speaker 2: invest in geared or leverage ETFs want. You want to

513
00:26:56,840 --> 00:26:59,600
Speaker 2: exposure that provides more to the market or less to

514
00:26:59,640 --> 00:27:02,160
Speaker 2: the market as well. So currently there's ETFs out there

515
00:27:02,160 --> 00:27:04,919
Speaker 2: that provide as little as about one point four times

516
00:27:04,960 --> 00:27:07,960
Speaker 2: the daily price of the actual index, but there's some

517
00:27:08,080 --> 00:27:09,879
Speaker 2: that are a little bit up the risk curve that

518
00:27:09,920 --> 00:27:13,240
Speaker 2: provide up to two point seven times the exposure to

519
00:27:13,280 --> 00:27:17,000
Speaker 2: the particular market. Good alternative for people who want exposure

520
00:27:17,200 --> 00:27:20,200
Speaker 2: to the market but in a magnified way and not

521
00:27:20,240 --> 00:27:22,560
Speaker 2: having to realize going to go get a margin loan

522
00:27:22,600 --> 00:27:24,840
Speaker 2: and they can access lower boring by going through a

523
00:27:24,840 --> 00:27:26,000
Speaker 2: gear or leverage GTF.

524
00:27:26,240 --> 00:27:29,240
Speaker 1: And what could go wrong with the lead forridged ETF

525
00:27:29,760 --> 00:27:31,280
Speaker 1: compared to a standard ETF.

526
00:27:31,680 --> 00:27:34,359
Speaker 2: Yes, so they are very risky just pointing out there

527
00:27:34,640 --> 00:27:37,520
Speaker 2: because they are really designed to achieve this multiple on

528
00:27:37,560 --> 00:27:40,359
Speaker 2: a daily basis, which means over the long term, even

529
00:27:40,400 --> 00:27:42,719
Speaker 2: though share markets go up because of this idea of

530
00:27:42,920 --> 00:27:46,760
Speaker 2: daily movements and daily rebalancing, it actually could if the

531
00:27:46,800 --> 00:27:50,080
Speaker 2: gearing ratio does fall outside that particular range can be

532
00:27:50,200 --> 00:27:53,960
Speaker 2: quite detrimental to investors. And I think that this idea

533
00:27:54,000 --> 00:27:57,639
Speaker 2: of this compounding effect of daily rebalancing can sometimes cause

534
00:27:57,800 --> 00:28:00,879
Speaker 2: people's you know, representation of what the ETF might do

535
00:28:00,920 --> 00:28:03,560
Speaker 2: over the long term. As an example, if you're invested

536
00:28:03,600 --> 00:28:05,439
Speaker 2: in a two times let's use a simple example, two

537
00:28:05,520 --> 00:28:07,320
Speaker 2: times leverage ETF, just.

538
00:28:07,160 --> 00:28:09,120
Speaker 1: Just to explain, mark two times. That means for every

539
00:28:09,160 --> 00:28:10,840
Speaker 1: dollar you put in, they borrow a.

540
00:28:10,800 --> 00:28:13,920
Speaker 2: Dollar exactly, So that's like exactly, so that's double the exposure.

541
00:28:14,080 --> 00:28:16,320
Speaker 2: So if the index is down five percent, your ETF

542
00:28:16,320 --> 00:28:18,320
Speaker 2: will probably be down ten percent on that day.

543
00:28:18,680 --> 00:28:22,240
Speaker 1: So it's everything's magnifies exactly, You're one hundred dollars is

544
00:28:22,240 --> 00:28:23,439
Speaker 1: now ninety dollars.

545
00:28:23,920 --> 00:28:26,120
Speaker 2: And let's say the market's up the next day, because

546
00:28:26,119 --> 00:28:29,080
Speaker 2: that's generally what happens. You know, large four days are

547
00:28:29,119 --> 00:28:32,560
Speaker 2: accompanied by large updates. So if the index it goes

548
00:28:32,640 --> 00:28:34,680
Speaker 2: up five percent, that means again the ETF will go

549
00:28:34,760 --> 00:28:36,800
Speaker 2: up ten percent that day. But if you think about it,

550
00:28:36,800 --> 00:28:39,640
Speaker 2: that ninety dollars going up ten percent is now ninety

551
00:28:39,720 --> 00:28:42,800
Speaker 2: nine dollars, so you're still down a dollar overall. And

552
00:28:42,880 --> 00:28:45,200
Speaker 2: this is this whole arithmetic is that over time in

553
00:28:45,200 --> 00:28:48,960
Speaker 2: the volatile market, these small differences can lead to larger deviations,

554
00:28:49,000 --> 00:28:52,720
Speaker 2: particularly magnified when you have leverage gtfs. So our view

555
00:28:52,760 --> 00:28:55,040
Speaker 2: is they should be short term trading tools and also

556
00:28:55,120 --> 00:28:57,360
Speaker 2: keep an eye on the borrowing. Ask your find manager

557
00:28:57,360 --> 00:28:59,920
Speaker 2: what the borrowing cost is versus the return on the shares.

558
00:29:00,200 --> 00:29:03,200
Speaker 1: Of the view, they should be short term tactical products,

559
00:29:03,240 --> 00:29:06,080
Speaker 1: I suppose as opposed to a long term I'm just

560
00:29:06,320 --> 00:29:09,800
Speaker 1: I'm geared thirty percent into the market forever. Yeah, okay,

561
00:29:10,000 --> 00:29:12,120
Speaker 1: very interesting. Well just leave it at that, thank you,

562
00:29:12,240 --> 00:29:16,480
Speaker 1: and I'm sure that was very useful to you your ges. Okay,

563
00:29:16,920 --> 00:29:20,560
Speaker 1: Declan says on a number of occasions recently, you have

564
00:29:20,600 --> 00:29:23,920
Speaker 1: suggested there is an inherent contradiction in investing in private

565
00:29:23,960 --> 00:29:27,600
Speaker 1: credit and private equity via the ASX are listed markets.

566
00:29:27,640 --> 00:29:31,400
Speaker 1: There isn't. Okay, just to context there, I continually say,

567
00:29:31,480 --> 00:29:33,960
Speaker 1: and I'm sorry, Declan, I'm going to say it continually

568
00:29:34,640 --> 00:29:39,760
Speaker 1: that accessing on listed assets through a listed vehicle, which

569
00:29:39,840 --> 00:29:43,680
Speaker 1: can crash with the share market crash, I find contradictory.

570
00:29:43,720 --> 00:29:48,600
Speaker 1: But I'm happy to hear new views. So Declan says, additionally,

571
00:29:48,680 --> 00:29:53,360
Speaker 1: ETFs themselves can invest in nonlisted assets, including real estate,

572
00:29:53,440 --> 00:29:57,040
Speaker 1: private equity, gold, and so on. There you are, he says,

573
00:29:57,040 --> 00:30:01,160
Speaker 1: there's no contradiction there. Now that's good. That test. I'm

574
00:30:01,200 --> 00:30:04,720
Speaker 1: interested in what he says there. It is testing. It

575
00:30:04,800 --> 00:30:08,200
Speaker 1: is testing my bias, if you like. Because the gold

576
00:30:08,240 --> 00:30:12,920
Speaker 1: ETF from anybody, including the original one which was created

577
00:30:12,960 --> 00:30:17,200
Speaker 1: by it just so happens global X and Marx from them.

578
00:30:17,440 --> 00:30:19,560
Speaker 1: It allows you to buy a physical asset in pay

579
00:30:19,560 --> 00:30:22,640
Speaker 1: per form. So let's just test this. But let's say

580
00:30:22,640 --> 00:30:29,120
Speaker 1: there was a crash and almighty nineteen twenty nine like

581
00:30:29,160 --> 00:30:34,840
Speaker 1: share market crash, and everything crashed with it, including gold dtfs,

582
00:30:34,880 --> 00:30:37,000
Speaker 1: and then everybody wanted to get their money out at

583
00:30:37,000 --> 00:30:41,680
Speaker 1: the same time from the gold DTF. Could I'm not

584
00:30:41,680 --> 00:30:44,080
Speaker 1: talking about you, Mark, I'm just talking about the ETF industry.

585
00:30:45,040 --> 00:30:51,320
Speaker 1: Could it produce the Could it get the gold and

586
00:30:51,400 --> 00:30:54,800
Speaker 1: sell the gold dollar for dollar that's represented by every

587
00:30:54,800 --> 00:30:57,200
Speaker 1: piece of paper out there on listed ETFs.

588
00:30:58,080 --> 00:31:00,600
Speaker 2: Yes, So, I mean it's a great question as that.

589
00:31:00,960 --> 00:31:02,959
Speaker 1: That yes they can or yes, it's a good question.

590
00:31:03,280 --> 00:31:05,080
Speaker 2: No, it is a good question because at the end

591
00:31:05,080 --> 00:31:07,720
Speaker 2: of the day, ETFs only account for a small part

592
00:31:07,800 --> 00:31:09,880
Speaker 2: of the overall market. If there is going to it

593
00:31:09,960 --> 00:31:11,520
Speaker 2: is growing. So if there's going to be a crash,

594
00:31:11,560 --> 00:31:13,120
Speaker 2: it's not just going to be the ETFs that are selling.

595
00:31:13,200 --> 00:31:16,480
Speaker 2: It's going to be active fund managers selling institutions Selling gold.

596
00:31:16,520 --> 00:31:19,680
Speaker 2: Is quite interesting because gold isn't just you know, speculators

597
00:31:19,720 --> 00:31:22,400
Speaker 2: or investors using gold. A lot of people use gold

598
00:31:22,400 --> 00:31:25,760
Speaker 2: for industrial use, central banks use them for their reserves.

599
00:31:25,840 --> 00:31:28,200
Speaker 2: So there could be buyers on the other side. But

600
00:31:28,280 --> 00:31:30,400
Speaker 2: the great thing about an ETF is if people do

601
00:31:30,480 --> 00:31:32,680
Speaker 2: want to sell, well, you've got that liquidity over there.

602
00:31:32,720 --> 00:31:35,760
Speaker 2: Even though it is considered to be an unlisted asset,

603
00:31:35,920 --> 00:31:38,360
Speaker 2: it's a highly liquid market. So there's always buyers and

604
00:31:38,400 --> 00:31:40,440
Speaker 2: sellers and in fact, the gold market is actually a

605
00:31:40,480 --> 00:31:42,520
Speaker 2: lot more liquid than some share markets out there because

606
00:31:42,520 --> 00:31:44,080
Speaker 2: it's so heavily traded globally.

607
00:31:44,480 --> 00:31:46,880
Speaker 1: Just Win, I think it probably does test the theory.

608
00:31:46,920 --> 00:31:51,200
Speaker 1: It does test the bias that on listed assets are

609
00:31:51,200 --> 00:31:55,200
Speaker 1: sort of uncomfortably placed sometimes in this listed markets.

610
00:31:55,440 --> 00:31:57,680
Speaker 2: And I think James your point around the unlisted assets

611
00:31:57,680 --> 00:32:01,360
Speaker 2: particularly you know, definitely mentioned around private assets or private

612
00:32:01,360 --> 00:32:04,040
Speaker 2: creative private equity. We haven't seen a lot of you know,

613
00:32:04,120 --> 00:32:06,720
Speaker 2: private creator going through a default cycle because a lot

614
00:32:06,760 --> 00:32:09,760
Speaker 2: of them came during we're pretty much post the two

615
00:32:09,760 --> 00:32:12,160
Speaker 2: thousand and eight, two thousand and nine GFC because banks

616
00:32:12,200 --> 00:32:15,000
Speaker 2: refused or pretty much shut the doors to a lot

617
00:32:15,040 --> 00:32:18,120
Speaker 2: of lending to risky borrowers. So it'll be very interesting

618
00:32:18,120 --> 00:32:20,959
Speaker 2: to see how these private creditors managers go during a

619
00:32:21,320 --> 00:32:25,320
Speaker 2: financial crisis. What happened if investors run for the extent, Yeah,

620
00:32:25,560 --> 00:32:26,600
Speaker 2: I'm very interested to watch that.

621
00:32:26,960 --> 00:32:29,200
Speaker 1: Do I recall in the GSC that there was some

622
00:32:29,520 --> 00:32:35,360
Speaker 1: strain on gold ETFs and their ability to actually achieve liquidity.

623
00:32:35,960 --> 00:32:37,960
Speaker 2: Not entirely. If anything, you saw a lot more buying

624
00:32:38,080 --> 00:32:40,840
Speaker 2: within gold ETFs during times of market turmoil, and that's

625
00:32:40,880 --> 00:32:43,520
Speaker 2: because gold has a bit more of a defensive capability

626
00:32:43,560 --> 00:32:45,560
Speaker 2: to it. Same with COVID as well. There was no

627
00:32:45,680 --> 00:32:49,440
Speaker 2: issues around buying into gold products. So yeah, it's got

628
00:32:49,480 --> 00:32:52,160
Speaker 2: that defensive characteristics to cushion share market volatility.

629
00:32:52,560 --> 00:32:55,520
Speaker 1: Okay, Okay, thank you for that. Detton. Do appreciate the

630
00:32:55,600 --> 00:32:59,680
Speaker 1: correspondence and the points you make. It's certainly an area

631
00:32:59,720 --> 00:33:04,120
Speaker 1: where two sides. Okay, final question from David. I have

632
00:33:04,200 --> 00:33:05,920
Speaker 1: a question I was hoping you could answer on the

633
00:33:05,960 --> 00:33:09,240
Speaker 1: podcast in relation to a couple borrowing to invest in ETFs.

634
00:33:09,960 --> 00:33:12,400
Speaker 1: If a couple are both borrowing separately in their own

635
00:33:12,440 --> 00:33:15,840
Speaker 1: names to invest in a diversified, poorly of portfolio of

636
00:33:15,880 --> 00:33:18,800
Speaker 1: past btfs, what are the considerations for deciding who should

637
00:33:18,800 --> 00:33:22,200
Speaker 1: invest in Australian ets for the frank and who should

638
00:33:22,240 --> 00:33:26,320
Speaker 1: invest in global ets because they don't have franking. That's

639
00:33:26,400 --> 00:33:28,920
Speaker 1: the sort of question you're going to say, speak to

640
00:33:28,960 --> 00:33:31,160
Speaker 1: a financial advisor. I wouldn't blame you if you give

641
00:33:31,200 --> 00:33:34,440
Speaker 1: that answer straight away, Mark, But I imagine it happens. Does

642
00:33:34,440 --> 00:33:36,440
Speaker 1: it when people come in by TF they can't help,

643
00:33:36,480 --> 00:33:38,400
Speaker 1: but they start asking questions.

644
00:33:38,000 --> 00:33:40,280
Speaker 2: Like this, they do. I would not say to speak

645
00:33:40,280 --> 00:33:41,800
Speaker 2: to a financial advisor. I'd say to speak to a

646
00:33:41,800 --> 00:33:43,960
Speaker 2: tax accountant because they are the professional when it comes

647
00:33:43,960 --> 00:33:46,680
Speaker 2: to tax. That being said, i would say that a

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00:33:46,680 --> 00:33:49,520
Speaker 2: lot of people use ETFs for its tax efficiency, right

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00:33:49,840 --> 00:33:53,440
Speaker 2: when it comes to high income versus medium income earners. Again,

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00:33:53,560 --> 00:33:55,920
Speaker 2: I'm not giving tax advice, but you're right who answer

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00:33:56,000 --> 00:33:59,080
Speaker 2: the question around Australian versus Global shares. If you invest

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00:33:59,080 --> 00:34:02,520
Speaker 2: in Australian shares, they do have a lot more distributions

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00:34:02,560 --> 00:34:05,000
Speaker 2: that are treated as dividends, which means that you know

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00:34:05,320 --> 00:34:08,320
Speaker 2: they can use the franking credits to offset their tax liability.

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00:34:08,600 --> 00:34:10,719
Speaker 2: But tax should never be a reason to invest. It's

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00:34:10,800 --> 00:34:13,520
Speaker 2: more byproduct. And keep in mind that if you're investing

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00:34:13,560 --> 00:34:16,920
Speaker 2: in global shares, they have more capital growth potential versus

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00:34:17,120 --> 00:34:19,680
Speaker 2: the Australian mark which has dividends. But the thing about

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00:34:19,680 --> 00:34:22,799
Speaker 2: an ETF is that the ETF packages those capital gains

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00:34:22,840 --> 00:34:26,040
Speaker 2: when it rebalances and distributes it as an income right

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00:34:26,080 --> 00:34:28,319
Speaker 2: as almost similar to a dividend, but it forms part

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00:34:28,320 --> 00:34:30,719
Speaker 2: of a distribution, so that will still be treated as

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00:34:30,760 --> 00:34:33,680
Speaker 2: income for that investor. So it's always hard whether you're

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00:34:34,200 --> 00:34:37,200
Speaker 2: high income versus medium income owner to be deciding what

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00:34:37,280 --> 00:34:39,120
Speaker 2: to do. But yes, if you are a high income

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00:34:39,160 --> 00:34:41,880
Speaker 2: owner and you want those franking credits to offset that

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00:34:42,000 --> 00:34:44,680
Speaker 2: tax liability, then it can make sense to be more

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00:34:44,680 --> 00:34:47,160
Speaker 2: heavily weighted to Australian shares. Just keep in mind to

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00:34:47,200 --> 00:34:50,120
Speaker 2: be diversified, and there are capital gains implications from the

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00:34:50,160 --> 00:34:51,359
Speaker 2: global share component two.

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Speaker 1: Okay, terrific, really good answer. Thank you, and remember none

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00:34:55,200 --> 00:34:57,919
Speaker 1: of this is ever advice. This is information only, as

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00:34:57,960 --> 00:35:01,320
Speaker 1: you all know by now, but I must say every week. Okay,

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00:35:01,440 --> 00:35:04,520
Speaker 1: very good. Hey Mark Yo, come from global X the

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00:35:04,680 --> 00:35:06,880
Speaker 1: ETF House. Thank you very much for coming on the show.

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00:35:07,719 --> 00:35:09,440
Speaker 2: Thanks for having me. James really appreciate it.

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00:35:09,760 --> 00:35:11,359
Speaker 1: Great to have you on the show. We'll have you again.

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00:35:11,400 --> 00:35:14,719
Speaker 1: Thank you very much for coming on. Okay, everybody, now,

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00:35:14,760 --> 00:35:17,160
Speaker 1: a few things if you would, it would be really

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00:35:17,160 --> 00:35:19,640
Speaker 1: good if you would mention us to someone you know

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00:35:20,120 --> 00:35:22,719
Speaker 1: about the show. We'd love that. You can drop a

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00:35:22,840 --> 00:35:25,600
Speaker 1: Google review too if you'd like. That would be very nice.

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00:35:25,800 --> 00:35:28,640
Speaker 1: And the email I have mentioned it more than once,

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00:35:28,680 --> 00:35:30,719
Speaker 1: but here it is once more, the Money Puzzle at

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00:35:30,719 --> 00:35:34,840
Speaker 1: the Australian dot com dot Au. Today's show was produced

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00:35:34,840 --> 00:35:37,680
Speaker 1: by Leah Samangaloo. Talk to you soon,