1 00:00:03,440 --> 00:00:06,070 Sean Aylmer: Welcome to the Fear and Greed daily interview. I'm Sean 2 00:00:06,070 --> 00:00:09,560 Sean Aylmer: Aylmer. One of the main trends investing in recent years has been 3 00:00:09,560 --> 00:00:13,760 Sean Aylmer: the growth in ETFs or Exchange Traded Funds. Now, a 4 00:00:13,760 --> 00:00:17,590 Sean Aylmer: report from BetaShares suggests the local ETF industry will reach more 5 00:00:17,590 --> 00:00:21,739 Sean Aylmer: than 2 million Australian investors this year. Alex Vynokur is 6 00:00:21,739 --> 00:00:24,710 Sean Aylmer: the CEO of BetaShares. Alex, welcome back to Fear and Greed. 7 00:00:25,440 --> 00:00:26,780 Alex Vynokur: Great to be with you again, Sean. 8 00:00:27,080 --> 00:00:30,070 Sean Aylmer: New year, good time to have a new lesson about 9 00:00:30,140 --> 00:00:32,360 Sean Aylmer: ETFs. Just a one- on- one on what an ETF 10 00:00:32,360 --> 00:00:34,269 Sean Aylmer: is and how it works. That's for those listeners who 11 00:00:34,270 --> 00:00:34,870 Sean Aylmer: aren't familiar. 12 00:00:35,229 --> 00:00:40,320 Alex Vynokur: Absolutely. An ETF stands for an Exchange Traded Fund. Exchange 13 00:00:40,320 --> 00:00:46,089 Alex Vynokur: Traded Funds combine the flexibility and convenience of buying or 14 00:00:46,090 --> 00:00:50,290 Alex Vynokur: selling a share on the ASX with the significant benefits 15 00:00:50,330 --> 00:00:54,810 Alex Vynokur: of cost effectiveness and diversification. In other words, it's a 16 00:00:54,810 --> 00:00:59,300 Alex Vynokur: great building block for Australian investors, as well as investors 17 00:00:59,300 --> 00:01:02,600 Alex Vynokur: from around the world to build their investment portfolios. And 18 00:01:02,600 --> 00:01:04,270 Alex Vynokur: over time, of course build their wealth. 19 00:01:04,610 --> 00:01:06,480 Sean Aylmer: And one of the great things about ETFs is that 20 00:01:06,910 --> 00:01:08,280 Sean Aylmer: diversification part of it, isn't it? 21 00:01:08,819 --> 00:01:13,940 Alex Vynokur: Absolutely. ETFs do all the heavy lifting for investors and 22 00:01:13,940 --> 00:01:17,530 Alex Vynokur: combining that cost effectiveness with diversification. So if I was 23 00:01:17,530 --> 00:01:22,130 Alex Vynokur: to use an example, of say, the BetaShares NASDAQ 100 ETF, NDQ 24 00:01:22,380 --> 00:01:25,440 Alex Vynokur: in one trade on the ASX. In other words, as 25 00:01:25,440 --> 00:01:29,010 Alex Vynokur: simply as buying a share on the ASX, investors receive 26 00:01:29,220 --> 00:01:33,970 Alex Vynokur: ownership proportion in each of the 100 stocks, basically that 27 00:01:33,970 --> 00:01:35,610 Alex Vynokur: comprised the NASDAQ 100. 28 00:01:35,830 --> 00:01:37,809 Sean Aylmer: We should have had this conversation a week ago, Alex, 29 00:01:37,840 --> 00:01:39,790 Sean Aylmer: because if you tell me that and I went out and bought a week 30 00:01:39,790 --> 00:01:42,539 Sean Aylmer: ago, I reckon that ETF would be up pretty well 31 00:01:42,540 --> 00:01:43,230 Sean Aylmer: in the last week. 32 00:01:44,370 --> 00:01:48,060 Alex Vynokur: Of course. Look, over short term shares and ETFs and 33 00:01:48,260 --> 00:01:51,740 Alex Vynokur: funds of course can rise and fall in value. And 34 00:01:52,110 --> 00:01:55,330 Alex Vynokur: we certainly talk to our investors a lot about measuring the 35 00:01:55,330 --> 00:01:58,300 Alex Vynokur: success of their investment over a long period of time. 36 00:01:58,530 --> 00:02:01,550 Alex Vynokur: In the short term, things like volatility can influence the 37 00:02:01,550 --> 00:02:05,140 Alex Vynokur: value of any investment of long term, if you allow 38 00:02:05,140 --> 00:02:08,579 Alex Vynokur: the magic of compounding to do its work and I'm 39 00:02:08,580 --> 00:02:12,030 Alex Vynokur: using a term here, which is really borrowed from Albert 40 00:02:12,070 --> 00:02:16,080 Alex Vynokur: Einstein who talked about compounding being one of the undiscovered 41 00:02:16,150 --> 00:02:20,220 Alex Vynokur: wonders of the world and ETFs certainly make that very accessible 42 00:02:20,440 --> 00:02:24,240 Alex Vynokur: and very convenient for Australian investors of which there are 43 00:02:24,250 --> 00:02:28,610 Alex Vynokur: almost 2 billion now and millions and millions of investors from other 44 00:02:28,610 --> 00:02:29,250 Alex Vynokur: parts of the world. 45 00:02:29,470 --> 00:02:33,720 Sean Aylmer: Okay. So you're forecasting an additional 275,000 Australians to invest 46 00:02:33,720 --> 00:02:36,700 Sean Aylmer: in ETFs this year. That means the local market will 47 00:02:36,700 --> 00:02:40,290 Sean Aylmer: hit about 180 billion in funds, under management. Why do 48 00:02:40,290 --> 00:02:43,220 Sean Aylmer: you think people are flocking to ETFs? What's behind the growth? 49 00:02:44,470 --> 00:02:48,620 Alex Vynokur: Look, I think the magical power of ETFs is that 50 00:02:48,700 --> 00:02:52,740 Alex Vynokur: they deliver exactly what they say on the time. So 51 00:02:52,740 --> 00:02:56,160 Alex Vynokur: when an investor makes an investment decision and say, for 52 00:02:56,160 --> 00:02:59,269 Alex Vynokur: example, you are in your 20s, you've got a long 53 00:02:59,270 --> 00:03:03,299 Alex Vynokur: term horizon. You can afford to take more risk in 54 00:03:03,300 --> 00:03:06,679 Alex Vynokur: your investment portfolio and you want to construct a portfolio 55 00:03:06,730 --> 00:03:10,360 Alex Vynokur: which is tilted towards growth, the Australian ETF market, and 56 00:03:10,360 --> 00:03:12,540 Alex Vynokur: I'm not just talking here about BetaShares. I'm talking about 57 00:03:12,540 --> 00:03:16,850 Alex Vynokur: the industry more broadly has a phenomenal array of exposures. 58 00:03:17,100 --> 00:03:19,950 Alex Vynokur: Some of them will be core exposures. In other words, 59 00:03:20,010 --> 00:03:23,380 Alex Vynokur: established leaders in various industries. So we talked about the 60 00:03:23,380 --> 00:03:27,030 Alex Vynokur: NASDAQ 100 companies such as Google, such as Amazon. And 61 00:03:27,030 --> 00:03:29,220 Alex Vynokur: of course the list goes on and on. And then 62 00:03:29,280 --> 00:03:32,280 Alex Vynokur: of course you can tilt your portfolio towards growth. If 63 00:03:32,280 --> 00:03:34,740 Alex Vynokur: we are talking about somebody, for example, who's young and 64 00:03:34,740 --> 00:03:37,710 Alex Vynokur: has that longer time horizon. And they can invest in 65 00:03:37,710 --> 00:03:42,420 Alex Vynokur: things. For example, such as clean energy, driverless, autonomous vehicles, 66 00:03:43,080 --> 00:03:46,090 Alex Vynokur: cyber security and the list goes on and on. So, 67 00:03:46,090 --> 00:03:48,830 Alex Vynokur: I think the beauty about the ETFs is the simplicity of 68 00:03:48,830 --> 00:03:52,810 Alex Vynokur: access and the fact they're transparent and they deliver exactly 69 00:03:52,810 --> 00:03:55,410 Alex Vynokur: what they say on the time. So if you happen to 70 00:03:55,410 --> 00:03:58,140 Alex Vynokur: be one of the investors who really is interested of 71 00:03:58,140 --> 00:04:00,890 Alex Vynokur: what's in your portfolio, you can go onto the website 72 00:04:00,890 --> 00:04:03,970 Alex Vynokur: of BetaShares or any other ETF issuer. You can look 73 00:04:03,970 --> 00:04:06,290 Alex Vynokur: up the fund and see exactly what's under the bonnet. 74 00:04:07,100 --> 00:04:09,290 Sean Aylmer: Okay. So who do you think all these hundreds of 75 00:04:09,290 --> 00:04:12,960 Sean Aylmer: thousands of new ETF buyers, do you think that'll be 76 00:04:13,140 --> 00:04:15,650 Sean Aylmer: new investors to the market mostly? Or do you reckon 77 00:04:15,700 --> 00:04:19,850 Sean Aylmer: it's actually experienced investors deciding that ETFs are the way 78 00:04:19,850 --> 00:04:19,909 Sean Aylmer: at it again? 79 00:04:20,890 --> 00:04:24,500 Alex Vynokur: Great question, Sean. Look what we've seen over time. And 80 00:04:24,580 --> 00:04:27,950 Alex Vynokur: BetaShares has been in operation in Australia now for 11 81 00:04:27,950 --> 00:04:31,609 Alex Vynokur: years. So we launched our initial ETFs in December, 2010. 82 00:04:32,020 --> 00:04:35,979 Alex Vynokur: And what I have seen through that 11 year time 83 00:04:35,980 --> 00:04:39,660 Alex Vynokur: window is that the early adopters of ETFs have actually 84 00:04:39,660 --> 00:04:43,710 Alex Vynokur: been the wealthier, more experienced investors. Quite often have been 85 00:04:43,710 --> 00:04:47,060 Alex Vynokur: the SMSF trustees. People who've set up their own self- 86 00:04:47,060 --> 00:04:50,440 Alex Vynokur: managed super fund and people who've got more investment experience. 87 00:04:50,630 --> 00:04:54,220 Alex Vynokur: And in many ways, investors who've learned that over time, 88 00:04:54,490 --> 00:04:57,060 Alex Vynokur: the best way to build wealth is to allow that 89 00:04:57,060 --> 00:04:59,540 Alex Vynokur: compounding to take place. And of course there are no 90 00:04:59,540 --> 00:05:02,610 Alex Vynokur: shortcuts in building wealth. I mean, we certainly at BetaShares are 91 00:05:02,610 --> 00:05:08,010 Alex Vynokur: big believers that building wealth takes time. There's lots of 92 00:05:08,010 --> 00:05:13,159 Alex Vynokur: sexy and otherwise appealing investment exposures being in the area 93 00:05:13,160 --> 00:05:15,969 Alex Vynokur: of cryptocurrencies or whatever else. But of course that all 94 00:05:15,970 --> 00:05:18,700 Alex Vynokur: comes with risk and any investment of course has risk. 95 00:05:18,930 --> 00:05:22,010 Alex Vynokur: But I think the benefits of diversification, the benefits of 96 00:05:22,010 --> 00:05:26,050 Alex Vynokur: cost effectiveness and an ability to build a portfolio that 97 00:05:26,150 --> 00:05:30,000 Alex Vynokur: allows you to meet your investment objectives over time, really 98 00:05:30,000 --> 00:05:32,510 Alex Vynokur: put ETFs in its own category. And I think that 99 00:05:32,529 --> 00:05:35,839 Alex Vynokur: ultimately is the reason why we're seeing so many Australian 100 00:05:35,839 --> 00:05:39,330 Alex Vynokur: investors go towards ETFs. So back to a question, the 101 00:05:39,330 --> 00:05:44,159 Alex Vynokur: early adopters were the experienced SMSFs. And over time, what 102 00:05:44,160 --> 00:05:48,559 Alex Vynokur: we are seeing is that ETFs are continuing to democratize 103 00:05:48,770 --> 00:05:52,510 Alex Vynokur: wealth creation in Australia. What we're seeing today is that 104 00:05:52,510 --> 00:05:56,050 Alex Vynokur: we are living in an era where interest rates are 105 00:05:56,089 --> 00:05:59,460 Alex Vynokur: at record laws. And obviously, they'll stay low for the 106 00:05:59,460 --> 00:06:03,490 Alex Vynokur: foreseeable future, even if the RBA raises interest rates a little bit from 107 00:06:03,490 --> 00:06:07,169 Alex Vynokur: the current levels. We are seeing housing continuing to be 108 00:06:07,540 --> 00:06:10,510 Alex Vynokur: unaffordable for so many Australians. I mean, for the vast 109 00:06:10,510 --> 00:06:13,790 Alex Vynokur: majority of young Australians, housing is really out of reach. 110 00:06:13,980 --> 00:06:16,190 Alex Vynokur: But at the same time, of course, everybody wants to 111 00:06:16,190 --> 00:06:19,659 Alex Vynokur: get ahead in life. Everybody wants to build a future. 112 00:06:19,990 --> 00:06:22,760 Alex Vynokur: And I think ETFs have played and will continue playing 113 00:06:22,760 --> 00:06:26,900 Alex Vynokur: in my opinion, a very important role in democratizing wealth creation. 114 00:06:27,230 --> 00:06:29,049 Sean Aylmer: Stay with me, Alex will be back in a minute. 115 00:06:33,680 --> 00:06:37,110 Sean Aylmer: My guest this morning is Alex Vynokur, CEO of BetaShares. 116 00:06:37,860 --> 00:06:41,080 Sean Aylmer: So ETFs are much more of a retail product than 117 00:06:41,080 --> 00:06:43,620 Sean Aylmer: an institutional product. Do any of the big fund managers 118 00:06:43,620 --> 00:06:45,140 Sean Aylmer: buy into ETFs very much? 119 00:06:45,500 --> 00:06:49,400 Alex Vynokur: Absolutely they do. So I've got several really interesting anecdotes, 120 00:06:49,800 --> 00:06:52,810 Alex Vynokur: on that score. First of all and unfortunately I'm not 121 00:06:52,810 --> 00:06:54,810 Alex Vynokur: at liberty to name names, but if you were to 122 00:06:54,810 --> 00:06:57,950 Alex Vynokur: look at a list of some of the more prominent 123 00:06:58,010 --> 00:07:00,969 Alex Vynokur: fund managers, active fund managers, quite a lot of them 124 00:07:01,029 --> 00:07:03,270 Alex Vynokur: in their own sort of superannuation funds or in their 125 00:07:03,270 --> 00:07:06,960 Alex Vynokur: own name invest in ETFs. And this is the case 126 00:07:07,010 --> 00:07:10,610 Alex Vynokur: in Australia as well as overseas. That's number one. And number 127 00:07:10,610 --> 00:07:16,350 Alex Vynokur: two, we are actually seeing a large number of professional superannuation 128 00:07:16,350 --> 00:07:21,700 Alex Vynokur: funds as well as insurance companies. So we're talking about large institutional 129 00:07:21,700 --> 00:07:26,500 Alex Vynokur: investors allocating more and more of their capital towards ETFs. 130 00:07:26,640 --> 00:07:28,920 Alex Vynokur: So I think the latest stats, for example, in the 131 00:07:28,920 --> 00:07:33,680 Alex Vynokur: market like the US is that 8/ 10 largest farm 132 00:07:33,680 --> 00:07:39,330 Alex Vynokur: managers in the US utilize ETFs regularly in their investment portfolio 133 00:07:39,550 --> 00:07:42,810 Alex Vynokur: in order to try to generate outperformance or alpha in 134 00:07:42,810 --> 00:07:45,550 Alex Vynokur: professional speak. And then if you look at some of 135 00:07:45,550 --> 00:07:49,260 Alex Vynokur: the largest endowment funds, some of the largest pension funds 136 00:07:49,260 --> 00:07:53,870 Alex Vynokur: and family offices, they regularly feature amongst the top ETF 137 00:07:53,870 --> 00:07:56,050 Alex Vynokur: investor. And again, if I was to go back to 138 00:07:56,050 --> 00:07:59,250 Alex Vynokur: old friend Warren Buffet, he has been quoted on the 139 00:07:59,250 --> 00:08:03,520 Alex Vynokur: number of occasions. As saying that, for his family and 140 00:08:03,520 --> 00:08:06,870 Alex Vynokur: the next generation of his custodians of wealth, he wants 141 00:08:06,870 --> 00:08:09,470 Alex Vynokur: to advise them, or he's advising them to put 90% 142 00:08:09,470 --> 00:08:14,800 Alex Vynokur: of their assets, index exposures, ETFs and 10% in cash for the rainy day. 143 00:08:15,650 --> 00:08:17,880 Sean Aylmer: Wow! I mean, I'm a fan of ETFs and I 144 00:08:18,290 --> 00:08:22,260 Sean Aylmer: particularly, for an investor like me who is not sophisticated 145 00:08:22,260 --> 00:08:25,430 Sean Aylmer: enough to actually know what's going on within a company, 146 00:08:25,580 --> 00:08:29,720 Sean Aylmer: wants to spread my risk long term, all that's great, 147 00:08:29,720 --> 00:08:32,439 Sean Aylmer: right? But there are risks to ETFs. You can pick 148 00:08:32,440 --> 00:08:35,170 Sean Aylmer: a mega trend, which actually isn't a mega trend, for example. 149 00:08:35,410 --> 00:08:39,370 Alex Vynokur: Of course, every investment has risk. I think on the topic 150 00:08:39,370 --> 00:08:43,040 Alex Vynokur: of mega trend, Sean, what I would say is that a genuinely 151 00:08:43,040 --> 00:08:48,530 Alex Vynokur: well built ETF will certainly provide a pure play exposure 152 00:08:48,679 --> 00:08:50,990 Alex Vynokur: and the right exposure to a long term mega trend. 153 00:08:51,040 --> 00:08:53,170 Alex Vynokur: Now what's going to happen in the short term. Of 154 00:08:53,170 --> 00:08:57,280 Alex Vynokur: course, nobody knows. You know that every investment carries risk, 155 00:08:57,280 --> 00:08:59,850 Alex Vynokur: you're absolutely right in pointing that out. And we do 156 00:08:59,850 --> 00:09:03,910 Alex Vynokur: so very regularly for our clients of which we have 157 00:09:03,910 --> 00:09:07,380 Alex Vynokur: hundreds of thousands as well in Australia. However, at the 158 00:09:07,380 --> 00:09:12,370 Alex Vynokur: same time, long term fundamentals drive the performance of the 159 00:09:12,370 --> 00:09:14,700 Alex Vynokur: investment. So short term, it could be fear and greet 160 00:09:15,170 --> 00:09:17,949 Alex Vynokur: as your podcast is quite rightly named, Fear and Greed, 161 00:09:17,950 --> 00:09:21,880 Alex Vynokur: absolutely have influence on the dynamics in the short term. 162 00:09:22,120 --> 00:09:26,190 Alex Vynokur: However, long term fundamentals certainly do prevail and they do play 163 00:09:26,390 --> 00:09:28,610 Alex Vynokur: out. And when we look at some of the genuine 164 00:09:28,610 --> 00:09:32,050 Alex Vynokur: long term thematic exposure, be it clean energy, be it 165 00:09:32,050 --> 00:09:37,929 Alex Vynokur: cybersecurity, be it autonomous vehicles, robotics, AI. We certainly believe 166 00:09:38,140 --> 00:09:42,470 Alex Vynokur: have decades of significant growth ahead, not just several quarters. 167 00:09:42,750 --> 00:09:45,370 Alex Vynokur: And that's why from our perspective, some of them can 168 00:09:45,370 --> 00:09:48,570 Alex Vynokur: make really good long term investment exposures. 169 00:09:49,059 --> 00:09:51,739 Sean Aylmer: And I've got to ask you about the BetaShares, crypto innovators, 170 00:09:51,770 --> 00:09:54,140 Sean Aylmer: ETF. I think we spoke about it last October? 171 00:09:54,280 --> 00:09:54,540 Alex Vynokur: Yes. 172 00:09:54,880 --> 00:09:57,000 Sean Aylmer: What I liked about that one was it wasn't necessarily 173 00:09:57,000 --> 00:10:00,040 Sean Aylmer: investing in the cryptos themselves. It was as much about 174 00:10:00,040 --> 00:10:03,230 Sean Aylmer: the technology in the backend of it. How's that gone? 175 00:10:03,230 --> 00:10:05,559 Sean Aylmer: And I mean, it's only three months, but it's been 176 00:10:05,559 --> 00:10:09,451 Sean Aylmer: a really tough time for cryptocurrencies. But, you're happy with that ETF? 177 00:10:09,451 --> 00:10:15,990 Alex Vynokur: Look, absolutely CRYP has delivered exactly what it plans to deliver, which 178 00:10:15,990 --> 00:10:20,420 Alex Vynokur: is exposure to innovators in the crypto industry without the 179 00:10:20,420 --> 00:10:24,610 Alex Vynokur: direct ownership of cryptocurrencies. We have seen, as you've pointed 180 00:10:24,610 --> 00:10:28,340 Alex Vynokur: out over the last few months, quite a significant decline 181 00:10:28,340 --> 00:10:31,330 Alex Vynokur: of course, in the value of cryptocurrencies themselves. And of 182 00:10:31,330 --> 00:10:34,910 Alex Vynokur: course, just because those companies operate in the same industry, 183 00:10:35,120 --> 00:10:37,700 Alex Vynokur: it affected a number of companies. So for example, if we take 184 00:10:37,750 --> 00:10:42,640 Alex Vynokur: Coinbase, which is the largest constituent. Coinbase as an exchange, 185 00:10:43,290 --> 00:10:47,620 Alex Vynokur: is significantly diversified beyond just the value of cryptocurrencies. However, 186 00:10:47,800 --> 00:10:50,640 Alex Vynokur: a negative sentiment towards cryptocurrencies will impact the value of 187 00:10:50,640 --> 00:10:53,360 Alex Vynokur: that investment. So long term, we are certainly of the 188 00:10:53,360 --> 00:10:57,050 Alex Vynokur: view that the companies in that ETF will continue providing 189 00:10:57,050 --> 00:10:59,929 Alex Vynokur: that sort of exposure and will grow. But as we 190 00:10:59,929 --> 00:11:03,980 Alex Vynokur: said, just now over short term, fear, greed and other factors 191 00:11:03,980 --> 00:11:06,390 Alex Vynokur: will definitely impact the value of investments. 192 00:11:06,800 --> 00:11:08,600 Sean Aylmer: Alex, thank you for talking to Fear and Greed. 193 00:11:08,840 --> 00:11:10,069 Alex Vynokur: Great to be with you again, Sean. 194 00:11:10,650 --> 00:11:13,900 Sean Aylmer: That was Alex Vynokur, CEO of BetaShares. This is the Fear 195 00:11:14,260 --> 00:11:16,980 Sean Aylmer: and Greed daily interview. Join me every morning for the 196 00:11:16,980 --> 00:11:19,319 Sean Aylmer: full Fear and Greed podcast with all the business news 197 00:11:19,320 --> 00:11:21,760 Sean Aylmer: you need to know. I'm Sean Aylmer, enjoy your day.