Brexit: 5 things you need to know and 5 strategies using exchange … · In this webinar we will…...
Transcript of Brexit: 5 things you need to know and 5 strategies using exchange … · In this webinar we will…...
Important Information
The information contained in this document is general information only and does not constitute personal financial advice. It does not take into account any person’s financial objectives, situation or needs. It has been prepared by BetaShares Capital Limited (ABN 78 139 566 868, Australian Financial Services Licence No. 341181) (“BetaShares”). The information is provided for information purposes only and is not a recommendation to make any investment or adopt any investment strategy. BetaShares is not a tax adviser and this information should be construed as tax advice. BetaShares assumes no responsibility for reliance on this information. Gearing magnifies gains and losses and may not be an appropriate strategy for all investors. Past performance is not indicative of future performance. Investments in BetaShares Funds are subject to investment risk and investors may not get back the full amount originally invested. Any person wishing to invest in BetaShares Funds should obtain a copy of the relevant PDS from www.betashares.com.au and obtain financial and tax advice in light of their individual circumstances.
Confidential – may not be distributed without the consent of BetaShares capital
In this webinar we will…
1. Discuss 5 key things you need to know about the Brexit
2. Address 5 investment strategies you may wish to consider
a) To defend/protect portfolios if you're bearish or cautious
b) To take advantage of market opportunities if bullish
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Your presenters
David Bassanese, BetaShares Chief Economist Formerly with: • AFR • Macquarie Bank • OECD • Treasury
David is the author of two investment books, including Australia’s most comprehensive ‘Australian Guide to ETFs’
Tania Smyth, National Manager – Adviser Services Formerly with: • Commonwealth Bank • Royal Bank of Scotland • ABN AMRO
Brexit: 5 things you need to know
Address ways to manage possible market fallout
a) Defend/reduce risk
b) Take advantage of market opportunities
Agenda
Confidential – may not be distributed without the consent of BetaShares capital
Brexit: 5 things you need to know
Address ways to manage possible market fallout
a) Defend/reduce risk
b) Take advantage of market opportunities
Agenda
Confidential – may not be distributed without the consent of BetaShares capital
1. Short-term relief rally likely
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• Why the sell-off?
• Markets were wrongly positioned prior to vote…
• …then needed to price in new uncertainty
• Why a potential rebound?
• UK effects likely contained, and actual exit from EU will take time
• Central banks primed to act
Sterling gets “pounded” British pound vs $A
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Source: Incredible Charts
At least, UK still small on global scale
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Source: IMF, World Economic Outlook; and IMF staff calculations
2. Longer-term, Brexit adds to global risks
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• US economy facing capacity constraints/weak earnings
• UNR rate 4.7%, wages lifting
• Business investment is weakening
• Profit margins declining from peak levels
• China economy still struggling
• Recent stimulus boost fading
• Growth vs. restructuring debate intense
• Equity markets already overvalued
• US Forward PE ratio 16.4 as of Friday, vs 14.5 avg. & 17.4 early 2015
US earnings flat-lining
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20
40
60
80
100
120
140
0
500
1000
1500
2000
2500
Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
S&P 500 Prices & Earnings
S&P 500 Prices [LHS]
Forward earnings [RHS]
Price Index EPS Index
Source: BetaShares, Bloomberg
US equity valuations elevated
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8
10
12
14
16
18
20
Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
S&P 500 Forward PE Ratio times forward earnings
Source: BetaShares, Bloomberg
3. Short-term negative impacts to UK likely high, though (possible) long-run benefit
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• Biggest drag on economy will be business uncertainty
• Negotiations about post-EU environment will drag out and outcomes highly uncertain
• Key manufacturing and finance sectors at risk
• UK break-up?
• Long-run, UK could benefit through lower regulation, targeted skilled migration, non-EU
trade deals
Past examples of trade disruption
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Tough debate: access vs independence
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EU EEA “Norway” Bespoke “Swiss” WTO
High EU market access Yes Yes Yes No
Contribute to EU Budget Yes Yes Yes No
Border control No No No Yes
Need to comply with EU rules Yes Yes (some exceptions
Yes (some exceptions)
No
Source: IMF
Key sectors at risk
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Source: Open Europe
Average EU tariff under WTO MFN rules is low (around 1-2%), but certain key sector at risk plus non-tariff barriers to contend with
% exported to EU
EU tariff/restrictions
Cars 35% 10%
Financial services 34% Access restrictions
Food, beverages & tobacco 60% 20%
Chemicals 56% 4.6%
Professional services 30% Access restrictions
4. Short-term EU negative impacts low, but long-run costs high
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• UK exports to EU equal 13% of UK GDP
• EU exports to UK equal 3% of EU GDP
• But,
• A successful UK would add to pressure of EU dis-integration
• Rise of populist right-wing parties a worry, combined with weak economic growth
• New forms of communication and “narrow-casting” add to capacity for division
5. Australian impact
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• Direct impact limited
• UK fifth largest economy in the word, but accounts for 2.5% of global GDP
• 13th ranked merchandise export market, taking 2% exports (gold, alcohol)
• 3rd ranked service export market, taking 8% exports (tourism, finance)
• Main impact indirect though effect on global markets
• Likely market volatility adds to case for August RBA rate cut
Summary
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1. Relief rally likely in short-term, not a GFC mark 2
2. Brexit adds to current global worries
3. UK short-term cost high, for uncertain future pay-off
4. Longer-run challenges for Europe remain
5. Australian direct effects limited, still captive to financial market fall out
1. Retreat to traditional safe havens
2. Take a more cautious view to equities investment
3. Profit from continued downturn
4. Short term bounce
5. Long term recovery
Tactically invest based on your diverse range of views
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Retreat to traditional safe havens
• Gold
BetaShares Gold Bullion ETF – Currency Hedged (ASX Code QAU)
• Cash
BetaShares Australian High Interest Cash ETF (ASX Code AAA)
• US Dollar
BetaShares US Dollar ETF (ASX Code USD)
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ASX: AAA
ASX: USD
ASX: QAU
Retreat to traditional safe havens
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Details on actual gold bullion which backs the QAU ETF - located on BetaShares’ website
• Number of bars held • Brand • Bar No • Shape • Assay • Weight (Gross and Fine)
Institutional grade risk management delivered in exchange traded products • Cost-effective • Available to any investor • Quoted and traded on the ASX
A more cautious view to equities investment
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FUND NAME ASX TICKER STRATEGY
BETASHARES AUSTRALIAN DIVIDEND HARVESTER FUND (MANAGED FUND) HVST • Dividend rotation strategy on large cap Australian
shares + risk management strategy • Monthly income
BETASHARES MANAGED RISK AUSTRALIAN SHARE FUND (MANAGED FUND)
AUST • Largest 200 Australian shares by market capitalisation
• Risk management strategy
BETASHARES MANAGED RISK GLOBAL SHARE FUND (MANAGED FUND) WRLD • Diversified exposure to global shares (developed
markets) • Risk management strategy
A more cautious view to equities investment
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Selected periods when increased market volatility was associated with market declines
Source: Milliman Financial Risk Management LLC, 31/12/1991-30/09/2015. The chart above is historical and for illustrative purposes only. It does not represent actual performance of any investment. Past performance is no guarantee of future results.
S&P/ASX 200 Index (1992-2015): Cumulative equity return and volatility
BetaShares BEAR Suite of Funds • BetaShares Australian Equities Bear Hedge Fund (ASX Code BEAR)
• BetaShares Australian Equities Strong Bear Hedge Fund (ASX Code BBOZ)
• BetaShares U.S. Equities Strong Bear Hedge Fund – Currency Hedged (ASX Code BBUS)
Profit from continued downturn
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ASX: BEAR
ASX: BBOZ
ASX: BBUS
Performance of BetaShares BEAR Fund v. S&P/ASX 200 Index (6/7/2012-29/2/2016)
Profit from continued downturn – BEAR performance example
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Source: BetaShares website, 29 February 2016. Past performance is not an indicator of future performance. The Fund’s value can be expected to go down if the Australian sharemarket (S&P/ASX 200 index) goes up. The Fund does not track any benchmark and should not be expected to provide the exact opposite of the market return over any time period.
Currency • BetaShares British Pound ETF (ASX Code POU)
• BetaShares Euro ETF (ASX Code EEU) Geared Suite of Funds • BetaShares Geared Australian Equity Fund (hedge fund) (ASX Code GEAR)
• BetaShares Geared U.S. Equity Fund – Currency Hedged (hedge fund) (ASX Code GGUS)
Short-term bounce
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ASX: POU ASX: EEU
ASX: GEAR ASX: GGUS
Currency • BetaShares British Pound ETF (ASX Code POU)
• BetaShares Euro ETF (ASX Code EEU) International Equities • BetaShares NASDAQ 100 ETF (ASX Code NDQ)
• BetaShares Wisdomtree Europe ETF – Currency Hedged (ASX Code HEUR)
• BetaShares Wisdomtree Japan ETF – Currency Hedged (ASX Code HJPN)
Long-term recovery
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ASX: POU ASX: EEU
ASX: NDQ ASX: HEUR ASX: HJPN
BetaShares WisdomTree Europe ETF – Currency Hedged Product Factsheet
Key Information
ASX Code HEUR
Bloomberg Code HEUR AU
Iress Code HEUR.AXW
# of components 128
Asset backing Equities
Management Fee 0.51% p.a
Expense recovery Estimated at 0.07% p.a
ETF Inception Date 10 May 2016
Top 10 Exposures 30 April 2016
Sector Allocation 30 April 2016
Product Name: BetaShares WisdomTree Europe ETF – Currency Hedged
Index Tracked & Description of Index
Aims to track the performance of the WisdomTree Hedged Europe Equity Index, which is designed to provide exposure to the largest dividend-paying European companies that generate at least a portion of their revenues from outside of Europe, hedged to Australian dollars
Company Index Weighting
ANHEUSER-BUSCH INBEV SA/NV 6.3
SIEMENS AG-REG 5.3 UNILEVER NV-CVA 4.8 TELEFONICA SA 4.6 BANCO SANTANDER SA 4.4 SANOFI 4.0 DAIMLER AG-REGISTERED SHARES 3.9
BANCO BILBAO VIZCAYA ARGENTA 3.5
BAYER AG-REG 3.0 SAP SE 2.9
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ASX: HEUR
Australian Equities Global Equities Equity Income Managed Risk/
Defensive Equity Cash
QOZ QFN QRE
NDQ UMAX QUS FUEL
WRLD HEUR HJPN
HVST YMAX
AUST WRLD
AAA
Short Geared Currency Commodities Active
BEAR BBOZ BBUS
GEAR GGUS
USD POU EEU
QAU OOO QCB
GLIN RENT
BetaShares Product Range
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Considerations
Risk factors include: • Market Risk (Equity Funds)
• Currency Risk (POU and USD)
• Risk Management strategy may not work as expected (Risk Managed Funds)
• Geared and Short Funds may not be suitable strategies for all investors (GEAR,
GGUS, BBUS, BEAR, BBOZ)
• The Short Funds’ strategy of seeking returns that are negatively correlated to market returns is the opposite of most managed funds (BEAR, BBOZ, BBUS)
• Investors should seek professional financial advice before investing, and monitor their investment actively
Questions?
Keep in touch
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BetaShares Client Service
1300 487 577