ETFs trump managed funds in 2016

ETF Update - Quarter 4, 2016
 
Our quarterly update on the Australian ETF market as at December 2016 and performance of the Stockspot portfolios.

ETF market highlights

  • Quarterly FUM growth was +7%, from $23,971 million at the end of September to $25,291 million at the end of December 2016.
  • Total ETF FUM has now reached the $25 billion milstone, including adding almost $4.3 billion in 2016.
  • The top 5 ETFs for the past 12 months have all been resources focused, reversing a 5 year period of underperformance since 2010.
  • After some US election volatility, Australian and global share ETFs showed steady inflows during November and December.
  • Overall we have seen another positive quarter for ETF FUM growth and returns, continuing the steady drive forward of the Australian ETF market.
  • Globally investors have put more money into ETFs than actively managed funds in 2016 for the 10th straight year.

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What is a MDA Service and how does it work?

Question - What is a MDA service?
 
When you invest with Stockspot, you sign-up online and answer some questions about your financial goals and personal circumstances, then you’re asked to review and sign an MDA Agreement before you can invest.

At this point, you ask yourself what is an MDA Agreement and what exactly am I tying myself into?

A good question you should ask before using any financial product is how exactly does the product work, is it the best product for me and is my money safe?

Here’s what a MDA service is, how your money is secured and why we think our MDA is the best way for many people invest.
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2016 : Stockspot end-of-year update

2016 update
 
Back in 2013 I left my job as a portfolio manager to start a better wealth management service for Australians. It’s hard to believe Stockspot has now been up and running almost 3 years.

It is something I am immensely proud of and I want to thank the thousands of clients who have been on the journey with us. In 2014 when we launched, automated investing and robo-advice were new in Australia so we appreciate the support of our early clients who trusted us to help manage their savings.

We’ve generated annualised net returns for those early clients of 6.2% to 9.2% per year with much lower fees than traditional managed fund options. At the same time our portfolios have been much less risky than just owning Australian shares.

We’re also thankful to the 22,000 people who have subscribed to our newsletter for our monthly investment insights. And none of it could happen without the tireless effort of the Stockspot team.
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Why you won’t beat the share market (but many still try)

Won't beat the share market

Four things you will learn:

  • Why picking stocks or trying to time the market is pointless
  • Why fund managers have become ‘the market’ (and what that means)
  • How behavioural biases lead us to make bad investment decisions
  • Why index investing is the smart investor’s choice

The US election is the perfect demonstration of the futility of trying to beat the share market.

Those who tried to time their market entry were whipsawed in all directions, share markets initially fell 6% before staging an 8% recovery to close up for the week. Not only did most ‘experts’ call the election result wrong, they completely misjudged the impact that Trump would have on markets.

Meanwhile those with portfolios focused in popular yield-sensitive sectors of the market like property saw their investments crushed due to events in bond markets that were completely outside of their control.

None of this is unusual… time after time, finance commentators have their predictions proved wrong by the market. Those who try and beat the market by timing entry and exit points, or picking stocks or sectors, are outsmarted by each other.

So why is it so difficult for even the experts to get it right?
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Investment update: US election

US election
 
Does this feel like deja vu? After the market reaction to Brexit earlier this year, the US election result seems like we’ve been down this road before.

Unexpected political result causes wild market movements

Before you make any investment decisions based on politics, it’s worth considering what it actually means for your investments over the long-run. The answer, which may surprise you, it’s actually very little.

Market commentators and your emotions may lead you to believe the different policy positions (and personalities) of the candidates will lead to different market returns. However, history repeatedly shows us markets will overreact in the short term and pay no attention after that. In fact, investment markets often move in the opposite direction to what you would expect due to currency movements or because everyone is already positioned one way.

Take Brexit as a perfect recent example. After the surprise Brexit result, which was considered by many ‘investment experts’ to be a disaster for the UK economy, British shares rose 25% over the next 3 months.
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Australian ETFs add $10 billion in 2 years

ETF Update - Quarter 3, 2016
 
Our quarterly update on the Australian ETF market as at October 2016.

Highlights

  • ASX-listed ETFs have added $10 billion in new funds under management since October 2014, representing 31% p.a. growth.
  • Quarterly growth of ETF funds under management was 7%, from $22,404M in June 2016 to $23,971M by the end of September 2016.
  • After some volatility in the first half of September, the Australian share-market stabilised near a 12 month high.
  • Gold and small Australian shares have performed best over the last year with oil, ‘Bear’ and some currency ETFs performing worst.
  • Fixed income ETFs continued to attract new funds at the fastest rate of all sectors as more investors and Self Managed Super Funds (SMSFs) add fixed interest to their portfolios to balance equity risk.

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What is an ETF?

What is an ETF?
 
At Stockspot we believe Exchange Traded Funds (ETFs) are the building blocks for the best investment portfolios.

ETFs have been around for roughly 20 years and are fast becoming the most popular investment option. Each year more money leaves managed funds and goes into ETFs. This is because they can easily be traded on the stock exchange, they’re low cost and offer instant diversification.
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$59 billion trapped in Fat Cat Funds

2016 Fat Cat Funds Report
 
Our latest Fat Cat Funds Report, the largest analysis of superannuation and managed funds in Australia, has found that the money managed by Fat Cat Funds increased to $59 billion, up from $53.5 billion in 2015.

We believe Australians deserve greater visibility around where their money is invested and how it is performing so we have been producing this report to highlight the issues of high fees, poor transparency and conflicts of interest within the investment industry.

This is the 4th year we’ve run the report and this year we compared a record 3,800 funds to assess how they have performed after fees.

Unfortunately for consumers, almost nothing has changed since our first report in 2013 as the big 4 banks and AMP continue to dominate the distribution of Fat Cat Funds.
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Why you shouldn’t rush into tech stocks

Chasing tech stocks
 
It’s easy to get swept up in the hype of a hot sector, but there are big dangers when the music stops.

Investing in the hot stock or sector de jour is a always strong temptation, especially in markets where there are very clear winners and losers. These days global technology is that hot sector – particularly the big US tech giants. They’ve all doubled, tripled or quadrupled since 2012 so have easily beaten the broad market. Their returns have trounced Telstra, BHP and Woolworths.
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Active vs Index investing – what’s the difference?

Active vs Index investing
 
Active investing and index (or passive) investing are 2 different ways to grow your wealth.

Actively managed funds aim to beat the returns of a given investment market. Passively managed funds, on the other hand, are designed to mimic the returns of a specific market as measured by a particular index like, for instance, the S&P/ASX 300. This is why they are also known as ‘index’ funds.

Most of the money in Australia is managed by active funds but passive investing has been growing fast, particularly since 2008. We look at some of the key differences and why index investing has been growing in popularity.
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SMSFs in the fintech age

SMSFs in the fintech age
 
We recently became the first robo-advice business to announce a partnership with Class Super. For those who haven’t heard of Class, the business was founded in 2009 and in just 8 years has grown to be the largest independent administration software provider to Self Managed Super Funds (SMSFs).

What does that mean? In a nutshell, Class has built software to help SMSFs get their data and compliance in order – saving accountants and advisers many hours each year.
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How are ETFs taxed?

How are ETFs taxed?
 
ETFs: Everything you need to know about tax on ETF investments in Australia.

One of the reasons exchange-traded funds (ETFs) have gained popularity with Australian investors is because they are tax efficient. If you’ve invested in ETFs on your own, through a broker, or with the help of an automated investment service like Stockspot, here are some tax issues to consider.

Keep in mind that this article is general information only and doesn’t consider any individual’s personal circumstances.
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Should you rentvest instead of buying a home?

Rentvest or buying a home?
 
Buy or rent? Rent to own? Or avoid investing in property at all? If you’re planning to be a first homeowner it’s likely you’ve heard the term ‘rentvest’ as an alternative to buying a home.

Rentvest is the latest portmanteau (also known as a word blend, ie ‘hangry’ or ‘brangelina’) given to a recent millennial buying trend.

Rent-vesting lets you buy an investment property without living in it

Millennials living in metropolitan Australian cities can no longer afford to buy a home in their chosen suburb. Many now opt to buy an investment property in a more affordable location which they rent out while also renting in their chosen location.

It’s a foot onto the property ladder and because the deposit and mortgage payments are lower, the millennials penchant for a flexible lifestyle still allows them to travel, eat out and the freedom to move around.
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The need for a royal commission into banking misconduct

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The 2 major parties in Australian politics have been left scratching their heads over what it is the people want. If the result shows anything it’s that the people want their government to listen and stop putting the interests of big corporates before the benefit of the general population.

If our new MPs and senators do an effective job, a Royal Commission into the banking industry’s financial advice and remuneration practices should be one positive to emerge from the political disarray the country finds itself in. As the crossbenchers jot down their negotiation wish list, ‘royal commission into banking misconduct’ should be at the top.
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Investment update: UK Exit (Brexit)

brexit-banner
 
The UK voted to leave the European Union after 43 years of membership. This surprised markets which had assumed only a small chance of the UK leaving.

What does it mean?

Nobody actually knows what the medium to long term implications are for the UK or global economy, due to uncertainty around how the exit will play out.

Not surprisingly share markets reacted negatively with all global markets initially falling. The good news is defensive assets like bonds and gold rose. Both assets are key parts of Stockspot’s portfolios and have helped minimise the impact of share market falls.
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How to build an awesome investment portfolio

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Clients sometimes ask us how we built the Stockspot portfolios, and why we selected 5 assets to invest in rather than 2, 3 or 10!

It comes down to the purpose of the Stockspot portfolios which is to maximise returns for each level of risk. Five assets allows us to give clients the best possible combination of returns, risk and costs.

To do this we leverage the benefits of diversification. Diversification simply means that by combining investments with different characteristics you can improve the quality of returns in your portfolio.

Quality of returns is measured by how much risk you need to take to earn a certain return. Since all investing involves taking some risk, the aim is to minimise the risk you need to take to earn the return you want. Diversification across assets enables you to take less risk to earn better returns.
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When is a good time to invest?

when-to-invest-banner
 
Markets can go up and down over the short-term and it’s almost impossible to pick the market top or bottom (even for professionals).

So when is a good time to invest in shares?

Instead of trying to time your entry point, dollar-cost averaging is a strategy to invest gradually over a few days, weeks or months. This helps reduce the impact of short term moves in the market because you invest at an ‘average’ price over a period of time.

Dollar cost averaging can help smooth your initial investment returns by reducing the risk that you’ve invested everything just before a dip in the market. By buying over a period of time you get to take advantage of any market dips and buy at the lower prices if markets fall.
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ETFs surge 6% in May

201606-etf-update-banner
 
Our update on the Australian ETF market as at June 2016.

Highlights

  • ASX listed ETFs grew by $1.35 billion for the month as confidence returned to share markets after a surprise interest rate cut and expectations of low interest rates remaining.
  • Monthly FUM growth was 6%, from $21,905M in April to $23,162M by the end of May 2016.
  • Broad market and sector ETFs were the best performers both locally and internationally.
  • Australian property ETFs continue to lead on 12 month performance due to falling interest rates.
  • The BetaShares Cash ETF (AAA) saw a rare month of outflows due to a surprise cut in interest rates.
  • MarketVectors rebranded to its parent company name – VanEck to become VanEck Vectors.
  • BetaShares launched 2 ETFs in a partnership with major USA-based issuer WisdomTree.

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How does anchoring bias affect your investing?

anchoring-banner
 
In many walks of life we have a tendency to use anchors or reference points to make decisions, and sometimes these lead us astray. Nowhere is this more dangerous than when investing.

What is anchoring?

Anchoring is our tendency to grab hold of irrelevant and often subliminal information in the face of uncertainty to make decisions.

Since anchoring occurs in so many situations, no single theory has conclusively explained why we do it. However the modern favourite theory for explaining the effect of anchoring comes from several groundbreaking studies that were conducted in the fields of decision science and performed by Kahneman and Tversky in the 1970s.

Kahneman and Tversky were interested in how people formed judgements when they were unsure of the facts. They found that when people are uncertain about the correct answer, we take a guess using the most recent number we’ve heard as a starting point.
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What is your risk profile & how does it help your investment strategy?

investment-profile-banner
 
Having an up-to-date investment profile is important when making any investment decision because it helps match you to the best investment strategy to meet your goals.

Your investment profile defines what type of investor you are and is made up of 2 parts:

  1. Your investment timeframe

  2. Your risk profile

Asking questions about these 2 areas helps to ensure that your investment strategy is suitable and that you don’t take on too much risk.
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The ETF boom continues in 2016

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The ETF boom has continued in Australia with the market growing 20% over the year to $21.3 billion in funds under management (FUM).

ETF trends for 2015/16

Global share ETFs maintained their position as the largest ETF sector, with $7.9 billion, up 18% for the year and there were 13 global ETFs launched.

Fixed income and cash ETFs continued to grow in popularity as investors looked to diversify and access higher yields than the low interest rates available in savings accounts. The sectors’ FUM grew 40% to $2.2 billion.
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Stockspot portfolios: 2 years on…

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Thanks to the thousands of clients who have been on the journey with us since Stockspot launched to the public in May 2014, exactly 2 years ago. Back in 2014, automated investing, robo advice and fintech weren’t as well understood as they are today so we appreciate the support of our clients who have trusted us to help manage their savings.

Despite the recent share market volatility, the Stockspot model portfolios generated 4% to 4.5% p.a. in total returns over the 2 years to 30th April 2016.

The performance was more than double the 1.5% p.a. return from indexed Australian shares over the same period. Distributions and dividends made up most of the performance since it was a subdued period for capital returns.

Stockspot model portfolios: 2 year performance after fees

  Total return p.a. Distributions p.a.
Topaz 4.13% 3.36%
Emerald 3.99% 3.33%
Turquoise 4.20% 3.07%
Sapphire 4.34% 2.78%
Amethyst 4.56% 2.52%

Total return after ETF and management fees (1st May 2014 – 30th April 2016)

2-year-portfolio-performance
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