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For Financial Professionals. Not for Public Distribution. PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of S&P Dow Jones Indices. 1
In association with
23rd October 2014 | ASX Auditorium
For Financial Professionals. Not for Public Distribution. PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of S&P Dow Jones Indices.
Moderator
- Jonathan Morgan, S&P Dow Jones Indices
Panelists:
- Jonathan Shead, State Street Global Advisors
- Jonathan Howie, iShares by BlackRock
PANEL: Using ETFs to Access
International Markets
What You Need to Know
spdrs.com.au
International ETFs
State Street Global Advisors
p. 4
Adviser goal
• To cost effectively alter level of currency hedging in client model portfolios
Considerations
• Vehicles considered were unlisted managed funds and ETFs
• Impact of large cash flows on ETF
• Secondary market liquidity
• Ability to leverage relationship with own broker
• Costs of switching between hedged and unhedged exposures
Solution: Implemented a combination of hedged and unhedged international equity
ETFs
Case Study: Currency management with ETFs
p. 5
Case study: Income focused investor
Planner goal
• Deliver a portfolio for a client with 10 years till retirement
• Needs to diversify from Australian equities and property
• Wants to include international equities
• Focus on income
Considerations
• Portfolio is tilted to international equity strategies offering both income and growth
potential
• Due to clients risk averse nature, only a small allocation to emerging market
equities is appropriate
• A smaller broad based developed market equity allocation was used to provide
broad diversification across countries, sectors and companies
p. 6
Proposed asset allocation
Source: State Street Global Advisors, as of 28 February 2014. Asset classes are represented by underlying indices: Australian equities, S&P/ASX 200 index; broad global equities, S&P Developed ex-Australia
LargeMidCap index; global dividend equities, S&P Global Dividend Aristocrats index; emerging market equities, S&P Emerging Markets LargeMidCap index; global REITs, Dow Jones Global Select Real Estate Securities.
Solution: Income focused investor
EXPECTED
RETURN (%)
CURRENT
DIVIDEND YIELD
(%)
SHARPE RATIO
(%)
4.94 4.00 0.53
0.55
0.59
0.70
0.74
0.40 0.60 0.80 1.00
Global Real Estate
Global Dividend Equities
Developed InternationalEquities
Emerging Market EquitiesAustralian Equities,
15%
Bonds, 15%
Cash, 30%
Global Real Estate, 15%
Global Dividend
Equities, 10%
Developed International
Equities, 10%
Emerging Market
Equities, 5%
14.0%
7.3% 7.6%
2.8% 3.3% 3.9%
10.6% 8.7%
15.1%
0%
5%
10%
15%
20%
1 year 3 years(annualised)
5 years(annualised)
Income focused portfolio UBS Bank Bill Index
S&P/ASX 200 Index
Correlation (10 years)
Historical Performance
p. 7
Pricing International Equity ETFs
ASX
Open
AUS
TUE
8AM
USA
MON
6PM
USA
TUE
1AM
USA
TUE
5AM
USA
MON
9PM
USA
TUE
9AM
USA
TUE
1PM
USA
TUE
4PM
AUS
WED
12AM
AUS
WED
4AM
AUS
WED
8AM
AUS
TUE
8PM
AUS
TUE
4PM
AUS
TUE 12PM
ASX Close US
Close
Decision
point
NAV
calculate
d
Market and
Political events
Foreign
exchange
US
Open
Seeking international exposures with
iShares ETFs
iShares Australia
23/10/2014
Using ETFs to access international markets
JAPAN
IJP UNITED STATES
IVV
IRU
IJR
IJH
EUROPE
IEU
AUSTRALIA
IOZ
IHD
ISO
ILC
IAF
IGB
ILB
LARGE CAP ASIA
IAA
TAIWAN
ITW
KOREA
IKO
GLOBAL
IOO
IXI
IXJ
IXP
IEM
IBK
IVE
CHINA
IZZ
IHK
9
SINGAPORE
ISG
FOR FINANCIAL ADVISOR AND PROFESSIONAL INVESTOR USE ONLY - NOT FOR PUBLIC DISTRIBUTION
‘World’ exposure with just two trades
10
3.94%
8.03%
6.46%
45.13%
5.09%
6.99%
0.78%
16.39%
0.00%
5.45%
1.74%
7.74%
9.20%
7.05%
33.27%
8.67%
9.14%
6.57%
11.06%
0.09%
4.56%
2.64%
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Other
Telecommunication Services
Utilities
Before (S&P/ASX 200) After (World Portfolio)
Source: Bloomberg, as at 30 September 2014
S&P/ASX 200 Inde
x
Before
IOZ
IVV
IVE
After
‘World’ exposure with just two trades
11 FOR FINANCIAL ADVISOR AND PROFESSIONAL INVESTOR USE ONLY - NOT FOR PUBLIC DISTRIBUTION
$90
$100
$110
$120
$130
$140
$150
$160
$170
$180
Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14
Before After KEY
STATSTICS
Australian
Equities
Internationally
Diversified
Underlying Stocks 200 1413
Number of Countries
Represented 1 22
Average Annual
Return (%) 7.78 15.52
Annual Standard
Deviation (%) 11.32 9.31
Cumulative
Return (%) 32.44 71.76
Sharpe Ratio 0.38 1.29
MER (% pa) 0.19 0.1975
Trade when markets are most active
Pricing is likely to be most efficient when there are multiple liquidity providers active
Where possible, time orders when underlying markets are open
Use limit orders
Be a price maker, not a price taker and avoid potential price slippage
For larger orders
Liquidity providers can provide two way risk prices on screen
Authorised Participants are able to create (or redeem) units in the ETF to satisfy demand
Contact iShares Capital markets for assistance (02) 9272 2345
12
ETF trading best practices
FOR FINANCIAL ADVISOR AND PROFESSIONAL INVESTOR USE ONLY - NOT FOR PUBLIC DISTRIBUTION
Trading in international iShares
13
0
1000
2000
3000
4000
5000
6000
10:1
2:1
1 A
M10:1
7:4
6 A
M10:1
7:5
9 A
M10:1
9:3
0 A
M10:2
7:3
4 A
M10:4
9:2
5 A
M11:0
0:0
7 A
M11:0
9:2
1 A
M11:2
1:0
1 A
M11:2
8:3
6 A
M11:3
6:0
1 A
M11:4
8:3
8 A
M11:5
6:4
4 A
M12:0
4:2
8 P
M12:0
7:0
5 P
M12:1
2:3
9 P
M12:1
4:5
5 P
M12:2
6:1
5 P
M12:3
5:3
1 P
M12:3
7:4
1 P
M12:4
0:3
5 P
M12:4
0:3
5 P
M12:4
4:0
7 P
M12:4
7:2
6 P
M12:5
5:5
3 P
M12:5
9:2
0 P
M1:0
9:0
1 P
M1:1
0:3
8 P
M1:1
4:2
0 P
M1:3
4:4
6 P
M1:3
4:5
8 P
M1:4
3:0
0 P
M1:5
2:0
4 P
M1:5
4:0
2 P
M2:0
1:4
1 P
M2:1
0:4
8 P
M2:2
1:3
5 P
M2:2
4:1
5 P
M2:3
3:1
9 P
M2:4
1:3
3 P
M2:5
6:5
8 P
M2:5
7:3
2 P
M3:1
0:0
4 P
M3:1
8:1
9 P
M3:2
1:0
7 P
M3:2
2:5
3 P
M3:2
4:1
7 P
M3:3
1:2
7 P
M3:3
1:4
4 P
M3:4
9:3
5 P
M3:5
3:2
2 P
M3:5
4:0
3 P
M4:0
0:0
0 P
M
224.5
225
225.5
226
226.5
227
227.5
228
228.5
229
Trade Size (Units) Price (A$)
Source: Bloomberg, as at 1 October 2014
On 1 October 2014 an investor traded two lots of IVV on screen, each worth
approximately $1m, at 2.16pm and 3.54pm. What did that do to the price?
BlackRock’s iShares® Platform
14
iShares have delivered strong performance through
tight tracking, deep liquidity, and institutional-quality indices1
700+ funds globally–the most comprehensive range of choices for your portfolios
iShares give you versatility to build the core of your portfolio,
help meet specific goals, and implement your market views
Expert portfolio management actively seeks to optimize returns, risk, and cost
Risk-managed by Aladdin, BlackRock’s industry-leading technology platform
Specialized client teams who help you choose the right
iShares ETFs, trade efficiently, and build better portfolios
Serves investors of all sizes–wealth managers, banks, asset managers,
pensions, insurers, advisors, and personal investors
Brings you more than a decade of ETF innovation and expertise
The scale of iShares benefits you through indexing excellence, breadth of choice, and deep liquidity
1 See appendix. There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.
FOR FINANCIAL ADVISOR AND PROFESSIONAL INVESTOR USE ONLY – NOT FOR PUBLIC DISTRIBUTION
Important information
IMPORTANT INFORMATION
Before investing in an iShares exchange traded fund, you should carefully consider whether such products are appropriate for you, read the applicable prospectus or product
disclosure statement (“PDS”) available at iShares.com.au and consult an investment adviser.
Issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFSL 230523 (“BIMAL”). BIMAL is a wholly-owned subsidiary of BlackRock, Inc. (collectively
“BlackRock”).
BlackRock believes the information in this document is correct at the time of issue, but no warranty of accuracy or reliability is given and no responsibility arising in any way for errors or
omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock.
This information is general in nature, and has been prepared without taking into account any individual’s objectives, financial situation, or needs.
Transaction costs are incurred when buying or selling shares or units (as the case may be) of an iShares fund (“iShares secur ities”) on a market of the Australian Securities Exchange
(“ASX”) and brokerage commissions may be charged if such trades are done through a broker.
Neither the performance nor the repayment of capital or any income of an iShares fund is guaranteed by any BlackRock entity. Past performance is not a reliable indicator of future
performance.
iShares securities trade on ASX at market price (not, net asset value ("NAV")). iShares securities may only be redeemed directly by persons called “Authorised Participants”.
An iShares fund is not sponsored, endorsed, issued, sold or promoted by the provider of the index which a particular iShares fund seeks to track. No index provider makes any
representation regarding the advisability of investing in the iShares funds.
Australian iShares funds: BIMAL is the Responsible Entity for the managed investment scheme Australian iShares funds quoted on ASX, and is the issuer of units in those iShares funds.
Each fund constitution provides that the liability of each unit holder is limited to its investment in the fund. In addition to the normal risks associated with investing, there may be risks
associated with investments made by iShares funds in smaller companies and those whose activities are narrowly focused.
International iShares funds: BIMAL is the local agent and intermediary for international iShares funds issued by iShares (iShares, Inc. ARBN 125632 279 formed in Maryland, USA; iShares
Trust ARBN 125 632 411 organised in Delaware, USA. The liability of shareholders is limited). BlackRock Fund Advisors (“BFA”) serves as an advisor to the iShares funds that are
registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940. BFA is a subsidiary of BlackRock Institutional Trust Company, N.A
(“BTC”). BTC is a wholly-owned subsidiary of BlackRock, Trades on ASX in the shares of an international iShares fund are settled using CHESS Depositary Interests (or “CDIs"). An
investment in an international iShares fund has different risk, performance and return factors compared to investments in other listed securities that do not have international exposure.
© 2014 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries. All other marks are the property of their respective
owners.
15 FOR FINANCIAL ADVISOR AND PROFESSIONAL INVESTOR USE ONLY - NOT FOR PUBLIC DISTRIBUTION