Hello, and welcome to Shared Lunch, brought to you by ShaSS. My name is Sonia and I'm the co founder and co here share CS, and we're on a mission to create financial empowerment for everyone. Many people use ETFs or exchange traded funds as a defensive move with market volatility.
For some, it also allows.
Them to enter the market in a more accessible way. Today, I'm joined and hosted by Bryce from Equity Mates to discuss all things ETFs and what to consider.
Before adding them to your portfolio.
Before we get started, I'd like to acknowledge the traditional custodians of the land where we come to you from today, the Gettigill people of.
The Aura nation, and pay respects to olders past and present.
Investing involves the risk you might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and here is current at the time of recording.
Welcome Brice, Thanks for having me excited to be here.
Yeah, thanks for having us anytime. Yeah, So we digging into etifs. But before we get started, can you just what are.
They whatf okay. So ETFs think of them like a It's a bundle of investments that you can buy in one on a stock exchange. The analogy that we like to use is traditionally, when you were to buy stocks, you would have to choose individual stocks and buy them individually on the stock exchange. You would buy a Commonwealth Bank, you'd buy Woolworths, you'd buy Telstra, for example, three investments, three individual holdings. Think of that like buying banana at
wool is, apple and orange. Whereas now you can go in and you can buy the fruit salad, a bucket that has all the fruit cut up and in one in one purchase you can buy a bit of everything, and an ETF is just like that. You can buy a bit of Commonwealth, a bit of Telstra, a bit of Woolworth in one and trade it just like a stock on the Australian Stock Exchange or exchanges around the world.
The other twom you're here and there with the etfss and mixes, can you tell us about how those two connect.
So indexes are a way of measuring change. So you would baseline whatever you're trying to measure, and then the index will tell you how that has changed over time. In investing, the indexes are around the world a group of stocks that have been put together and then we measure the change in those stocks. So, for example, the ASEX two hundred is an index of the top largest two hundred stocks in Australia and the index then measures
how that changes. You'll hear Alan Kohler on ABC News in Australia say that the ASEX two hundred is up two percent today. That means that that measure of all two hundred stocks has moved up two percent on average in value. How that relates to an ETF is that ETFs then come along and wrap that index all up and then you can buy that index and so you can buy all two hundred companies and effectively you can buy the change in the ASX two hundred over time.
So index ETFs ETFs where what you are investing in is the underlying index that it tracks.
Over the last week, while we've seen more of Aaronbistas putting money into ETFs over individual companies as something you've seen as well, you know, why do you think they might.
Be the case?
I mean, yeah, we've definitely seen it as part of the equitymates community. I even look at the way I've changed my investing strategy over the last sort of ten years, and it is very much now centered around a core ETF index philosophy. I think why that has has become I guess popular is because you know, back in the day, when you only had the ability to choose in vidual stocks or you had to choose fund managers to invest money on your behalf, it was really overwhelming, like I
didn't really know what I was doing. Like I thought I was trying to be Warren Buffett and find you know, deep value companies, and you hear all these things about trying to find the hidden gem. But the reality is that as like an early stage investor, you have to do a lot of work to really be good at picking individual stocks and create a portfolio. And so it was I guess a major barrier to a lot of people. The I guess the inclusion or the entry of ETFs
has made investing far more accessible for a lot of people. Also, they're super low cost. It doesn't cost a lot of money to invest in ETFs compared to having to invest in a fund manager back in the day. So probably accessibility and low cost a sort of the two biggest reasons I think that, Yeah, ETF's becoming a really popular choice.
It's funny you say, like how you're investing, like behavior has changed over to time, because I definitely feel like I went through that too, where it's like kind of felt like I loved being able to do the company stuff, and then there came a time where I was like, wait a minute, I have a day job like this, And people often say, you know, like send your money to work when you're invested in, Like I kind of like that, like I don't have to micro manage it.
Yes, I'll send.
It to it investing it and it's hard. Is like money doing good for you while you don't have to do a lot, But you're right, like it takes a lot of time to sit down and actually be like, of all the money that I've just saved up, I've worked mine, you know, my whole life to have this pool of money. Do I really know what this individual company is doing against all of the other individual companies
that I could invest in. So I think like the way that ETFs now allow you to invest just safely confidently, you know, there's a lot of advantages.
You know, it kind of ties it nicely because it's like, who are ETFs good for?
I would argue everyone, like even even you look at some of the best investors from around from around the world, and I'm talking like billion dollar hedge fund managers, and they have index ETFs in their portfolios because it's just because it's just such an easy way to make money. And I don't say that it's a given that you make money from them, but it's just it's such a beautiful mechanism to invest in the stock market without having
to do a lot. So I think they're suitable for everyone, but I think to flip it around, their best for people who have worked hard for their money, know that they want to try and build wealth outside of just saving money in the bank account, but don't really feel like they have a whole lot of time or knowledge
to invest in individual stocks. Because the reality is there are ETFs available these days that we call one stop shops where you can just choose one ETF that gives you global access to thousands of companies and you'd really just let that ride for forty years and you're going
to be more than okay. So I think for beginners it's the best way to start, and then once you sort of start being a little bit more confident, there's different types of ETFs that you can start adding to your portfolio, depending on areas of the market that you're interested in or what your long term investment strategy is.
But if someone turns around said ETFs are not for me, then I would really challenge them on why that is, because the data shows that, as I said, over the long time, you can create a very healthy portfolio just through index investing.
Is any disadvantages that you see, maybe not disadvantages, but like some misconceptions perhaps Oh yeah, A lot of people.
Think that any ETF is set and forget, And what I mean by that is index ETFs, which we've spoken about, you are very much bottom draw investments. You can put money in the ASX two hundred and really you could just keep adding to that over a long period of time and not have to really worry about doing much with that ETF because the way it works is it will change the companies within those two hundred just by
nature of how the market works. But a lot of people then take that sort of concept of set and forget and bottom draw and put it to thematic ETFs, or ETFs that have a leverage tilt to them, or
ETFs that actively managed for example. And so if you're buying a thematic ETF, which might be an ETF that invests in AI companies or an ETF that invests in defense companies, or thematics that are sort of the here and now, if you put that in the bottom drawer, thinking that something you can invest in forever, then you're effectively making a bet that that thematic is going to
be a forty year thematic. And so people can go wrong thinking any ETF is a set and figet So I would just caution that that is probably with the biggest misconception or not disadvantage, but misconception that we see and maybe not a disadvantage. But there are now so many ETFs available as well, like there can be a feeling of ETF overload or overwhelmed when it comes to trying to pick it. So I'm sure we'll get into how to pick them, but yeah, it can feel confusing.
Can you be too diversified?
You can have too many ETFs? I think, because what you'll start finding is, you know, given that so many of them have hundreds if not thousands of companies, you'll start just overlapping. And what that means is you might find the top ten holdings of one ETF are very similar to the top ten of another, and very similar to the top ten of another, And there's nothing wrong with that, Like you're still invested, but you could be
consolidated and a little bit more simplified. And if you have too many stocks, you've got to really ask yourself, what are you really trying to achieve? Yeah, so I don't want to put people off, but yeah, you you can have an overlap.
And so let's check thematics. Because you've brought that up. What role do themetics play?
They're probably one of the more hotter spaces in ETFs at the moment. Like the first things to kind of come to market was through Vanguard, which was the index investing. Let's just get access to the ASEX two hundred s and P five hundred, which is the top five hundred in the US, the foot see which is the top companies over in the UK. And then people sort of thought, this is a really great way to invest in a whole lot of stocks without really having to do a lot.
Why don't we bucket up stocks that center around a particular theme, and so you'll see gold miners, for example, as an ETF thematic, or you'll see, as I said, AI semiconductors are a huge one at the moment given what's going on overseas. As I said, defense spending is a massive one cryptocurrency. There's been all sorts of like trends where ETF providers have come a long and wrapped up companies and created an ETF. So that's a thematic ETF where all of the companies sort of follow one theme.
The positives of that are that again I can go in and be like, I'm super bullish on semiconductors, but I really don't have the understanding all the time to go and choose the best semiconductor stock. I want just access to the best twenty and for me, an ETF is the best way to do that. And so you could put that in your portfolio as a smaller percentage on top of your core and that's one way to get access to that thematic. The danger of that, as I said, is that that thematic you still need to
pay attention to. Because I've been in plenty I got on I thought the legalization of marijuana, for example, over in the States was talked up and hyped and thought this was going to be the next biggest thing. There were ETFs that gave exposure to all of the marijuana producers and retailers over in the States, but that's been an absolute flop. And if you weren't paying attention to that thematic, if you put it into your bottom drawn you, then you would have, you know, probably lost a lot
of money. And so thematics are a great way to get broader exposure to I guess a trend or a fad, but it comes with caution that they're not something that's going to last forever.
How do you choose what etifs to envisten?
It firstly comes down to and this is a classic answer which I actually hate when other people tell.
Me, but it depends, It depends what.
It depends what your goals are to begin with, and then from there you can kind of work things out. So if your goal, for example, is to just put your money to work and never have to pick a stock, and you just want one thing to invest in, then that kind of tells you all. I need to find an ETF that gives me that functionality that is, gives me the opportunity to buy a lot of stuff around the world very cheaply, and so you can kind of will search to find that out. There are plenty of examples.
But if that's the goal, then there's a universe of ETFs that suit that. If the goal is I want to create a core portfolio that tracks index products, but I want to create the portfolio myself, then you say, okay, well, now I have a universe of stocks where I need to find, you know, index ETFs that are particular to countries,
and so you can sort of filter that way. If your goal is I only want to invest in the hottest themes around the world, I don't care about just investing in Australia or whatever, then there's ETFs that will probably track your theme. So like starting with like how like your goal what it is you want to be investing in, can kind of figure it out. But from there there are a few small things like looking at the provider or the the the ETF whereah, the ETF
provider like some big names in Australia. You've got Vanguard, You've got Beta shares, You've got black Rock or I shares, that they have a huge range of ETFs available and all sort of do different things. So starting there, and they all have very good transparent information on their websites where you can I would recommend always going and starting at their websites to find out everything you need to know about that ETF.
Yeah, so there are.
Like the same funds that check the same indixes and so that you've got a range of options. What's the kind of if you're reading the information, what are the key things to look for to try and decipher whether you want to go for this, Like I said, a provider of an et if over or very different.
One good question. So let's take the S and P. Let's take ASEX two hundred, which is the Australian top two hundred. So Beta shares have one pretty sure I Shares Vanguard have a sort of equivalent. But let's say that there's three providers. The first thing is that at the end of the day, don't get worked up on just like the minuture of it all you through all three of them, you are buying the same thing, which
is the top two hundred companies in Australia. Beta shares is not going to change theirs or VANDGUARD is not going to change theirs. They all have to follow the same index methodology and so you're not going to get anything different in terms of the underlying assets. So don't feel like one is like worse off than the other. Where you really can differentiate for us is the price and not so is the cost of the ETF, not the share price, because the share prices will all be
different and it has no bearing on anything. But it's actually the underlying management fee of the ETF, and you can find that information on the website. It's often called a management expense ratio MEER, or it's just going to say management fee. If if all three of them, you're getting access to the same investments. For me, it's like pay as cheap as possible. Yeah.
Yeah, that's a great point.
And I loved your point at the start around like they're all invested on the same thing, you know, don't.
Kind of get too caught up. But your point on fees is really imporant.
Yeah, I think you can get overwhelmed with trying to find like the perfect ETF. But as I said, like firstly, what are you trying to do. I'm trying to get access to this train market. If you're paying a percentage of zero point zero four and the next the one next door is zero point zero three, like, it really doesn't matter that much. It's like only if the one
up the road was paying one percent or whatever. But yeah, I think you can get overwhelmed, and especially with ETFs as well, like you can always sell it and move to another one if you find later on that there's another one that is actually better and suits your needs. That's exactly what I've done. I've sold in and out until I've found the right mix for my core portfolio, and now I'm really happy with it. So I think it's not like a once you're in, you're locked in.
Just get in and you'll kind of figure it out.
You know, are there any other kind of ways that etif's fit in is your overall portfolio?
I have dabbled and sort of do dabble on the matic side a little bit more than I think others might.
You know, if I think that Bitcoin's going to have a good run, or if I think that you know, the you know, Liberation Day was a good example actually short at the nasdak over a period of time and did well out of that but you kind of really need to have an understanding of what is going on and pay very very close attention if you start playing that short term game like it's just I think fundamentally trying to time the market is just not the right
thing to be doing at all. You can have a little bit of fun with it on the side, but as I said, I can do that knowing eighty percent of my core my portfolio is sitting in core. So yeah, I think the matics play that part.
Are there any other trends that you're seeing.
We're seeing a lot of active ETFs starting to come And what I mean by that is traditionally, if you were not investing in individual stocks, you could have gone to fund managers and given them your money and they would run a folio of companies. Traditionally, that was a very expensive way to invest because they would charge you a high percentage on what you're investing. They'd also charge you management fees, and it was all pretty opaque and
you didn't really know what they were investing in. They kind of just said, this is what we've done for you this year. And because of the rise of ETFs, these fund managers are now saying, well, we want to be able to get access to a lot of the trends that are happening in the ATF space, So why don't we turn our funds into ETFs. And so the good thing with that is we can now access some
of the best fund managers around the world. And I'm talking fund managers that traditionally work for like Ultra high net worths, JP Morgans, Black Rocks, Fidelities. These are like multi trillion dollar investment banks. They are now listing their investment strategies as ETFs on the Australian Stock Exchange. So I can go and give my money to JP Morgan and let them run their global fund managers, or I can go to Fidelity and get them to invest in
their small cap fund. So what it's done is it's like opened up a world of opportunity to invest in some of the best fund managers, which sounds cool and it is cool. The thing you need to remember is that a lot of them, an overwhelming amount of fund managers, actually struggle to beat what we call the benchmark, which
is just those underlying index ETFs. And so you need to be very careful on who you're giving your money to or which active ETFs you're choosing because if they can't beat the ASX two hundred or the S and P five hundred, you may as well just be going with the index. So that's a huge trend we're seeing. We're seeing a lot of companies come out and sort of create differentiated ETFs. You might get access now to commodities that we may never have been able to access.
You can buy gold ETFs. You can buy that give you access to all different asset classes as well property, crypto, So they've really opened up the investment universe.
What about smart beta etifs.
So smart beta is something that's very new here in Australia. There's only a handful and they are the big players Macquarie, JP etc. We're actually looking at them this morning and I think they have a great role to play. So what they are is like think about the ASEX two hundred index. It is based and ranked by the top two hundred in terms of the value of the company.
The most valuable company BHP or Commonwealth sits at the top all the way down to the two hundredth most valuable and then that changes automatically as the stocks move around. What a beta ETF does is they will take that two hundred and then they'll say, we're going to slightly tweak a few stocks in there so that we should be able to get a little bit better performance than if you were to just in in the top two hundred. Now, again, you're backing in a manager or you're backing in a
system to do that. But I mean some data we're looking out this morning shows that it does work, and it gives you access to different styles of investing as well. You might have heard of value investing, you might have heard of momentum, you might have heard of Well, I guess those are two sort of key ones, and these ETFs sort of put those investment strategies over the top of these big, sort of core index products. So again,
need to know what you're investing in and why. But it's a new trend that we're starting to see from some of the big players. Yeah.
Cool. And then coming back to your point when you were talking about.
The act of investors playing a role like an analogy that we use it and there is because there are people doing a job in the mix of it, which is why the management fees exist. And we're kind of liken it to like whether you just check on a playlist at a party.
Or get a d J.
You know, it's like there is someone doing something like there is you know, like the indix's checking, say, to filters, or the ETF is checking to filters, or is this is someone who's actually like looking at this making this decision. And to your point, sometimes it doesn't necessarily lead to bitter decision making, but sometimes it does. I do you have a view on management fees or yea.
I can try to think back to the analogy because I like DJing as well, and it's kind of like you would pay for a DJ because you would expect the DJ to get the dance floor going better and if you just exactly then if you just played the playlist.
But it's not. But the risk is that you pay this DJ all this money and that they actually sucked at reading the room. In investments, it's the same thing. You could pay this manager all this money because you think they're going to do better than just buying the top two hundred, and in actual fact they've misread the room and continuously underperform and clear the dance floor night
after night after night. So I don't have a problem with paying for it, but as long as you're getting bang for your buck, really, and what that means is as long as you're getting a better outcome than if a you couldn't do it yourself, but b if it is actually better than investing in low cost index ETFs. I have one managed fund that I use, and they charge a one point five management fee one point five percent,
which in these day and age is quite high. But that is for a small cap manager for global small cap funds for small cap companies. And that's an area of the market that I know I will never have expertise in and I will never have the time to scour for the largest manufacturer of door hinges in Norway.
And there's also not a lot of like analyst coverage.
Door handle exactly.
Yeah, And I'm just like, I will never be able to play in that game, but I and so I'm prepared to pay a higher fee to get that expertise as long as they show that they can continuously deliver
good performance. What I'm not prepared to pay for is someone to say I'm going to actively manage the top ASX two hundred because the reality is statistically only fifteen percent of fund managers can do better than if I was just to buy the entire index myself, and so then I have to try and find the fifteen percent that can beat it, Choose one of them and hope that they can continue to do it. So don't be
scared of high fees. You'll often find thematic ETFs have higher fees, and to your point, it's because people actually doing things there. They're creating the ETFs, they're managing the underlying system making decisions. So it doesn't mean that it's bad, but if you're paying a high fee, you need to have an expectation that you're going to get your money's worth.
Yeah, it's like one of the first because we've got some managed funds on the platform on Cheesy's and one of the first ones we had was.
As a responsible envestment manager, and.
That's one of those where it's actually like really hard to get good information about response and it means something different to everyone. So it's like, actually, use is a management fee there, but someone's doing that work, and that work is actually really hard.
To do, and particularly in that space, to your point, very hard to do. Like responsible investing can mean a thousand different things, and the opaqueness in that industry alone, well, in that investment sort of universe, you've got to be very clear on and your research needs to be so thorough. But that you know, paying someone to do that for you, you know, I think sort of makes sense.
So before we kind of close out on ETFs, what's one thing you'd love people to know?
I think there's one. There's something for everyone. Is the main thing, And no matter where you are on your investing journey, like ETF should or could play a very big part in your portfolio. But if you are in that early stage and you are feeling confused and overwhelmed
with where to start. You don't want to be picking individual company, you don't want to be picking individual stocks, then this is the world to be playing in, and that you can have a very very successful investing journey by only investing in one or two ets that just track global stock markets, because at the end of the day, like the returns that that gives statistically is more than enough to build a healthy portfolio and far better than
a lot of the professionals can do. So if you're feeling like you want to get started, then then this is absolutely the place to be playing yeah, yeah, fair enough.
And then so what's coming up for you, what's exciting you at the moment, and what sneaks for equity makes our goal?
Our mission is just to continue educating as many people as possible about how you can build wealth in the stock market. You don't know, if you're feeling priced out of property, if you're feeling like overwhelmed and you're feeling like you're behind, I think, a you're probably not, but and there a lot of other people sort of feeling like that, but be there are ways that you can
start feeling more confident with what you're doing. And so I guess our mission is really just to continue doing that, continue growing reaching all different people across Australia in as many ways as possible. We've got our two main shows that we think sort of no matter where you are on your investing journey will cater for you. So yeah,
that's what's next. I would love to say that we've got global expansion plans or something like that, but really it's just to continue doing what we're doing and trying to educate as many as strands as possible about the power of building wealth and stock market.
Yeah awesome, Well thanks hes for chatting, and thanks for hosting us here anytime.
Welcome back to Got the Lights. Yeah that was fun. I really enjoyed it.
Thanks everyone for tuning in.
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