Hello, and welcome to The Australian's Money Puzzle podcast. I'm James Kirby, the editor at The Australian. Yeah, welcome aboard everybody. Just before we start today's show, I want to just deal with something. Thank you everybody who contacted us through the email of the Money Puzzle at the Australian dot com dot au in the last few days about the
fire movement. I knew there would be a response. It's funny it took a week or two rather than a day or two, but here they come, and lots of correspondents and questions about the fire movement, and fair enough a few people saying, well, you know, James Gerard was on basically offering a critique of the fire movement and the fire movement financial independence, retire early movement. They should have the right to come on and give their side of the story, which they certainly do, and I will
do that. Just give me a chance to There's two things. First of all, I've got to find some time to get them on the show. And I have to choose who the spokesman, the most appropriate spokesperson might be for the farm movement. So we will sort that out asap. All right, okay, speaking about the email box every day without failure. There are questions about exchange traded funds ETFs.
It's easily the top subject. And I'm not surprised because exchange traded funds have become a gateway to the market, particularly for people who are starting investing early investors. But just as easily they are very popular with can I call them sophisticated investors, experienced investors who have a kind of what they call a core and satellite approach, so they have ETFs to cover off certain areas of investing.
It might be the American share market, or it might be bonds, or it might be emerging markets or whatever. And they have become so popular, of course, understandably, just as I'm starting to understand them, and just as i think I've imparted what you need to know about them, of course, they're shifting. Goalposts are shifting as to what they actually are. So I've had a few people on
the show before about ETFs, always to good response. So we've had Robin Bowerman from Vanguard, We've had David Bassenesi from Beta Shares, and today my guest is from the Global x Group. Global X You may not know, but what's upon a time they were called ETF and that was an organization which launched the first the original of the species, the first ever ETF in Australia which I
remember reporting upon at the time. I think it was Downtel ninety seven and it was a goal DTF, which remains the biggest goal DTF in the market, about three and a half billion in the market today. Looking over all, that is Mark Jocum, he is at the global X Group, is an investment strategist there.
How are you Mark, Hi, James, thanks so much for having me on the show. Really looking forward to it.
Did I get the history right?
There?
Was it ninety seven?
So we launched the first gold ETF in two thousand and three, but we started looking at the first ETF came in nineteen ninety one in Canada. But yes, as you alluded to, Australia, we were the first country to launch a gold exchange traded product. And we've seen a range of gold ETFs come after that, but we were the first. And yeah, we're now we're recording this twenty twenty four, so yeah, twenty one years we've been in the market with it.
And money pouring into that one at the moment, I expect.
Yeah, I mean, we've seen a lot of interest within gold exchange traded funds, in particular around geopolitical risk. There was inflation obviously, and also with interest rates coming down that usually bodes quite well for the other medal. So the last few months have been successive inflows into ETFs, which contradicts the last you know, twelve to eighteen months,
which is actually funny enough been our flows. So it just shows that even investors are investing into gold at the all time highs at the moment because they wanted for that defensive capability, yes.
Just to use that as a sort of proxy for the whole area. So, I mean, et has a very useful anyway, folks, because you can buy, as I say, you can buy the American share market, or you can buy the European share market. You can buy emerging markets or bonds, which what it doesn't gives access to people. There was most people still never buy bonds, but it was a way in. I don't know if it's the best way in. We haven't time to talk about that, but it's a way in. And similarly with gold, I mean,
really the people who were gold investors. They had gold bars and they had them in vaults, and they paid an awful lot to keep those bars insured and all that sort of thing, and it was very difficult and you really had to be either a bit obsessional or very wealthy to have gold up until this CTF was launched. So it's a good example really of how they did
change everything. And I'm want to begin with something. I'm going to begin by giving you a free kick mark, but it's worth introducing to people why ETFs have been successful.
And we know that they are at their best they're simple and low fee, but also there was a habit what was upon a time you could only buy an Australian investor every day investor could only buy funds in the way of managed funds, and there was big fund houses Platinum and Perpetual and Magellan, and they were all big names and they have all in various ways, faded rapidly and shrunk. And one of the reasons you've put
to me is what they call closet indexing. Explain what that is and the critique that your industry, the ETF industry has about closet indexing.
Yeah, it's a really interesting phenomenon, James, where you've got this idea of closet indexing, which is just another way to describe fund managers who are masquerading themselves as active fund managers, but their portfolios closely resemble index funds. And I think that's really important now with the polariferation of ETFs, that investors actually look under the hood of their active
manager to see what are the underlying holdings. Are they traditionally different from a benchmark or an index ETF, because if you look at some of the top fund managers out there, a lot of them have very similar holdings in terms of you know, when you look at the top ten holdings to a low cost index ETF, the only difference with them is they charge significantly higher fees, and usually just the simple arithmetic of the share market is they normally underperform by the amount of their fees.
So I think not necessarily saying that the likes of you know, Magellan and Perpetual were closet indexes per se, but I think the key push is that investors really push for greater transparency from their fund managers.
So what you're saying is that once upon a time or still I go when I buy a fund, it's called the Australian Share Funded, it's from white Box managers and it's a managed fund. And when I look inside, I find that the top stocks are the four banks, the big two miners, calls and worldwords, et cetera. And then you're saying to me, why did you just buy an ETF on the Australian share markets. It's got much
lower fees. It's going to outperform active managers invariably. That is, it's going to do better anyway nine times out of ten. And on top of that, if you look inside the ETF, it's going to have the big four banks, the big two miners, and the big two supermarkets. So why bother go to the active person if they're not being active? This is this? The point is that. Okay, that's the point you're making. Now here's the thing. That's all fine,
and I don't disagree with it for one minute. More recently, do you act globalix do you offer active ETFs?
So within Australian business, no, we don't offer active ETFs. We have traditionally been index based ETFs and all that is it follows just a rules based methodology to classify a particular investment. That being said, we have seen a range of different active ETFs come to the market as well, which I'm happy to dive into as well.
So just to clear the air for everybody. So for a long time, an ETF was always the same thing. It was an index. So if you boat the Vanguard or Better Shares or Global X, American Wall Street SMP index fund, you were buying the S and P. Every single stock in it was represented in that fund proportionately as they are on the actual market. It's very easy
to understand, and it acted in a certain way. Now more recently, whether I'm sure you're not going to rule out doing active ETFs anyway, and a lot of your
competitors already offer them. James Gerard, who already triggered the debate on the fire movement a few weeks ago, also said, possibly on that same show, that I found this really interesting that the new style active ETFs, where an ATF, for instance, will give it a good easy example electric car ETF right where they simply say we're going to buy a bunch of e let to car stocks, choose them for you, and then we're going to let that
run and you can see how it goes. He said that traditionally tfs like you've just been talking about that dominate your company and your offerings. That they beat active ETFs just like they beat active fund managers. Is that the case?
I think when it comes to this whole active versus passive it really depends on one in investors timeframe. Because the one thing you see, James, is some active fund managers can be passive over the short term, but over the long term it's a really different story.
But do you know, do active ETFs are they beaten by passive btfs?
Is there a need to suggest that, Yeah, majority of the time they are.
Okay, just hold that thought. Why do they offer activetfs if the industry knows that passive btfs would beat them.
It's about distribution at the end of the day, James. So a lot of active ETFs have seen, or active managers have seen the flight of money that's even unlisted managed funds and going into the ETF rapper. So for them, it's really about distribution because people want the transparency of an ETF, they want the liquidity of the ETF, and
they want the tax efficiency of an ETF. They've seen a lot of success, particularly the Australian active fund managers have seen the success of the US and their ETF market, where around about a third of the flows in the US ETF market are going to active funds. But just because you know it looks like an ETF and it acts like an ETF doesn't mean that naturally money's going to go towards it. And you've actually seen outflows come from active ETFs, so you're right, there has been a
barrage of new ETFs. In fact, last year over half of the new ETFs were active ETFs. They around they account for around about thirty percent of the market, but they're not seeing the same level of flows, which is really interesting.
Okay, so you're saying it was a response basically to customer demand, that this was offered by the industry. But having said that, it's really worth hearing this, folks, active ETF beaten by passivelytfs. I have to say that I don't know why I certainly would ever buy an active ETF ever if they are beaten by pacive tfs. I just don't see why you would tell me I'm wrong. Let's hear from you. I can be intellectually seduced by arguments you know about various market weighted ETFs, et cetera,
et cetera. But in the end, aren't you being seduced by the old fashioned notion that someone is going to be smarter than the market.
But the harsh reality is of the fund managers who can actively outperform, you know, very few can do it, and over a long period of time, only one to two percent of them can do it for multiple periods. So even if you can pick the active fund manager in one year, doesn't mean that they are necessarily going
to perform in the other year. And you know, twenty twenty three was a great year where you know, there was meant to be market volatility, which seemed favorable for active managers, And funnily enough, research actually indicates that the optimal conditions for their outperformance is actually low volatility, which is contrary to belief, high correlations and this high stocks dispersions.
But that only occurs around about two percent of the time when it comes to markets, So it's a you really got to be quite picked that right point in time and also pick the right fund manager. And the harsh evidence says that index based investing has outperform active, but investors do want that active piece, particularly if for funds that have high active share, just to add a bit of spice to the portfolio. So that's where a lot of people are seeing the use of.
It to turn back their own hunt or back their own instincts or whatever. When that comes up. Okay, very interesting. We're going to take a break and we'll come back and we'll talk. We're going to talk talk to Mark about the ETF scene and how it's unfolding, where most people put their money and what sort of trends he's starting to distinguish in our market here in the Australian see Okay, back in the moment. Hello, and welcome back
to the Australian's Money Puzzle. I'm James Kirby and I'm talking to Mark Jolkom of the Global X Index Funds and ETF Group, one of the big operators in the local market for ETFs. Mark tell me, I look at the figures. It seems to me most people once they've bought their Australian share market ETF, what happens after that? What does the data tell you? What do most people do after that?
Well? Finding enough. This year, James, it has really been about global shares, and I think that's the great use of exchange traded funds is you know, you can buy your Ossie stocks, you can buy your Aussie ETFs, but global shares have actually really opened up access for investors to gain access to leading global companies using a low cost rapper like an ETF. And you've seen gradually over time.
You know, if I go back to when the ETF market first started, it was really dominated by ozzie shares and commodities, gold being one of them that we spoke about earlier. But now the majority of the actual ETF market is global shares, and that's because ETFs are used
as that vehicle for accessing these international opportunities. So far this year, it's been very much a risk on sentiment, James, where we've seen a lot of money coming out of areas like cash and going into areas like global shares because we've seen the rise of the dominance of some of these developed markets like the US. Last year was a little bit different, where we saw a lot more flows going into bond ETFs, particularly within things like floating
rate notes. And I think that's your point James. The beautiful thing about an ETF is your listeners and investors can access all these different asset classes that were once cumbersome or hard to get exposure to via a low cost ETF to provide that access point.
Cumbersome the perfect world. I should have thought of that earlier, that's right. We're talking about the gold like that was cumbersome, that's for sure. Or as for buying bonds, I mean, really, where would you start and how money would you have? And you try to have a ladder of maturities and you know, we always had to do a short course about how to even start. Okay, talking then about this
area of offshore. So you're telling me that the big trend among Australian investors in their use of index funds in ETFs is to buy global markets. Okay, what did they buy? I'm guessing Wall Street, Nasdaq and then maybe a global fund. But the global funds are going to be seventy percent Wall Street anyway, aren't they Exactly?
And that's why a lot of you're seeing a lot more this year is just going towards your general broad market low cost ETFs. So you think about your entire world access products but also some countries are becoming a bit more popular. US is one area that a lot of people want exposure to due to the Magnificent seven stocks, but there's other regional pockets, like we're seeing a bit of interest in Europe, We're seeing a lot more in India.
India is a very interesting one because it's almost going to, you know, take over the lead of China and their Merging Markets Index. Most of the flows are still going towards your broad based, diversified ETFs, covering very broad market exposure, and I think that's a very sensible way for a majority of people to invest. But then they can take a bit more tactical views, you know, if you want to go into a particular country, a particular style, a
particular thematic. You know, a lot of people have been talking about investing in things like copper uranium. You can get very esoteric investment at exposure via an ETF, which is such a great way for investors instead of having to worry about pick all these stocks, especially if you're trading international stocks. You don't want to have to open up a brokerage account, change your Aussie dollars into US dollars, handle all the paperwork and ETF.
Really, jenk Cluck, give us an example of what in terms of those thematic ETFs or specialized ETFs. Is there one in particular that's getting inflows at the moment.
Yeah, we're seeing a lot of interest within our copper miners ETF. The TIC code for that is wire wire. The reason for that, James, is everyone knows copper is an incredibly important part of the global economy. It used to be a bit of a proxy for what's going on with economic activity. But it's slowly.
Transitioning doctor copper.
Yeah, doctor copper they called it. But it's slowly transitioning into this secular commodity that's going to be driven by electrification, urbanization, the rise of artificial intelligence. Because copper is used in a lot of things. When you talk about renewable energy, it's used in building things like wind turbines, solar panels. If you look at data centers which are powering this AI revolution, they require per gigawat of data, they require
sixty five thousand tons of copper. So if you're talking about the use of AI and the electric cars, of course exactly. So electric cars is a good example where compared to an internal combustion engine, it requires four times the amount of copper to use. So people are starting to understand this broad case for copper, and it's predicted to be in deficit for over the medium term as well,
which bodes quite well for the price. And a lot of ossies wanting to get exposure to copper tend to invest just in the Australian miners, and we've seen the likes of BHP. They had a bit when it came to some of the global companies. They've just sent up a jo venture with London, which is a company that's ly ETF, but there's a global range of companies that investors maybe missing out on.
The BHP in there results clearly shifting towards copper, as you say, the commodity of the future. Okay, Can I just ask you though about the ETF whether they're specialized or whether they're broadbrushed, so whether you're talking about a copper ETF or an electric car RETF or a Wall
Street ETF. One of the things that's a criticism of ETFs, and I'm not talking about some of the more sort of arcade things that come up, but a very simple one is that in buying everything, you buy all the rubbish, and you buy all the bad stuff, and you buy all the nasties, You buy all the ethically questionable, if not downright dreadful companies. Because if I go and buy a copper ETF, and it has a eighty seven or eight hundred and seventy copper mining companies in there, and
it must buy everything that's on the market. By definition, its promises to buy everything, so it must buy everything, and that means it was also buy some pretty bad companies that you would never buy ever, but you must because it's an ETF. Is that a faiting of ETFs?
I think so, but I don't know if it's more a bug or a feature, James, because the good thing about an ETF is you're kind of expressing the view of that intellectual humility that you don't really know who are going to be the winners and losers. And naturally, particularly the ETFs that weight the stocks by size or by market cap, the market does a pretty good job at kind of distilling all the information out in the
market to accurately price these particular securities. And I think it's actually quite good to get exposure even though You're right, there are a bunch of junk stocks that can come into an index, but naturally the bigger players are going to have a larger weight in your portfolio. So if you didn't have exposure to some of the magnificent seven stocks, you probably would have underperformed the market. And the harsh reality is sixty seven percent of stocks underperform a basic market index.
Yeah, it disputed to me, And that's an argument, a very strong open on the business of price. But is there any ethical dimension here, like, for instance, you think ETFs should have more of a rule and voting, etc.
Yeah, I mean that gets into the political nature around ETFs, and they are becoming a greater part of the global share market. You're seeing that companies in the US ETF issuers are starting to think about, well, how can they actually outsource the proxy voting to all their individual investors, Which is a very interesting topic because when you invest in an ETF, you're really outsourcing that to the ETF managers who uses an investment steward to vote on shareholders.
Behalf that being said, I don't know how many people actually do want to vote when they go to the meeting of a particular company, and especially if you're owning a broad market ETF that holds hundreds of companies, going to all the individual meetings and voting on them. Some people will, especially some that have strong for instant sustainability views ESG views, but for the vast majority they just
want low cost exposure. But I do see that as a way of innovating in terms of ETFs, providing more access, more choice and proxy voting is particularly an area that could see some development in the ETF market.
All right, believe that that we will be back in the moment, folks, I've got I have pre selected curative a couple of questions strictly from our audience, strictly on ETFs. So perhaps we will get through some of the questions that have been boiling up at the money person in recent times. Okay, back in a moment, Hello and welcome
back to the Australians Money Puzzle podcast. I'm James Kirby with Mark Jocum of the Global X groupies the investment strategists there now, Mark, these questions are several of them willfully break our golden rule of keeping questions short. I don't know how I can shorten some of them. But if you bear with me, I'll just try and go through them, and I'll try and paraphrase to the extent I can without losing the nature of the question. I'll
just take an easy one for us from Adam. Dear James, can you outline what is meant by an open ended ETF, How do such open ended ETFs adjust their prices to reflect underlying assets? And is there such a thing as a closed ENDTF? Okay, Mark Jocom investment strategist. What's an open ended DTF and is there a closed ended one? Yeah?
So great question, Adam. Very simply, open ended just means that units can be created or destroyed based on the underlying demand. So when there's demand for a particular product, to the fact that it's open ended means that these market makers or authorized participants can come in and either
create new units or end up redeeming units. And the reason why open ended is important is because and your other question was around how it's reflected based on the NAV, is that the price of the ETF will track very closely to the net asset value the NAV or the NAV due to the actions of these big banks and
these market makers and authorized participants. Because if there's a difference between the price of an ETF and the NAVE of an ETF the net asset value, that's an arbitrage opportunity for these very smart institutions to actually make some money in terms of either buying or selling the underlying ETF versus the security. So if an ETF price trades at a discount to it's a net asse of value.
The market maker will go in buy the ETF and then sell the underlying to profit the difference, And that way attracts close to NAV And then your other question was around are they close ended ETFs. The answer is yes they are, but they're not called ETFs. They called list in investment companies or licks. So these are different. Where these are similar in terms of the fact that they do expose to a broad out their clalth.
I don't want to go down this kind of rabbit hole. But l I see isn't identical to an DF. I mean they select the now shares their wish. Isn't that right? Why the ETF doesn't select them? It literally takes what's on the board.
Yeah, And I think the main one is around the structure of them. There's only a fixed pool of capital, so there's only a fixed amount of shares out there. The reason that some of them trade at a large discount to their NTAA, or sometimes they trade at a premium, is because there is no market maker. There is no authorized participants that are creating and redeeming these shares. And I think that managers don't really have an incentive to close that discount because at the end of the day,
it's a closed pool of capital. They collect the fees, so why would they want to close the discount.
Okay, we're very popular and remain popular, but there was a period for the lic was the nearest thing in some ways to They were more than a managed fund, and they were very They were invented but way back and some very big ones stood in the market. AFIC and I'll go out of Adelaide, which was once connected with Sardan Brandtman and he was on the board of our that they tell us about that every time we
talked to them, and they remain popular. Some people see them as a use for the Wilson Group has some They remain an interesting variation on the managed fund where you are using the brain power of some leading managers to pickstocks, but then the vehicle is a bit more useful than than some straight managed funds. Okay, we'll leave that to one side for the moment. I think that answers your question, Adam. That's open ended ets. That's basically
how they work. That was the part of the magic of these products that were all created once upon a time. Go back to a man called Jack Bogel bog l E who was the sort of godfather of all this and created Devant Guard group, and you can read all about it. I'm sure somewhere all right, question from yogesh yog E s H. While looking in ETFs, I came across a GEAR DTF. I'm unable to understand how they work? Are you able to give the common understanding? Yes, of course,
I'm sure Mark Jocom would do that for you. Gear Just to make it easy, folks, is course is an index fund just like we're talking about. But they borrow that's all. You don't get the negative gearing. That's the thing. Of course, if you borrowed and bought the ET if you'd get negative gearing. So you don't get it. So maybe Mark would tell us all about that. Okay, would you illuminate us their Mark.
Yeah, you're exactly right, James, and thanks to our guests for the question. Geared ETFs pretty much use internal borrowing. Saves you from having to go out to get a margin loan to borrow to invest money. Sometimes the ETF wrapper will do for you and the fund manager is able to go out and get an institutional rate from some of the large banks, they can get a loan
and they handle all the gearing process for you. There is a difference with leverage gtfs, even though they may see seen one and the same, where leverage gtfs use a bit more financial magic by using derivatives like futures contract to get magnified exposure, and that's what people who invest in geared or leverage ETFs want. You want to exposure that provides more to the market or less to
the market as well. So currently there's ETFs out there that provide as little as about one point four times the daily price of the actual index, but there's some that are a little bit up the risk curve that provide up to two point seven times the exposure to the particular market. Good alternative for people who want exposure to the market but in a magnified way and not having to realize going to go get a margin loan and they can access lower boring by going through a gear or leverage GTF.
And what could go wrong with the lead forridged ETF compared to a standard ETF.
Yes, so they are very risky just pointing out there because they are really designed to achieve this multiple on a daily basis, which means over the long term, even though share markets go up because of this idea of daily movements and daily rebalancing, it actually could if the gearing ratio does fall outside that particular range can be
quite detrimental to investors. And I think that this idea of this compounding effect of daily rebalancing can sometimes cause people's you know, representation of what the ETF might do over the long term. As an example, if you're invested in a two times let's use a simple example, two times leverage ETF, just.
Just to explain, mark two times. That means for every dollar you put in, they borrow a.
Dollar exactly, So that's like exactly, so that's double the exposure. So if the index is down five percent, your ETF will probably be down ten percent on that day.
So it's everything's magnifies exactly, You're one hundred dollars is now ninety dollars.
And let's say the market's up the next day, because that's generally what happens. You know, large four days are accompanied by large updates. So if the index it goes up five percent, that means again the ETF will go up ten percent that day. But if you think about it, that ninety dollars going up ten percent is now ninety
nine dollars, so you're still down a dollar overall. And this is this whole arithmetic is that over time in the volatile market, these small differences can lead to larger deviations, particularly magnified when you have leverage gtfs. So our view is they should be short term trading tools and also keep an eye on the borrowing. Ask your find manager what the borrowing cost is versus the return on the shares.
Of the view, they should be short term tactical products, I suppose as opposed to a long term I'm just I'm geared thirty percent into the market forever. Yeah, okay, very interesting. Well just leave it at that, thank you, and I'm sure that was very useful to you your ges. Okay, Declan says on a number of occasions recently, you have suggested there is an inherent contradiction in investing in private credit and private equity via the ASX are listed markets.
There isn't. Okay, just to context there, I continually say, and I'm sorry, Declan, I'm going to say it continually that accessing on listed assets through a listed vehicle, which can crash with the share market crash, I find contradictory. But I'm happy to hear new views. So Declan says, additionally, ETFs themselves can invest in nonlisted assets, including real estate, private equity, gold, and so on. There you are, he says, there's no contradiction there. Now that's good. That test. I'm
interested in what he says there. It is testing. It is testing my bias, if you like. Because the gold ETF from anybody, including the original one which was created by it just so happens global X and Marx from them. It allows you to buy a physical asset in pay per form. So let's just test this. But let's say there was a crash and almighty nineteen twenty nine like share market crash, and everything crashed with it, including gold dtfs, and then everybody wanted to get their money out at
the same time from the gold DTF. Could I'm not talking about you, Mark, I'm just talking about the ETF industry. Could it produce the Could it get the gold and sell the gold dollar for dollar that's represented by every piece of paper out there on listed ETFs.
Yes, So, I mean it's a great question as that.
That yes they can or yes, it's a good question.
No, it is a good question because at the end of the day, ETFs only account for a small part of the overall market. If there is going to it is growing. So if there's going to be a crash, it's not just going to be the ETFs that are selling. It's going to be active fund managers selling institutions Selling gold. Is quite interesting because gold isn't just you know, speculators or investors using gold. A lot of people use gold for industrial use, central banks use them for their reserves.
So there could be buyers on the other side. But the great thing about an ETF is if people do want to sell, well, you've got that liquidity over there. Even though it is considered to be an unlisted asset, it's a highly liquid market. So there's always buyers and sellers and in fact, the gold market is actually a lot more liquid than some share markets out there because it's so heavily traded globally.
Just Win, I think it probably does test the theory. It does test the bias that on listed assets are sort of uncomfortably placed sometimes in this listed markets.
And I think James your point around the unlisted assets particularly you know, definitely mentioned around private assets or private creative private equity. We haven't seen a lot of you know, private creator going through a default cycle because a lot of them came during we're pretty much post the two thousand and eight, two thousand and nine GFC because banks refused or pretty much shut the doors to a lot
of lending to risky borrowers. So it'll be very interesting to see how these private creditors managers go during a financial crisis. What happened if investors run for the extent, Yeah, I'm very interested to watch that.
Do I recall in the GSC that there was some strain on gold ETFs and their ability to actually achieve liquidity.
Not entirely. If anything, you saw a lot more buying within gold ETFs during times of market turmoil, and that's because gold has a bit more of a defensive capability to it. Same with COVID as well. There was no issues around buying into gold products. So yeah, it's got that defensive characteristics to cushion share market volatility.
Okay, Okay, thank you for that. Detton. Do appreciate the correspondence and the points you make. It's certainly an area where two sides. Okay, final question from David. I have a question I was hoping you could answer on the podcast in relation to a couple borrowing to invest in ETFs.
If a couple are both borrowing separately in their own names to invest in a diversified, poorly of portfolio of past btfs, what are the considerations for deciding who should invest in Australian ets for the frank and who should invest in global ets because they don't have franking. That's the sort of question you're going to say, speak to a financial advisor. I wouldn't blame you if you give
that answer straight away, Mark, But I imagine it happens. Does it when people come in by TF they can't help, but they start asking questions.
Like this, they do. I would not say to speak to a financial advisor. I'd say to speak to a tax accountant because they are the professional when it comes to tax. That being said, i would say that a lot of people use ETFs for its tax efficiency, right when it comes to high income versus medium income earners. Again, I'm not giving tax advice, but you're right who answer
the question around Australian versus Global shares. If you invest in Australian shares, they do have a lot more distributions that are treated as dividends, which means that you know they can use the franking credits to offset their tax liability. But tax should never be a reason to invest. It's more byproduct. And keep in mind that if you're investing in global shares, they have more capital growth potential versus
the Australian mark which has dividends. But the thing about an ETF is that the ETF packages those capital gains when it rebalances and distributes it as an income right as almost similar to a dividend, but it forms part of a distribution, so that will still be treated as income for that investor. So it's always hard whether you're high income versus medium income owner to be deciding what
to do. But yes, if you are a high income owner and you want those franking credits to offset that tax liability, then it can make sense to be more heavily weighted to Australian shares. Just keep in mind to be diversified, and there are capital gains implications from the global share component two.
Okay, terrific, really good answer. Thank you, and remember none of this is ever advice. This is information only, as you all know by now, but I must say every week. Okay, very good. Hey Mark Yo, come from global X the ETF House. Thank you very much for coming on the show.
Thanks for having me. James really appreciate it.
Great to have you on the show. We'll have you again. Thank you very much for coming on. Okay, everybody, now, a few things if you would, it would be really good if you would mention us to someone you know about the show. We'd love that. You can drop a Google review too if you'd like. That would be very nice. And the email I have mentioned it more than once, but here it is once more, the Money Puzzle at the Australian dot com dot Au. Today's show was produced by Leah Samangaloo. Talk to you soon,