NSMTG 2014 Aug Rumble

The Expanding Role of ETFs in Portfolios
13th August 2014

Disclaimer
The information contained in this document is general information only and

does not constitute financial advice. It does not take into account any person’s
financial objectives, situation or needs. It has been prepared with all reasonable
care by BetaShares Capital Limited (ABN 78 139 566 868, Australian Financial
Services Licence No. 341181) (“BetaShares”). The information is provided for
information purposes only and should not be construed as an offer or
solicitation. It should not be relied upon by any person. BetaShares assumes
no responsibilities for errors, inaccuracies or omissions in this summary.
Performance and statistical results noted are unaudited. The information is
provided without warranty of any kind. Past performance is not indicative of
future performance. Investments in BetaShares ETFs are subject to investment
risk and investors may not get back the full amount originally invested. Any
person wishing to invest in BetaShares ETFs should obtain a copy of the
relevant PDS from www.betashares.com.au and obtain financial advice in light
of their individual circumstances.
2
Confidential – may not be distributed without the consent of BetaShares Capital
Contents
• What are ETFs and why are they so popular?
• ETFs: The basics
• ETFs in investor portfolios
 Using ETFs for broad Australian sharemarket exposure
 Equity income strategies
 Gearing in SMSFs
 Cash in ETF form
3
Contents
•What are ETFs and why are they so popular?
•ETFs: The basics

•ETFs in investor portfolios
 Using ETFs for broad Australian sharemarket
exposure
4
Evolution: Cheaper, Faster and Better
5
Cheaper, Faster and Better
Benefits of ETFs
COST EFFECTIVE Entry and exit costs limited to cost of brokerage

Typically lower management costs than managed fund
alternatives and index funds.
HIGH TAX Low portfolio turnover within the ETF minimises capital gains
EFFICIENCY Transactions on the secondary market do not impact the ETF’s
tax position
LOW TRACKING ETFs typically track their benchmark indices very closely.
ERROR
TRANSPARENCY Disclosure of portfolio information published on a daily basis
Indicative NAV typically published continuously by
exchange/sponsors
LIQUIDITY Investors can buy or sell ETF units on market at or close
to NAV any time during the trading day.
DIVERSIFICATION Investor can easily gain exposure to entire indices with
a single product and a single trade.
6
What are ETFs?
• ETFs are conventional unit trust structures, just like any other
registered managed fund
• They are subject to the highest level of regulation and investor
protection available in the Australian market BUT
• Rather than investing by filling out application forms, ETF units can
simply be bought or sold on the ASX like any other share
• ETFs really do live up to their name!
Exchange
Traded
Funds
7
Australian ETP Industry Players
Current Participants in Australian Exchange Traded Products Industry

ISSUER NAME AUS AUS HIGH YIELD CURRENCY CASH FIXED GLOBAL COMMO- SHORT GEARED
EQUITIES – EQUITIES - INCOME EQUITIES DITY
BROAD SECTOR
       
    
   
   
  


 
Source: BetaShares. August 2014 8
Significant product depth available on ASX
Equity – Domestic Cash & Fixed Income Commodities

•Broad •High Interest Cash •Gold (A$ Hedged)
•Small Cap •Corporate Bond •Gold (Unhedged)
•Large Cap •Government Bond •Silver
•Financials •Semi-Government •Platinum & Palladium
•Resources •Inflation Linked •Crude Oil
•REIT •Agriculture
•Other sectors •Copper
•Diversified Basket
Currencies International Strategy

•US Dollar •Broad world & region •High Dividend
•British Pound •Country Specific •Value
•Euro •Emerging Markets •BEAR
•Global Sector •Geared
9
Contents
10
How are the assets held in an ETF?
Responsible Entity
Third Party Custodian
Makes Investment
investments Portfolio
Fund
(Registered Managed -Cash
Investment Scheme) -ASX shares
Receives -Gold bullion
investment
returns
• Investment portfolio held

for benefit of unitholders
Administrator Registrar in a segregated account
11
Contents
12
Confidential – may not be distributed without the consent of BetaShares Capital A Member of Mirae Asset Financial Group
Illustrative objectives of SMSFs by Stage
SMSF STAGE OBJECTIVES EXAMPLE

BETASHARES
PRODUCTS
EARLY • Capital growth is paramount QOZ
ACCUMULATION • Exposure to growing income streams
(reinvested) GEAR
• Focus on tax efficiency
• Higher risk appetite
LATE • Continuing to build asset base QOZ
ACCUMULATION • Mix of capital and income needed
• Transition from riskier assets to more stable YMAX
capital base (reduce sequencing risk) BEAR
• Moderate risk appetite
PENSION PHASE •Income is paramount YMAX
•Moderate capital growth to protect from
inflation and requirements to divest assets to AAA
fund retirement
• Lower volatility, stable assets are important
• Lower risk appetite
Illustrative only. Not a recommendation to adopt any particular investment strategy. Investors should consider their tolerance for
investing in a geared strategy. 13
Contents
14
Diversify using ETFs for broadmarket exposure
• Benefits to core passive exposure

– Lowers portfolio cost
– Total asset class solution (avoid the need to
stock-pick)
– Complement active strategies
• Advances in index methodologies

– Strategies that aim to produce superior
performance compared to traditional market-cap
indices
• Such index exposures available in an ETF form

15
Explaining ‘Fundamental Value’ – Which is Worth More?
“Fresh Fruitery” “Fresh Fruit Daily”
16

Market Value $1.5m $1m
17

Market Value $1.5m $1m

Fundamental Value
Sales $500,000 $600,000
Cashflow $200,000 $220,000
Dividends $10,000 $15,000
Book Value $850,000 $900,000
18

Fundamental Indexing using the RAFI Index
Methodology
• Factors best reflect a

company’s ‘economic
footprint’ and are not price
related
RAFI • Factors are equally

Fundamenta weighted
l Factors
• Average of five years of

historical data used for all
measures except book
value
• Methodology is
transparent, repeatable 19
Holdings comparison – FTSE RAFI Australia 200
June 2014
Top 10 Holdings
FTSE RAFI Australia 200 Index S&P/ASX 200 Australia 200 Index
COMPANY WEIGHTS COMPANY WEIGHTS
Commonwealth Bank of Australia 8.06% Commonwealth Bank of Australia 9.84%
BHP Billiton Ltd 7.92% BHP Billiton Ltd 8.65%
Westpac Banking Corp 7.04% Westpac Banking Corp 7.91%
Australia & New Zealand Banking Group Lt 6.46% Australia & New Zealand Banking Group Lt 6.87%
National Australia Bank Ltd 5.97% National Australia Bank Ltd 5.79%
Telstra Corp Ltd 5.39% Telstra Corp Ltd 4.87%
Wesfarmers Ltd 4.28% Wesfarmers Ltd 3.59%
Woolworths Ltd 3.51% Woolworths Ltd 3.32%
Suncorp Group Ltd 2.59% CSL Ltd 2.39%
Rio Tinto Ltd 1.92% Woodside Petroleum Ltd 2.18%
Top 10 Over/Under Weights v S&P/ASX 200 Index
OVERWEIGHTS UNDERWEIGHTS
COMPANY WEIGHTS COMPANY WEIGHTS
Singapore Telecommunications Ltd 1.54% Commonwealth Bank of Australia -1.78%
Suncorp Group Ltd 1.28% CSL Ltd -1.66%
Qantas Airways Ltd 0.91% Westpac Banking Corp -0.87%
QBE Insurance Group Ltd 0.69% BHP Billiton Ltd -0.73%
Wesfarmers Ltd 0.69% Woodside Petroleum Ltd -0.72%
Telecom Corp of New Zealand Ltd 0.59% Scentre Group -0.67%
Telstra Corp Ltd 0.52% Transurban Group -0.61%
Metcash Ltd 0.44% Oil Search Ltd -0.60%
Newcrest Mining Ltd 0.43% Australia & New Zealand Banking Group Lt -0.41%
Leighton Holdings Ltd 0.39% Fortescue Metals Group Ltd -0.33%
Source: Research Affiliates, FTSE, Bloomberg

20
FTSE RAFI Australia 200 Index has outperformed
S&P/ASX 200 Index since inception
FTSE RAFI Australia 200 Index v S&P/ASX 200 Index: May 1992 – June 2014
FTSE RAFI Australia 200 TR Index (index BetaShares FTSE RAFI Australia 200 ETF seeks to track)
TOTAL FTSE RAFI S&P/ASX
1450
S&P/ ASX 200 TR Index RETURN AUSTRALI 200
A 200
1250
3M 1.0% 0.9%
6M 2.2% 3.0%
1050 1 YR 17.5% 17.4%
3 YR (p.a) 12.6% 10.3%
850 5 YR (p.a) 13.0% 11.2%
10 YR (p.a) 10.8% 9.0%

650 20 YR (p.a) 11.9% 9.7%
Incept (p.a) 12.0% 9.7%

450
Value add since inception: 2.3%

250
p.a
50
Graph shows performance
May-92 May-94 of underlying
May-96 May-98 indexMay-00
relative toMay-02
S&P/ASX 200 index, May-06
May-04 not ETF performance
May-08 and
May-10 May-12 May-14
does not take into account ETF management costs. You cannot invest directly in an index. Returns for
periods longer than one year are annualised. Past performance is not an indicator of future performance of
index or ETF. The FTSE RAFI Australia 200 Index was launched on 10/8/2009. Index returns prior to launch
are simulated based on Research Affiliates’ patented non-capitalisation weighted indexing system, method
and computer program product. Actual investment results may differ from simulated results. Source:
Bloomberg, FTSE 21
Contents
22
Example: Core Exposures using ETFs – income focus
• Flexibility of ETFs allows investor to maintain

diversified core exposure, but tilt to their
investment preferences (e.g. yield focus)
• Several ETF strategies tailored to optimise yield

– Rules based or systematic investment processes well
suited to ETF form
• Covered call strategy has dual benefit of income

optimisation along with lower volatility
23
An Additional Engine of Income
Sources of income in BetaShares Equity Yield Maximiser Fund
Dividends on passive Franking credits on Net premium on call YMAX Total Income
stock portfolio passive stock portfolio options sold*
*Net option premiums may not be earned in all distribution periods (e.g. in a strongly rising market)
24
Illustration of efficacy of a equity income strategy using
options
An equity income strategy using options can typically be expected to
outperform in most market environments
FOR ILLUSTRATION PURPOSES ONLY

Using ETPS to enhance yield
12 month yield to 1 July 2014 (%)

12.0%
11.0%
10.0% 9.7%
8.0% 8.0%
7.7%
6.8%
6.0% 5.6% 6.2% Gross Yield
5.4%
4.8%
4.8%
4.0% Cash Yield
2.0%
0.0%
BetaShares Aus Top 20 Djerriwarrah(DJW) Telstra (TLS) Commonwealth Bank Vanguard Australian
Eqty Yld Maximiser (CBA) Shares High Yld ETF (VHY)
(YMAX)
Note: 12 month cash yield calculated as total distributions declared in the four quarters to 1 July 2014
divided by unit price on 1 July 2014. Past performance is not an indicator of future performance.
Source: Morningstar, Issuer websites, BetaShares 26
Contents
27
GEAR Investment Strategy
Illustration of Investment Strategy (assuming 60% gearing ratio)
$150
$250
$100
Investor Funds Borrowed Monies Australian Shares
• Application money from investors will be combined with borrowed funds, which will then be
invested in a broadly diversified share portfolio
– The share portfolio consists of the largest 200 equity securities listed on the ASX by market
capitalisation (as measured by the S&P/ASX 200 Index).
– The Fund will pay interest on the borrowed funds, at cost-effective, wholesale rates of funding
– The Fund is expected to earn dividends and franking credits on the underlying share portfolio
– The level of borrowing will be in the range of 50-65% (total amount borrowed/total assets of
the Fund)
– The borrowing levels will be managed by our portfolio management team, with rebalances
occurring should this range be exceeded 28
Uses of gearing in SMSFs
Geared funds are a simple way to implement a cost-

effective geared investment strategy. It seeks to be
positively geared and may be suitable for a number of
strategies. Examples include:
• Increasing market exposure via an efficient use of

capital
• Accessing the potential for enhanced franking credit
exposure for tax-effective investing
• Increasing exposure to the share market for SMSFs
that have reached the concessional contribution cap

Geared funds available in the market
Management Costs – Australian Equity Geared Funds
Management Costs
Geared Funds (% of gross asset value)
BetaShares Geared Australian Equity Fund 0.80%
Macquarie Master Geared Growth Fund 1.03%
Maple Brown Abbott Australian Geared Fund 1.03%
Colonial First State Wholesale Geared Share Fund 1.04%
Fiducian Geared Australian Shares Fund 1.13%
Perpetual Wholesale Geared Australian Share Fund 1.17%
Ausbil Australian Geared Equity Fund 1.20%
CFS Wholesale Geared Aus Share-Core Fund 1.22%
BT Geared Imputation Fund 1.45%
AMP Capital Future Directions Geared Australian Share Fund 1.46%
Comparison: Morningstar Geared Australian Equities Fund universe. Excludes borrowing costs.
Average management costs of competitor Geared Australian Equity Funds is 1.2% of gross asset
value, 1.5x the management costs of GEAR (excluding any additional wrap fees)
Source: BetaShares, Issuer websites. As at 2 May 2014 30

Example: Using a geared strategy to ‘free up’ capital to
diversify, while maintaining market exposure
Simulated Performance of S&P/ASX 200 v Model Portfolio consisting 42.5% GEAR, 57.5% Australian Government Bonds
180
Model Portfolio (Simulated) (GEAR + Australian Government Bonds)
S&P/ASX 200 Accumulation Index 67%
160
140
29%
120
100
80
Model Portfolio Scenario
• Aim is to reduce capital invested in market (S&P/ASX 200) but
60
maintain full exposure by introducing GEAR
• Assuming 57.5% gearing ratio, investor requires 42.5% of
40
portfolio in GEAR to maintain exposure (i.e. 100%-57.5%=42.5%)
• Investor can then invest remaining ‘freed up capital’ in Australian
20 Government Bonds (i.e. 100% - 42.5% (GEAR)= 57.5% in bonds
0
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13
Scenario based upon the following assumptions: Initial gearing ratio 57.5%, Min gearing ratio 50%, Max gearing ratio: 65%, rebalance to 57.5% gearing ratio if min/max ratio exceeded,
dividends/distributions reinvested, mgt costs: 0.80% of GAV, assumes borrowing costs at Fund inception applicable through the period. Australian Government Bonds represented by
Bloomberg/EFFAS Australian Government Bonds Index 7-10 TR.
This chart is for financial intermediary/wholesale client use only. It must not be given to any retail clients.
Simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading, are based on certain
assumptions, and are produced with the benefit of hindsight. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if
any, of certain market factors, such as lack of liquidity. No representation is being made that the Fund will achieve results similar to those shown. Past performance, simulated or
actual, is not an indication of future performance.Source: BetaShares, Bloomberg 31
The cost of the geared ETF compared to traditional
margin loans
Cost comparison: $100,000 investment in BetaShares Geared Fund v Margin Loan over “STW”
Assumptions: Capital Invested $100,000, margin loan borrowing cost is average of three margin loan providers (NAB, Commsec, BT) (Source: RateCity), Instalment Warrant Borrowing
Costs is average of three warrant issuers (Macquarie Bank, Citi, RBS) (Source: issuer websites). STW is SPDR’s S&P/ASX 200 ETF, management fee is 0.29% (Source: issuer websites).
Illustrative only – not intended to reflect actual performance of the Fund. Does not take into account the cost of brokerage. Other costs may apply.
Source: BetaShares, Issuer websites. As at 2 May 2014
32
Geared strategy provides potential for higher levels of
franking than ungeared strategy
Franking % attributable: BetaShares Geared Australian Equity Fund (Simulated) v S&P/ASX 200 Accumulation Index less MER: 2009-2013
Year Franking (%): GEAR Franking/

S&P/ASX 200 less Franking (%): S&P ASX 200
MER GEAR franking (x)
2009 1.27% 3.85% 3.0
2010 1.01% 2.66% 2.6
2011 1.13% 2.75% 2.4
2012 1.44% 4.02% 2.8
2013 1.34% 4.01% 3.0
Indicates that over 5 years to end 2013, simulated GEAR franking levels averaged ~2.8x the levels of
an ungeared strategy over the same underlying share portfolio
Scenario based upon the following assumptions: Initial gearing ratio 57.5%, Min gearing ratio 50%, Max gearing ratio: 65%, rebalance to 57.5% gearing ratio if min/max ratio exceeded,
dividends/distributions reinvested, mgt fee: 0.80% of GAV. Index calculations are for S&P/ASX 200 Accumulation Index and an assumed MER of 0.29% p.a. Franking % indicates
proportion of yield attributable to franking credits assuming investment in strategy on the first day of the calendar year.
This chart is for financial intermediary/wholesale client use only. It must not be given to any retail clients.
Simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading, are based on certain
assumptions, and are produced with the benefit of hindsight. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if
any, of certain market factors, such as lack of liquidity. No representation is being made that the Fund will achieve results similar to those shown. Past performance, simulated or
actual, is not an indication of future performance.Source: BetaShares, Bloomberg
33
Illustration of the practical benefits of franking credit
enhancements
Illustration of franking credit & income shelter: assuming $1,000 of franking credit is earned for a given capital outlay
Franking Resulting
Income/contribution shelter from
Enhancement v Franking Credit (1)
franking credits in SMSF
Relevant Index Earned
1.0 $1,000 $6,666.67
1.5 $1,500 $10,000.00

2.0 $2,000 $13,333.33
2.5 $2,500 $16,666.67
3.0 $3,000 $20,000.00
(1) Refers to amount of income earned or contribution that can be made within an SMSF which would be offset for tax purposes by franking credits earned.
Illustration only, no representation is being made that the Fund will achieve results similar to those shown. This does not purport to be tax advice. Investors should obtain professional
tax advice before making investment decisions.
34
Concessional SMSF contributions
Concessional contributions are contributions made into your SMSF

that are taxed at a ‘concessional’ rate of 15%
For 2013/2014 Financial Year, maximum concessional contributions

are:
• $25,000 for those under 59 years of age
• $35,000 for those over 59 years of age
Contributions made that exceed the maximum contributions above

will be taxed at the full marginal tax rates
Assuming a gearing ratio of 60%, every $1 of investment within an SMSF in

GEAR adds ~$2.50 of market exposure, allowing investors to increase their
exposure to the market without exceeding concessional SMSF
contributions(1)
(1) Excludes the impact of management costs, illustrative only. This does not purport to be tax advice. Investors should obtain
professional tax advice before making investment decisions.
Contents
36
There’s even an ETF for cash!
Interest Rate Comparison – As at 14 July 2014

BetaShares Avg. 1 year Avg. Online Wrap – RBA Cash Avg. 1 Avg. Online
High term Savings Cash Rate/ 11AM month term Broker
Interest deposit(1) Account Savings Accounts deposit(1) Cash
Cash ETF Rate(1) Account(2) Account(3)
(AAA)
3.40%
3.25% 2.50% 2.51% 2.50% 2.50% 1.63%
(net)
Rate earned on AAA’s bank account deposits. Includes AAA’s management costs. Rate is variable. Current rate available at www.betashares.com.au
(1) Average rate offered by major Australian banks (2) Average of current rate offered by three major providers(3) Average of rate offered by Comsec and E*Trade
Source: Bank websites, wrap websites
Daily NAV of BetaShares Australian High Interest Cash
ETF
Monthly
distribution
38
Key Points
1. ETF Market in Australia

• Recent growth rates expected to continue particularly in SMSFs
2. ETF Trading - Best Practice
• ETFs are open ended structures, units can be created or redeemed
according to demand.
• The liquidity of an ETF is a function of the underlying fund, not the value
traded.
• The iNAV (intra- day net asset value) is the guide point as to fair value of
an ETF.
• Trade between 10:15am and 3:50pm when the ASX is fully open.
3. Application for SMSF Portfolios
• Help to diversify Australian equity portfolios in a single trade
• Investors can target income in a more efficient way
• Gear within SMSFs without receiving margin calls.
• Have a liquid cash holding with a competitive interest rate
39
BetaShares ETF Support Material
Educational Whitepapers BetaShares Educational Blog
40
FOR MORE INFORMATION
Website
Visit www.betashares.com.au
info@betashares.com.au
Blog: www.betasharesblog.com.au
Twitter: @betashares
1300 487 577 (within Australia)

+61 2 9290 6888 (outside Australia)
41
About BetaShares
UNITED KINGDOM CHINA KOREA CANADA
TAIWAN USA
HONG KONG COLOMBIA

INDIA
VIETNAM AUSTRALIA BRAZIL
• BetaShares is an Australian fund manager, specialising in products that are

traded on the Australian Securities Exchange
• BetaShares is a member of the Mirae Asset Global Investment Group, one of
the largest asset management firms in Asia.
• Mirae currently manage >$60B, including over $8B in ETFs
42
BetaShares Partners
Mirae Asset/Horizons ETFs

Strategic Shareholder
Morgan Stanley, Goldman Sachs, BOA Merrill Lynch, Credit Suisse
• Horizons ETFs is one of North Citi, ABN Amro, Susquehanna
America’s leading ETF issuers Selected Authorised Participants
• Majority owned by Mirae
Asset, one of Asia’s largest
asset managers, managing
>$55B
RBC Investor Services Standard & Poors/FTSE JP Morgan Chase

Custodian & Administrator Index Provider Depositary
• Provides Administration and • Indices for BetaShares Equity • Depositary bank services for BetaShares Currency
Custody services for ETFs ETFs ETFs, gold bullion custodian for BetaShares Gold
globally Bullion ETF
Confidential – may not be distributed without the consent of BetaShares Capital 43
BetaShares Product Range
Current BetaShares Product Range
SERIES FUND NAME ASX EXPOSURE

TICKER
CASH & FIXED INCOME Australian High Interest Cash ETF AAA Australian Cash
ETFS
CURRENCY ETFS U.S. Dollar ETF USD U.S. Dollars
Euro ETF EEU Euro
British Pound ETF POU British Pounds
COMMODITY ETFS Gold Bullion ETF - Currency Hedged QAU Gold Bullion (US$)
Crude Oil Index ETF – Currency Hedged OOO S&P GSCI Crude Oil Index
(synthetic)
Commodities Basket ETF – Currency Hedged QCB S&P GSCI Index (Light Energy)
(synthetic)
Agriculture ETF – Currency Hedged QAG S&P Agriculture Enhanced Select Index
(synthetic)
EQUITY ETFS FTSE RAFI Australia 200 ETF QOZ Largest 200 Australian companies by
fundamental weight
S&P/ASX 200 Financials Sector ETF QFN Financials Sector excluding A-REITS
S&P/ASX 200 Resources Sector ETF QRE Resources Sector
GEARED Geared Australian Equity Fund (hedge fund) GEAR Geared exposure to diversified portfolio of
Australian Equities
EQUITY INCOME Equity Yield Maximiser Fund (managed fund) YMAX S&P/ASX 20 + Equity Income strategy
SHORT FUNDS Australian Equities Bear Hedge Fund BEAR Short Australian Equities 44
BetaShares is the number one ranking ETF manager for
% asset growth over the last 12 months
Cumulative FuM Growth of Australian ETP Issuers: Last twelve months to 30 June 2014
160%
140% 139%
120%
100%
101%
80%
72%
60%
40% 39%
20%
16%
0%
Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 -7%
-20%
Source: BetaShares. Bloomberg. Past performance is not an indicator of future performance

Note: Issuer requires a minimum of $100m in June 2013 to qualify for table 45
Example: Asset Class Exposures
Commodity ETFs
Product Name: BetaShares Commodities Basket ETF – Currency Hedged (Synthetic)
S&P GSCI Light Energy Index Excess Return hedged into Australian dollars, plus an interest component- is a
Index Tracked & Description of broadly inclusive index that contains 24 commodities from all commodity sectors that meet certain eligibility
Index requirements. The broad range of constituents provides a high level of diversification across the commodity sector.
The interest component is based on interest earned by the ETF on its cash holdings
Index Components Sector Allocation

Key Information
30th June 2013 30th June 2013
ASX Code QCB Crude Oil 14.4% Corn 9.0% Copper 6.5%
Brent Oil 11.9% Wheat 7.0%

Bloomberg Aluminium 4.2%
QCB AU
code Gas Oil 4.6% Soybeans 5.5%
Zinc 1.1%
IRESS Code QCB.AXW Heating Oil 3.4% Sugar 3.1%
Nickel 1.0%
S&P GSCI RBOB Gas 3.3% Cotton 2.4%
Lead 0.9%
Light
Natural Gas 1.4% Kansas Industrial
Index Name Energy 1.4% 13.7%
Wheat Metals
Excess Energy 39.0%
Return Coffee 1.1%
Index Live Cattle 6.0% Cocoa 0.5% Energy 39.0%

Bloomberg SPGCLEP 30.2%
Lean Hogs 4.1% Agriculture Agriculture 30.2%
Code
Feeder Cattle 1.2% Industrial Metals 13.7%
# of
24
commodities Livestock 11.3% Livestock 11.3%
Management 5.1% Precious Metals 5.8%
0.69% p.a. Gold
Fee
Silver 0.7%
ETF 13
Inception December Precious 5.8%
Date 2011 Metals
Source: Bloomberg 46
Example: Asset Class Exposures
Agriculture ETFs
Product Name: BetaShares Agriculture ETF – Currency Hedged (Synthetic)
S&P GSCI Agriculture Index Excess Return hedged into Australian dollars, plus an interest component – the index
Index Tracked & Description
comprises commodities from the agricultural sector providing diversification across the agricultural commodity
of Index
sector. The interest component is based on interest earned by the ETF on its cash holdings
Commodity Allocation
Key Information
30st June 2013
ASX Code QAG
Bloomberg Code QAG AU

IRESS Code QAG.ASX
S&P GSCI
Agriculture
Index Name Enhanced Select
Index Excess
Return
Index Bloomberg
SGECAS Corn 35.5
Code
# of Wheat 28.9
4
commodities
Soybeans 22.3
Management
0.69% p.a.
Fee
Sugar 13.3
ETF Inception
30 November 2011
Date
Source: Bloomberg 47
ETF Arbitrage Mechanism
If ETF Price > NAV (i.e., If ETF Price < NAV (i.e.,
Value of Basket of Securities) Value of Basket of Securities)
Authorised Participant: Authorised Participant:

• Buys index basket on market • Buys ETF on market
• Exchanges index basket for • Exchanges ETF units for the
new ETF units (i.e., “creation” index basket (i.e., “redemption”
of units) of units)
• Sells ETF on market • Sells index basket on market
The price of an ETF approaches that of net

asset value making the spread very tight
48
ASIC’s regulation of ‘Synthetic’ ETFs
Admission Requirements imposed by ASX (based on discussions with ASIC) are

more restrictive than in some other jurisdictions.
1. Counterparties must be Australian deposit taking institution (ADI) or overseas

equivalent
2. The ETF must be managed to ensure its aggregate exposure to counterparties is

no more than a maximum of 10% of the ETF’s NAV. In effect, making the fund only
a maximum of 10% “synthetic”.
3. There must be no liability for investors to the issuer
4. Current Synthetic ETFs in Australia use an ‘unfunded’ swap as they do not involve
a transfer of the ETF’s assets to the counterparty (i.e. it is unfunded from the
counterparty’s perspective).
49

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NSMTG 2014 Aug Rumble

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The Expanding Role of ETFs in Portfolios

13th August 2014

The information contained in this document is general information only and

• What are ETFs and why are they so popular?

• ETFs: The basics

• ETFs in investor portfolios

 Using ETFs for broad Australian sharemarket exposure

 Equity income strategies

 Cash in ETF form

•What are ETFs and why are they so popular?

•ETFs: The basics

COST EFFECTIVE Entry and exit costs limited to cost of brokerage

Current Participants in Australian Exchange Traded Products Industry

Equity – Domestic Cash & Fixed Income Commodities

Currencies International Strategy

• What are ETFs and why are they so popular?

• ETFs: The basics

• ETFs in investor portfolios

 Using ETFs for broad Australian sharemarket exposure

 Equity income strategies

 Cash in ETF form

• Investment portfolio held

• What are ETFs and why are they so popular?

• ETFs: The basics

• ETFs in investor portfolios

 Using ETFs for broad Australian sharemarket exposure

 Equity income strategies

 Cash in ETF form

SMSF STAGE OBJECTIVES EXAMPLE

• What are ETFs and why are they so popular?

• ETFs: The basics

• ETFs in investor portfolios

 Using ETFs for broad Australian sharemarket exposure

 Equity income strategies

 Cash in ETF form

• Benefits to core passive exposure

• Advances in index methodologies

• Such index exposures available in an ETF form

“Fresh Fruitery” “Fresh Fruit Daily”

Confidential – may not be distributed without the consent of BetaShares Capital

“Fresh Fruitery” “Fresh Fruit Daily”

Market Value $1.5m $1m

Confidential – may not be distributed without the consent of BetaShares Capital

“Fresh Fruitery” “Fresh Fruit Daily”

Market Value $1.5m $1m

Confidential – may not be distributed without the consent of BetaShares Capital

• Factors best reflect a

RAFI • Factors are equally

• Average of five years of

Top 10 Over/Under Weights v S&P/ASX 200 Index

Source: Research Affiliates, FTSE, Bloomberg

1050 1 YR 17.5% 17.4%

3 YR (p.a) 12.6% 10.3%

850 5 YR (p.a) 13.0% 11.2%

10 YR (p.a) 10.8% 9.0%

Incept (p.a) 12.0% 9.7%

Value add since inception: 2.3%

• What are ETFs and why are they so popular?

• ETFs: The basics

• ETFs in investor portfolios

 Using ETFs for broad Australian sharemarket exposure

 Equity income strategies

 Cash in ETF form