Gearing into ETFs on the ASX

Exchange Traded Funds (ETFs) are a fast-growing financial product available to investors. The Australian ETF market reached a high of $193.38b as of May 2024 and grew 34.8% over the previous 12 months.⁽¹⁾ This is indication investors are now embracing the asset class and prepared to invest into ETFs more readily.

ETFs can be a cost-effective way to access different sector or market indices and strategies. They are also a relatively straightforward way for an investor to obtain additional or specific exposure without having to hold individual stocks, which may be more difficult to manage. For example, this can be the case when holding international securities directly or multiple securities across different global exchanges, as there are different time zones and currencies which add complexity.

As with all market based investments, there are risks to consider. For example, the ETF may not perform in line with your expectations or deliver a negative return. As ETFs are also offered by an external manager there is also counter party risk and your reliance on that managers expertise and ability to be able to manage your investment.

Some ETFs are often used to obtain passive exposure to an index, where the provider is generally just rebalancing the ETF in line with the index. This is opposed to an actively managed fund. Fund managers generally charge a fee for managing the fund, known as the management expense ratio (MER). The MER for an indexed based ETF is generally lower than actively managed funds.
Another advantage is that if the ETF is issued in Australia, the provider will usually supply information regarding tax reporting and dividends (if applicable) in Australian dollars, making reporting of ETF income simpler in tax returns.

Get exposure to global growth.

Australian investors can use international ETFs to gain access to international equities, both US and non-US, to get exposure to global growth. This allows a portfolio to obtain some international exposure relatively quickly and easily with the security able to be traded on the ASX.

Examples of international ETF’s tracking indexes are ETFs for the S&P500 index, Nasdaq 100 index, or non-US indexes such as the FTSE 100. However, investors should consider that the underlying holdings domiciled in a foreign country may have currency risk, unless this is hedged by the provider.
Other ETFs may focus on one sector, such as information technology, precious metals, or financial services. Sector-specific ETFs may allow the investor to obtain exposure to a particular theme or asset class, obtaining additional exposure to that desired sector.

Gearing into ETFs

Leveraged offers a broad range of ETFs that can be used in a margin loan, which cover various indexes both domestic and internationally, and specific sectors that may complement an investor’s portfolio. Lending may be offered on a concentrated basis, i.e., you may be able to hold 100% of an ETF as one holding, or on a diversified basis. For example, up to a maximum 20% lending value of the portfolio. Lending will vary dependent on each ETF.

If you would like more information on the lending we can offer on ETFs please contact us on 1300 307 807 or alternatively the full list can be found on our acceptable investments list.⁽²⁾