Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Insurance, value or growth: pick your poison
“If there’s one thing, I can tell everyone… is that gold is fire insurance, even better, gold is portfolio insurance,” said Ganesh Balendran speaking at The Inside Network’s Equities Symposium. Delivered in a unique technology-driven Pecha Kucha format. Balendran challenged delegates to consider the expanding use cases of ETFs amid a surge in volatility and the growing need for alpha.
“When equities are falling all around us, guess what came to the front of investors’ minds and protected portfolios?” You guessed it… Gold. ETF Securities’ gold bullion ETF, with the ticker GOLD, is by far its most popular and widely held strategy, but with an expanding and unique opportunity set, flows are beginning to spread as advisers look for true diversification.
Balendran highlighted the three key challenges faced by every investor and asset allocator today, being the need to:
- Hedge against growing volatility
- Find value amid overvalued markets; and
- Seek growth through thematic opportunities
With global equities falling on the back of the Ukrainian crisis causing supply disruptions and all sorts of price rises across energy, nickel, palladium and wheat, according to Ganesh, gold has come to the rescue as a geopolitical and inflationary hedge, providing a safe haven for investors during times of peril. The price of the metal rose to a record above US$2,000 per troy ounce in March and AUD$2,600. These levels haven’t been seen since Aug. 2020.
Long touted as ‘digital gold’ Balendran challenged the notion that it can protect against volatility, saying “now there is a new kid on the block, 13 years old, maybe not so old and that is Bitcoin. The crypto currency is being referred to as Gold 2.0 but has 3 times volatility than that of Gold, which makes it a tough safe haven asset for investors to stomach.” This he said wasn’t a negative for the long-term opportunity in crypto, with ETF set to launch a strategy sooner rather than later, rather a comparison of its usefulness as a hedge.
The fast-paced session moved quickly to the other major challenge facing investors, finding value in overvalued market challenged by a jump in interest rates. “Traditional measures of value, look at price to value, price to book, price to equity. We know they aren’t the only measures of value, but they give investors a general idea of how to use value. There are value ETFs that give exposure to these factors. However today, you can be quite precise with your views with ETFs, to look at a certain geographic region or wanted to target areas of the economy that have a value bias.”
Comparing the US, Australia and Europe, Ganesh highlights the attractiveness of European stocks based on their relatively low PE multiple in comparison to the rest of the world. Domestic portfolios usually have a relatively low exposure to European stocks and a surprisingly heavy Australian equities bias.
“There are opportunities in Europe, its ten times the size of Australia. Companies aren’t concentrated on two sectors like Australia and you’re getting a well-rounded diversified basket and exposure to a continent of 350 million people. Massive, massive opportunity,” says Ganesh.
And the final step, is buying growth via thematics. There’s been a significant rotation out of tech and growth into value. Ganesh says “technology, battery tech, lithium and the emerging markets consumer” are just some of the major growth themes investors should be looking at.
“From a technology point of view, it remains the foundational position for most mega trends from cybersecurity, cloud computing, semi-conductors and the internet of things. So, technology will continue to expand, grow and be part of our every day lives,” says Ganesh.
The beauty of ETFs is that you can do just about anything with them. It’s a bit like a Swiss army knife. Got a knife? Of course. Small tweezers? Sure, it’s all there. ETFs can do anything, a one-stop-shop Swiss army knife.
