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Myths and misconceptions

of indexing with Exchange


Traded Funds (ETF)s
Todd Schlanger, CFA
Investment Strategy Group
Vanguard Asset Management, Limited

This document is directed at investment professionals and should not be distributed to, or relied
upon by retail investors. The value of investments, and the income from them, may fall or rise and
investors may get back less than they invested.

Myths and misconceptions


of indexing with Exchange
Traded Funds (ETF)s
Todd Schlanger, CFA
Investment Strategy Group
Vanguard Asset Management, Limited

This document is directed at investment professionals and should not be distributed to, or relied
upon by retail investors. The value of investments, and the income from them, may fall or rise and
investors may get back less than they invested.

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Vanguard becomes largest mutual fund family
(Globally)

Passive is gaining traction in the UK


Funds under management (FUM) in passively-managed funds (GBP millions, %)
100,000
10.5%

90,000
9.0%

80,000
70,000
60,000

7.0%
6.0%

6.1%

6.2%

6.3%

6.6%

6.7%

7.0%

7.2%

7.2%

7.2%

7.4%

7.6%

7.7%

9.1%

9.4%

9.6%

9.8%

10.9%

11.2%

9.8%

7.8%

12%
10%
8%
6%

Funds under
50,000management (GBP millions)
4%

40,000
30,000

2%

20,000
0%

10,000
0

-2%

Total FUM in onshore passive funds

Proportion of total industry FUM in onshore passive funds

Source: Investment Association, data as at 31 December 2014. UK-domiciled funds under management. Market data includes money invested in the underlying funds in
which funds of funds invest, but excludes money invested in fund of funds themselves (other than funds of overseas funds) to avoid double-counting.

Active tends to underperform on average


Percentage of active equity managers underperforming their benchmark,
2000 to 2014
Equities

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Surviving +

Fixed income

Surviving funds

Past performance is not a reliable indicator of future results.


Sources: Vanguard calculations, using data from Morningstar, Inc.
Notes: Fund universe includes funds available for sale in the UK, filtered according to the description above, from the following Morningstar categories: UK equity flex cap, largecap blend, large-cap growth, large-cap value, mid-cap, small-cap; Europe equity Europe OE: flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap;
Euro zone equity flex-cap, large-cap, mid-cap, small-cap; Global flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; US equity flex-cap, largecap blend, large-cap growth, large-cap value, mid-cap, small-cap; Emerging markets equity emerging markets; Europe bond EUR diversified; US bond USD diversified;
Global bond global un-hedged bond; UK bonds UK diversified, UK government. Performance is for periods ending on 31 December 2014. Performance is calculated relative to
prospectus benchmark. Fund performance is shown in GBP terms, net of fees, gross of withholding tax, with income reinvested, based on closing NAV prices.

Investing as a zero-sum game


Costs

Probability

Median post-cost
return

Benchmark return

Return
Underperforming benchmark

Outperforming benchmark

After costs, more than half of all assets underperform

Source: The Vanguard Group Inc.

Myths and misconceptions of indexing

Active works best in inefficient markets


Active can outperform in bull/bear markets
Returns matter more than costs
I dont invest in average funds
Active managers can better manage risks in a portfolio

Indexing only works in efficient markets?


Percentage of active equity managers underperforming their benchmark,
2005 to 2014
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

High Yield
Surviving +

Emerging

Small-Cap

Surviving funds

Past performance is not a reliable indicator of future results.


Source: Vanguard calculations, using data from Morningstar, Inc.
Notes: Fund universe includes funds available for sale in the UK, filtered according to the description above, from the following Morningstar categories: High yield; Smallcap; Emerging markets. Performance is for periods ending on 31 December 2014. Performance is calculated relative to prospectus benchmark. Fund performance is shown
in GBP terms, net of fees, gross of withholding tax, with income reinvested, based on closing NAV prices.

Debunking the market cycle myth


Percentage of active equity funds underperforming prospectus benchmark
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Past performance is not a reliable indicator of future results.


Source: Vanguard calculations, based on data from Morningstar, Inc to 31 December 2014
Notes: Displays the percentage of surviving funds that underperform their prospectus benchmark over the time period shown. Bull and bear markets are the local peak or trough in
the global equity market, defined as the MSCI All Country World IMI. The fund universe and categories are as defined slide 4. Returns are calculated in GBP net of fees, gross of
tax, with income reinvested. Past performance is not a reliable indicator of future results.

Low cost investments tend to outperform higher


cost investments
Average annual returns over the ten years to 31 December 2014
Average annualised return (%)

12
10
8
6
4
2
0

Low cost median

High cost median

Past performance is not a reliable indicator of future results.


Source: Vanguard calculations, using data from calculations using Morningstar, Inc.
Notes: All mutual funds in each Morningstar category were ranked by their expense ratios as of 31 December 2014. They were then divided into four equal groups, from
the lowest-cost to the highest-cost funds. The chart shows the ten-year annualised returns for the median funds in the lowest cost and highest cost quartiles. Returns are
in sterling terms with income reinvested, net of expenses, excluding loads and taxes. Both actively managed and indexed funds are included. For funds with both income
and accumulation share classes, we use only accumulation share classes to avoid double counting.

10

Fund leadership is quick to change


Rank persistence of UK active equity funds
30%
27.1%
25%

20% of funds
Percentage

17.6%

18.8%
16.5%

15%

12.9%

10%
7.1%
5%

0%

Highest quintile

2nd quintile

3rd quintile

4th quintile

Lowest quintile

Past performance is not a reliable indicator of future results.


Source: Vanguard calculations, using data from Morningstar, Inc.
Performance is relative to prospectus benchmark. The first period was the 5-years ending 2009 and the second period was the 5-years ending 2014. The
fund universe includes all UK active equity funds available for sale in the UK. Returns are in GBP, net of fees, gross of tax, with income reinvested.

Merged/ liquidated

11

Actively managed portfolios tend to increase volatility

7
6
5
Annual return (%)
4
3
2
1
0
0

10

12

14

16

18

20

Annual volatility (%)


Past performance is no guarantee of future results.
Source: Vanguard calculations, using data from Morningstar, Inc. Data to 31 December, 2014.
Notes: The fund universe includes all active equity funds available for sale in the UK, investing in the equity classes as defined from the following Morningstar categories: UK
equity flex cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; Global flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap;
Global bond global un-hedged bond; GBP diversified UK diversified, Returns are in GBP terms, calculated net of fees, gross of tax withholding, with income reinvested.

12

Myths and misconceptions of indexing


Active works best in inefficient markets
- Relative performance often weaker as a result of higher costs
Active can outperform in bull/bear markets
- Timing market cycles is difficult and no evidence to support
Returns matter more than costs
- Costs reduce returns pound for pound
I dont invest in average funds
- Little performance persistence makes selection difficult
Active managers can better manage risks in a portfolio
- Active funds tend to have higher volatility

13

Key takeaways
Investing as a zero sum game

Myths and misconceptions

Relevance to mutual fund investors

Inefficient markets

The record of active management

Bull/bear market

Performance

Returns over costs

Cyclicality

Average fund

Survivorship bias

Active is less risky

Persistence

Other benefits of indexing

Comparing active to passive

More control over risks

The role of cost

Greater diversification

Relative performance

Portfolio consistency

14

Appendix

15

Active performance can be cyclical


Percentage of UK active equity managers underperforming their benchmarks
5-year periods

10-year periods

100%

100%

90%

90%

80%

80%

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

0%
2010

2011

2012

2013

2014

Percent underperforming
Percent underperforming, including

Past performance is not a reliable indicator of future results.


Sources: Vanguard calculations, using data from Morningstar, Inc. Data to 31 December 2014.
Notes: Fund universe includes funds available for sale in the UK, filtered according to the description above, from the following
Morningstar categories: UK equity flex cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap.

16

Survivorship bias can impact results


Excess return of dead funds over broad market benchmark
From January 2000 to fund closure date
2%
Annualised
1%excess return prior to being
mergeed or liquidated
0%
-1%
-2%
-3%
-4%
-5%
-6%

Middle 50% of funds

Median

Past performance is not a reliable indicator of future results.


Source: Vanguard calculations, using data from Morningstar, Inc., FTSE and Barclays. Displays the cumulative annualised performance of those equity funds that were merged or
liquidated within our sample, relative to the prospectus benchmark most commonly used within that funds Morningstar Category. We measure performance from 1 January 2000
or the funds inception, whichever is later, and continue each funds measurement period up until the month-end prior to it being merged or liquidated. Fund universe is as
described in slide 4, limited to those funds that were merged or liquidated from January 2000 to December 2014. Figure displays the middle 50% distribution of these funds
returns prior to dying. Performance is measured in sterling terms, net of fees, gross of tax withholding, with income reinvested.

17

The role of costs


Ongoing charges by fund category
Category

Active

Index

Difference

Global equity

1.31

0.23

1.08

U.K. equity

0.97

0.51

0.45

European equity

1.69

0.29

1.40

Eurozone equity

1.35

0.32

1.03

U.S. equity

1.31

0.21

1.10

Emerging market equity

1.34

0.26

1.07

Global bonds

0.86

0.19

0.66

GBP Diversified bonds

0.63

--

n/a

GBP Government bonds

0.56

0.31

0.25

EUR Diversified bonds

0.80

0.65

0.15

USD Diversified bonds

0.90

0.65

0.25

Notes: The average expense ratio quoted for each category of funds represents the asset-weighted average expense ratio based on information in latest available
annual report at 31 December 2014. Fund expenses are weighted by the share-class AUM, reflecting the typical investors experience in that fund. Fund universe
includes funds available for sale in the UK, filtered according to the description above, from the following Morningstar categories: UK equity flex cap, large-cap
blend, large-cap growth, large-cap value, mid-cap, small-cap; Europe equity Europe OE: flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap,
small-cap; Euro zone equity flex-cap, large-cap, mid-cap, small-cap; Global flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap;
US equity flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; Emerging markets equity emerging markets; Europe bond EUR
diversified; US bond USD diversified; Global bond global un-hedged bond; UK bonds UK diversified, UK government. Performance is for periods ending on
31 December 2014. Performance is calculated relative to prospectus benchmark. Source: Vanguard calculations, based on data from Morningstar, Inc. Data as of
31 December 2014. Past performance is not a reliable indicator of future results.

18

Lower costs tend to equate to higher returns


Performance of UK active equity funds relative to ongoing charges

10 year annualised excess returns (%)

10

Global equity

10

UK equity

10

-5

-5

-5

-10
0

10

Euro zone equity

-10
0

US equity

10

-10
0

10

-5

-5

-5

-10
0

-10
0

-10
0

European equity

Emerging market equity

Expense ratio (%)


Past performance is not a reliable indicator of future results.
Source: Vanguard calculations , using data from Thompson Reuters Datastream and Morningstar, Inc.
Returns on the vertical axis are the 10-year annualised excess return over each funds prospectus benchmark, through December 31 2014. Total expense ratio on the horizontal
axis is from the latest available annual report as at 31 December 2012. Fund universe and categories as defined in earlier charts. Performance is shown in sterling, net of fees
gross of tax, with income reinvested.

19

Distribution of equity fund performance


500

Prospectus benchmark

120

450
400
Number
350of funds
300
250

100
80
60

200
40

150
100

20

50
0
Merged/Liquidated

Excess return
Index funds

Active funds

Outperforming / outperforming adjusted for survivorship bias


Past performance is not a reliable indicator of future results.
Sources: Vanguard calculations, using data from Morningstar, Inc. Displays the distribution of fund excess returns, relative to their prospectus
benchmark, for the 15 year period ending 31 December 2014. Fund universe is as defined on page 13. Performance is shown in GBP, net of
fees, gross of tax, with income reinvested.

20

Distribution of bond fund performance


Prospectus benchmark

90
80
70
60
Number of funds
50
40
30
20
10
0

Excess return
Index funds

Active funds

Outperforming / outperforming adjusted for survivorship bias


Past performance is not a reliable indicator of future results.
Sources: Vanguard calculations, using data from Morningstar, Inc. Displays the distribution of fund excess returns, relative to their
prospectus benchmark, for the 15 year period ending 31 December 2014. Fund universe is as defined on slide 13. Performance is shown in
GBP, net of fees, gross of tax, with income reinvested. Past performance is not a reliable indicator of future results.

21

Adding passive can help reduce client risk


Client asks questions

Client pulls some assets

Client pulls most assets

Active
portfolio

Client pulls all assets

Risk of losing clients

Market
return

Portfolios periodic return

Client asks questions

Client pulls some assets

Client pulls most assets

Adding
passive

Client pulls all assets

Risk of losing clients

Market
return

Portfolios periodic return


Source: Vanguard .

22

Indexing offers additional benefits in portfolio construction


Indexing can permit greater control of asset class risks in a portfolio
Using a concentrated active fund can lead to a portfolio with risk and return characteristics

differing from the equity market

Greater diversification
Actively managed funds tend to hold fewer securities with varying degrees of return correlation

Portfolio consistency
An index fund should maintain its style consistency by closely tracking the characteristics of

the index and market

23

Important information
This document is directed at professional investors and should not be distributed to, or relied upon by retail investors.
This document is designed for use by, and is directed only at persons resident in the UK.
The material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any
jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the
person making the offer or solicitation is not qualified to do so.
The information on this document does not constitute
legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Past performance is not
a reliable indicator of future results.
The opinions expressed in this presentation are those of individual speakers and may not be representative of Vanguard Asset Management,
Limited
Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.
2015 Vanguard Asset Management, Limited. All rights reserved.
VAM-2015-09-25-2923

24

Myths and misconceptions


of indexing with Exchange
Traded Funds (ETF)s
Todd Schlanger, CFA
Investment Strategy Group
Vanguard Asset Management, Limited

This document is directed at investment professionals and should not be distributed to, or relied
upon by retail investors. The value of investments, and the income from them, may fall or rise and
investors may get back less than they invested.

Asset management
UBS ETFs

UK edition
For professional investors only

The case for currency hedged ETFs


UBS ETFs ETFs how you want them
Andrew Walsh, Head of UBS ETF Sales UK & Ireland

November, 2015

Contents
Section 1

UBS ETFs A leading provider in Europe

Section 2

Background and impact of currency movements

Section 3

Currency hedging in fixed income

Section 4

Comparison of Hedging options

Section 5

UBS ETFs currency hedged ETFs

Section 6

UBS ETFs currency hedging methodology

Section 7

Conclusion

Section 8

Appendix

27

Section 1

UBS ETFs A leading provider in Europe

UBS Global Asset Management At a Glance


UBS Global Asset Management offers a variety of investment styles and
strategies backed by our global resources and know-how.

Our investment capabilities cover equities, fxed income, global investment


solutions, fund services, alternative and quantitative investments, global real
estate, as well as infrastructure and private equity.

For over 30 years, the management of index-linked portfolios has been one of the
core competencies of UBS Global Asset Management.

With assets under management of approximately GBP 458 billion and


3,900 employees in 24 countries, we rank as one of the leading fund providers. 1

A leadingfund house in Europe, the largest mutual fund manager in Switzerland 2


andone of the largest fund of hedge funds and real estate investment managers
in the world.

1
2

Source: UBS, 31 March 2015


Source: Morningstar/Swiss Fund Data Swiss Promoters report (as of 31 March 2015)

29

UBS Global Asset Management Passive Assets


Passively managed assets: 148bn1
Total index AuM by asset class
3%
Global Equities
27%
Fixed Income
2%
4%
North American
5%
Equities
9%
Pan-European Equities
14%
Swiss Equities
15%
Asia Pacifc Equities
20%
UK Equities

Total index AuM growth (CHF bn)


240
200
160
120

Total index AuM by vehicle


6%1%

80

11%

40

28%

53%

Segregated
Mandates
UBS Pooled Index
Funds

0
2006 2007 2008 2009 2010 2011 2012 2013 2014 42156

Source: UBS Global Asset Management. Data as at 30 June 2015.


1 AuM reported in official UBS fnancial statements CHF 206bn. Difference to above quoted AuM largely due to exclusion of index element in multiassets.
Above quoted AuM includes CHF 0.8bn of basket strategies.

30

UBS ETFs A Leading Provider in Europe


ETFs the way you want them
14 years of ETF experience

In 2001 UBS Global Asset Management launched the frst four


ETFs (EURO STOXX 50, FTSE, USA, Japan)
UBS ETF benefts from the expertise of UBS Global Asset
Management (team with over 30 years of experience in indexed
portfolio management)

#4 in Europe1

5 Core markets / exchanges

UBS ETF has 17.1bn in ETFs under management1


Net inflows of 4.2bn in 20151
One of Europe's leading providers of physically replicated ETFs1
UBS offers GBP-hedged ETFs and is the largest provider of
currency hedged ETFs (>50 ETFs) in Europe1
A suite of seven SRI ETFs tracking a selection of MSCI indices
UK
CH
DE
IT
JP

London Stock Exchange (LSE) (84 listings)2


SIX Swiss Exchange (229 listings)2

Deutsche Brse AG (Xetra) (73 listings)2

Borsa Italiana (69 listings)2


Tokyo Stock Exchange (TSE) (10 listings)2

Overall 179 ETFs are offered: equities, fxed income,


commodities, precious metals, hedge funds, real estate and
multi asset portfolio
Broad range of physically (88%) and synthetically (12%)
Source: ETFGI, 28 August 2015.
replicated ETFs (accumulating and distributing share classes)
Source: UBS Global Asset Management, September 2015. Listings include share classes in various currencies

Broad selection

1
2

31

UBS ETFs European ETF Market


UBS ETFs One of Europe's leading providers of physically replicated
ETFs

As of end August 2015, the European ETF


industry had 1,516 ETFs from 45
providers on 25 exchanges.
Inflows in August 2015 amounted to
7,132m. Assets under management
increased to 309.2bn.
UBS ETFs ranks fourth in Europe, with
17.1bn in assets under management.
UBS ETFs had inflows in 2015 until end
August of 4.2bn.
From all providers, 75% of European ETF
assets under management were invested
in physically replicated ETFs, and 25% in
synthetically replicated ETFs.
UBS ETFs is the third-biggest provider
of physically replicated ETFs in
Europe, and the seventh-largest provider
of synthetically replicated ETFs (relating
to UCITS conform ETFs).

Source: UBS Global Asset Management, ETFGI, 28 August 2015

32

Section 2

Background and impact of Currency movements

Global equity portfolios example of foreign currency


holdings
Typical globally diversified equity portfolios
Global equities

Foreign currency
risk
100%

CAD
4%

CHF AUD Rest


4% 3% 4%
USD
53%

JPY
9%
GBP
9%

50%

0%

96.17%

90.85%

90.80%

87.57%

46.54%

EUR
12%

* SEK 1.37%, HKD 1.25%, SGD 0.64%, DKK 0.47%, NOK 0.34%, ILS 0.19%, NZD
0.34%
MSCI World Index

Portfolios with global equities are exposed to several currency risks at the same time.
Exchange rate fluctuations primarily have a major impact on the investment returns of GBP, EUR,
CHF, and JPY investors.
GBP investors are exposed to foreign currency risks of 90.80%.
For USD investors, almost half of the portfolio is exposed to foreign currencies.
Source: UBS Global Asset Management

34

Past trends in currency markets


Exchange-rate developments against the GBP
Currency trends versus the GBP
(Sep.'10 Sep.'15; 28 Sep. 2010 = 100)

CHF floor
removal

US Hike?

Total
Return
JPY/GBP: -28 %
EUR/GBP :
-14%
USD/GBP: +4%
CHF/GBP: +3%

ECB QE
Abeonomic
s

The key currencies, Japanese yen (JPY) and Euro (EUR), have significantly fallen in value
against the British pound (GBP) over the last 5 years. Only the Swiss Franc (CHF) and the US
dollar yielded marginally positive performances against the GBP over this period.
Clients with home currency GBP and foreign equity, benefit from currency hedging when
foreign currencies are getting weaker.
Source: Bloomberg, data as of 25/09/2015

35

Numerical example Eurozone equities


Impact of currency hedging on portfolio returns: MSCI EMU (Sep. '10
Sep. '15)
Performance of MSCI EMU Indices and the EURGBP
exchange rate

Estimated index annualized return

currency
hedged
return

Currency fluctuations have a major impact on the investment returns, due to currency volatility (weakening
EUR due to ECB monetary stimulus - > asset purchase program running over Mar. '15 to Sep. 16')

The MSCI EMU unhedged GBP has delivered an annualized return of 3.45% compared to an annual return of
6.38% for the MSCI EMU in its base currency (EUR).

If the MSCI EMU GBP hedged exposure had been chosen the annual return would have been 6.72%.

The hedge ratio (kept constant intra-month) of the currency hedge as well as interest rate differential (cost of
currency hedge) can have a negative or positive impact on the performance -> positive in case of EURGBP in the
last few years
Source: Bloomberg, data as of 25/09/2015. Performance based on the period: 28/09/2010 25/09/2015
36

Section 3

Currency hedging in fixed income

Return components the role of exchange rate


Local Currency Fixed Income

Foreign Fixed Income

(Valuation Change + Accrued Interest)

(Valuation Change + Accrued Interest +


Currency P&L)

Source: Barclays POINT, UBS Global Asset Management. Data as of 31 August 2015.
Past performance is not a reliable indicator of future results.
38

Foreign investment performance vs. currency


"wars"
Currency movements now more important than ever before
- one exposure, different funding currencies "Global" monetary easing programs
(Fed, BoE, BoJ, ECB,)

Source: Barclays POINT, UBS Global Asset Management. Data as of 31 August 2015.
Past performance is not a reliable indicator of future results.
39

Foreign investment the latest example (QE ECB)


The ECB QE results in weaker EUR (unhedged GBP investor has FX
loss)
Unhedged GBP investor

Hedged GBP investor

Source: Barclays POINT, UBS Global Asset Management. Data as of 31 August 2015.
Past performance is not a reliable indicator of future results.
40

Tracking quality example (live track since May


30, 2014)
Local Currency

Benchmark:
4.82%

Currency Hedged

Benchmark:
4.78%

ETF: 4.78%

ETF: 4.78%

Average TE =
0.15%

Source: Barclays POINT, UBS Global Asset Management. Data from 30 May 2014 to 31 March 2015.
Past performance is not a reliable indicator of future results.

Average TE =
0.16%

41

Operational framework monthly hedging process


Hedge frequency driven by trade-off between tracking error and trading
costs

Annualized Tracking Error


Currency hedging accuracy is defined
by.
i. the frequency a proft or loss resulted of a currency hedge
transaction is rolled and,
ii.

the ratio between the Hedge Nominal on t-1 and the


Total Net Assets of the foreign currency portfolio on t

Avg. spread
between Libor
USD 12m and
Libor EUR 12m
36bps

Hedge Ratiot:
proportion of Hedge Nominal on t-1 and the Total Net Assets on
t
Hedge Nominal fc,t-1:
the amount in foreign currency sold forward on t-1
Total Net Assetsfc,t:
the total net assets in foreign currency on t
t:
the current business day
t-1:
last business day of the previous month (hedge frequency = monthly),
previous business day ( hedge frequency = daily)
fc:
foreign currency is the local currency of the portfolio

Trade-off between Hedge Frequency and


Tracking Error / Trading Costs

The Hedge Ratio is defned as the nominal amount


to be hedged relative to the ETF's asset under
management
Predefined (by index provider) hedging
methodology decides about the ETFs' hedging
quality
The higher the hedge frequency and the closer the
hedge ratio to 100%, the lower the Tracking Error

Source: Barclays POINT, UBS Global Asset Management. Data from 08 April 2014 to 31 March 2015.
Past performance is not a reliable indicator of future results. For illustrative purpose only.

The higher the hedge frequency, the higher the


turnover and hence the higher portfolio trading
costs

42

Section 4

Comparison of hedging options

Comparison of hedging options


Currency exposure can be hedged in a number of ways
Hedging on portfolio level
UBS currency hedged ETFs
Benefits

Disadvantages

Reduced foreign currency


risk
Simple access and
transparency
One-time transaction
Currency hedging in fund
format
Can positively impact
performance compared to
unhedged ETF
Higher fees than for nonhedged index
Can negatively impact
performance compared to
unhedged ETF

Unhedged

Can positively influence


performance
Lower fees
Can positively impact
performance compared to
a hedge portfolio/product

Forwards

Additional foreign currency


risk

Can negatively impact


performance compared to
a hedge portfolio/product

Currencies

Transaction costs
TER

Certificates

Various hedging methods


possible, e.g. daily hedge
Quicker trading
Possibly lower costs

Exact hedge only through


short intervals
High minimum investment
Greater risk due to use of
OTC derivatives
Counterparty and
operational risk
Less transparency
Only suitable for
professional investors
Portfolio management
resources required

Various hedging methods


and products available on
the market
Quicker trading

Issuer risk
Less transparency
Only suitable for
professional investor
Portfolio management
resources required

E.g. CHF, EUR, GBP, USD

Various currencies

Various currencies

One-time

One-time

Multiple

Multiple

0.3 - 0.45% p.a.

from 0.15% p.a.

n.a.

n.a.

Certifcates included: currency certifcates, warrants and mini-futures. One-off transaction cost for the product, the monthly transaction cost (spread ) for the hedge impacts fund
performance.
Source: UBS Global Asset Management

44

Section 5

UBS ETFs currency hedged ETFs

UBS ETFs currency hedged equity ETFs


Suite of sterling-hedged equity ETFs listed on the LSE
The most recent trends on the international currency markets, brought about in
no small part by the massive central bank intervention, represent major
challenges for investors, in particular as regards currency management.
UBS Global Asset Management now offers currency hedged share classes on a
selection of its physically replicated ETFs on equity indices. With this
transparent currency hedging strategy, it is possible to reduce currency
risk and optimize portfolio returns.
Currency hedged UBS ETFs
GBP

EUR

MSCI Japan

MSCI Japan

MSCI Canada

MSCI Canada

n/a

USD

CHF

SGD

MSCI Japan

MSCI Japan

MSCI Japan

MSCI Canada

MSCI Canada

MSCI Canada

MSCI United Kingdom MSCI United Kingdom MSCI United Kingdom MSCI United Kingdom

MSCI EMU

n/a

MSCI EMU

MSCI EMU

MSCI EMU

MSCI USA

MSCI USA

n/a

MSCI USA

MSCI USA

MSCI Switzerland

MSCI Switzerland

MSCI Switzerland

n/a

MSCI Switzerland

MSCI Australia

MSCI Australia

MSCI Australia

MSCI Australia

n/a

Source: UBS Global Asset Management

46

UBS ETFs currency hedged ETFs


ETFs hedged to the GBP
Fund name

Distributio
TER
n1

ISIN

Trading

LSE

Bloomberg

currency

code

ticker

UBS ETF (LU) MSCI Canada hedged GBP UCITS ETF

dis

0.43
LU0937838836
%

GBp

UC57

UC57 LN

UBS ETF (LU) MSCI Canada hedged GBP UCITS ETF

acc

0.43% LU0950673797

GBp

UC58

UC58 LN

UBS ETF (LU) MSCI EMU hedged GBP UCITS ETF

dis

0.33% LU0937835733

GBp

UC59

UC59 LN

UBS ETF (LU) MSCI EMU hedged GBP UCITS ETF

acc

0.33% LU0950669688

GBp

UC60

UC60 LN

UBS ETF (LU) MSCI Japan hedged GBP UCITS ETF

dis

0.45% LU0969638401

GBp

UC61

UC61 LN

UBS ETF (LU) MSCI Japan hedged GBP UCITS ETF

acc

0.45% LU0969638583

GBp

UC62

UC62 LN

UBS ETF (LU) MSCI Switzerland hedged GBP UCITS ETF

dis

0.30% LU0977261246

GBp

UC70

UC70 LN

UBS ETF (LU) MSCI Switzerland hedged GBP UCITS ETF

acc

0.30% LU0977261162

GBp

UC69

UC69 LN

UBS ETF (IE) MSCI Australia hedged GBP UCITS ETF

dis

0.50% IE00BD4TY907

GBp

UC71

UC71 LN

UBS ETF (IE) MSCI Australia hedged GBP UCITS ETF

acc

0.50% IE00BD4TYB29

GBp

UC72

UC72 LN

UBS ETF (IE) MSCI USA hedged GBP UCITS ETF

dis

0.30% IE00BD4TYH80

GBp

UC73

UC73 LN

UBS ETF (IE) MSCI USA hedged GBP UCITS ETF

acc

0.30% IE00BD4TYJ05

GBp

UC74

UC74 LN

dis=distributing, acc = accumulating


Source: UBS Global Asset Management, 2014

47

UBS Fixed Income ETFs sovereign and corporate


range
The benchmark indices include Barclays, Markit and SBI and UBS ETFs
trade on the key European exchanges
Fund
currency

UBS ETF Barclays share classes


UBS ETF (LU) Barclays Capital US Treasury 1-3 UCITS ETF (USD) A-dis
UBS ETF (LU) Barclays Capital US Treasury 3-5 UCITS ETF (USD) A-dis
UBS ETF (LU) Barclays Capital US Treasury 5-7 UCITS ETF (USD) A-dis
UBS ETF (LU)

UBS ETF (LU)


UBS ETF (LU)
CHF) A-acc
UBS ETF (LU)
USD) A-acc

Barclays Capital US Treasury 7-10 UCITS ETF (USD) A-dis


Barclays Euro Area Liquid Corporates 1-5 UCITS ETF (EUR) A-dis
Barclays Euro Area Liquid Corporates 1-5 UCITS ETF (hedged to
Barclays Euro Area Liquid Corporates 1-5 UCITS ETF (hedged to

USD
USD
USD
USD

EUR
CHF

UCITS ETF (USD) A-dis


UCITS ETF (hedged to CHF) AUCITS ETF (hedged to EUR) AUCITS ETF (hedged to GBP) A-

TER

Inception
date

91

0.21%

02.02.2012

13

0.22%

26.01.2012

12

0.21%

26.01.2012

18

0.22%

0.18%

02.02.2012

30.05.2014

87

USD

UBS ETF (LU) Barclays US Liquid Corporates 1-5


UBS ETF (LU) Barclays US Liquid Corporates 1-5
acc
UBS ETF (LU) Barclays US Liquid Corporates 1-5
acc
UBS ETF (LU) Barclays US Liquid Corporates 1-5
dis
UBS
ETF Markit share classes

AuM in GBP
Mn

0.23%
0.23%

USD

0.18%

CHF

0.23%
198

EUR
GBP
Fund
currency

0.23%
AuM in GBP
Mn

0.23%
TER

USD
EUR

21

CHF
EUR
EUR
GBP
EUR

190
3
8

0.17%
0.18%
0.23%
0.17%
0.23%
0.23%
0.17%

UBS ETF (LU) Markit iBoxx Germany 7-10 UCITS ETF (EUR) A-dis

EUR

0.17%

UBS ETF (LU) Markit iBoxx Liquid Corporate UCITS ETF (EUR) A-dis

EUR

57

0.22%

UBS
UBS
UBS
UBS
UBS
UBS
UBS

ETF
ETF (LU)
(LU)
ETF (LU)
ETF
ETF (LU)
(LU)
ETF (LU)
ETF (LU)

Markit
iBoxx
Germany
1-3 UCITS
ETF
(EUR)
A-dis
Barclays
US Liquid
Corporates
UCITS
ETF
(USD)
A-dis
Barclays US Liquid Corporates UCITS ETF (hedged to CHF) A-acc
Markit
iBoxx
Germany
3-5 UCITS
ETF
(EUR)
A-disto EUR) A-acc
Barclays
US Liquid
Corporates
UCITS
ETF
(hedged
Barclays US Liquid Corporates UCITS ETF (hedged to GBP) A-dis
Markit iBoxx Germany 5-10 UCITS ETF (EUR) A-dis

Governments
Corporates

Replicati
on

ISIN

Physical

LU0721552544

Physical

LU0721552627

Physical

LU0721552890

Physical

Physical

LU0721552973

LU1048314196

31/03/2015 SIX

Physical

LU1048314865

30.01.2015 SIX

BI, XETRA, LSE,


01.12.2014 SIX

Physical

LU1048314436

Physical

LU1048314949

30.01.2015 SIX

Physical

LU1048315755

31/03/2015 XETRA, SIX

Physical

LU1048315243

Inception LSE, SIX


01.12.2014
date

Exchange
BI,XETRA,
XETRA,LSE,
LSE,
BI,
24.01.2012 SIX
SIX
30.05.2014
BI, XETRA, LSE,
30.09.2014 SIX
24.01.2012 BI,
SIX
30.05.2014
XETRA
BI, XETRA,
LSE,
31.10.2014 LSE,
SIX
24.01.2012 SIX
BI, XETRA, LSE,
24.01.2012 SIX

BI, XETRA, LSE,


24.01.2012 SIX

Replicati
Physical LU1048315326
on
ISIN

Exchange
BI, XETRA, LSE,
SIX
BI, XETRA, LSE,
SIX
BI, XETRA, LSE,
SIX
BI, XETRA, LSE,
SIX

BI, XETRA

Physical
Physical
Physical
Physical
Physical
Physical
Physical

LU0721553351
LU1048316647
LU1048317538
LU0721553435
LU1048317025
LU1048317298
LU0721553518

Physical

LU0721553609

Physical

LU0721553864

BI - Borsa Italiana; DB Deutsche Brse XETRA; LSE London Stock Exchange; SIX - SIX Swiss
Exchange

Source: UBS Global Asset Management. Data as of 31 March 2015.


48

Section 6

UBS ETFs currency hedging methodology

UBS ETFs currency hedging methodology


Currency hedging methodology of UBS ETF
Hedging of foreign currency in the desired home currency
UBS ETF hedge the foreign currencies of the standard indices in the selected home currency by selling each foreign
currency forward at the one-month forward rate. The sum of the sold forwards as at the last trading day of the month
corresponds to the market capitalization weighting of the securities contained in the standard index.
These are valued in both of the respective currencies two trading days before the frst calendar day of the following
month. The hedged value remains constant over the entire month.

The two components of currency-hedged index returns


1. The return of the non-currency hedged indices in the selected home currency.
2. The profit or loss arising from the forward contract in the selected home currency.

Month 1

Month 2

2 2 3
1 2 3 4 5 6 7 8 9 0

2 2 3 3
1 2 3 4 5 6 7 8 9 0 1

1 The securities contained in the

index are valued.

2 Foreign currency forwards are sold

Sale of foreign currency forward at one-month forward


rate
1 Valuation of securities contained in index
2

at
the one-month forward rate.

Hedged amount remains constant


over the entire month.

Source: UBS Global Asset Management

50

Impact on currency hedged ETF performance


Performance is impacted by direct and indirect costs

Direct costs

Description

Performance impact

Higher TER due to currency


hedging management
(physical replication)
Spread on currency forwards

These costs deteriorate


the performance

Potential inaccuracy of the


Positive or negative
currency hedge, due to intraeffect on performance
monthly changes of the
(example of a positive
underlying (e.g. unhedged
effect: The underlying
equity index)
index is decreasing while
gaining a positive return
Over- / underinvestment in
out of the currency
equities
hedge at the same time)
Over- / underhedge, due to
volatility
A reliable estimate of market
cost in advance
for the currency hedge is almost impossible .

Indirect costs

Higher drag-level for swap based ETFs (synthetic replication). Currency hedging management costs and spread for currency forwards are included in the drag-level.

51

Section 7

Currency hedged UBS ETFs conclusion

Currency hedged UBS ETFs conclusion


Why buy UBS currency hedged ETFs?
Mitigate foreign currency risk.
Currency hedging in a single transaction.
Transparent currency hedging methodology.
No use of futures or other derivative instruments.
Simple access and transparency.
Products replicated physically.

53

UBS ETFs Further Information


Website
www.ubs.com/etf

Factsheets
www.ubs.com/etf

Brochures
www.ubs.com/etf

For illustration purpose only

Market data:
Bloomberg: UETF <GO>
Reuters: ETFV
54

UBS ETFs Awards

Past performance is not a reliable indicator for future performance.


55

Contact Information
UBS ETF Sales Team UK & Ireland
Andrew Walsh
UBS Global Asset Management (UK)
Ltd.
Global Asset Management

Florian Cisana
UBS Global Asset Management (UK)
Ltd.
Global Asset Management

UBS Exchange Traded Funds


Executive Director
Head UBS ETF Sales UK & Ireland

UBS Exchange Traded Funds


Director
UBS ETF Sales UK & Ireland

21 Lombard Street
EC3V 9AH London
United Kingdom

21 Lombard Street
EC3V 9AH London
United Kingdom

Tel. +44 20790 15901


Mobile +44 78180 47240
andrew.walsh@ubs.com

Tel. +44 20790 15398


Mobile +44 78800 96848
florian.cisana@ubs.com

UBS Global Asset Management (UK) Ltd.


Global Asset Management
21 Lombard Street
London EC3V 9AH

Internet

www.ubs.com/etf

ubs-etf-uk@ubs.com

Market data

Reuters, Bloomberg (UETF)

56

Section 8

Appendix

UBS ETFs Product Range (1/7)


Equities

Data Source: UBS Global Asset Management as of 28 August 2015.


All UBS ETFs mentioned in this product overview are UCITS compliant, have UK Reporting Fund status and are SIPP and ISA eligible.

58

UBS ETFs Product Range (2/7)


Equities

Data Source: UBS Global Asset Management as of 28 August 2015.


All UBS ETFs mentioned in this product overview are UCITS compliant, have UK Reporting Fund status and are SIPP and ISA eligible.

59

UBS ETFs Product Range (3/7)


Equities

Data Source: UBS Global Asset Management as of 28 August 2015.


All UBS ETFs mentioned in this product overview are UCITS compliant, have UK Reporting Fund status and are SIPP and ISA eligible.

60

UBS ETFs Product Range (4/7)


Equities

Data Source: UBS Global Asset Management as of 28 August 2015.


All UBS ETFs mentioned in this product overview are UCITS compliant, have UK Reporting Fund status and are SIPP and ISA eligible.

61

UBS ETFs Product Range (5/7)


Fixed Income

Data Source: UBS Global Asset Management as of 28 August 2015.


All UBS ETFs mentioned in this product overview are UCITS compliant, have UK Reporting Fund status and are SIPP and ISA eligible.

62

UBS ETFs Product Range (6/7)


Fixed Income

Data Source: UBS Global Asset Management as of 28 August 2015.


All UBS ETFs mentioned in this product overview are UCITS compliant, have UK Reporting Fund status and are SIPP and ISA eligible.

63

UBS ETFs Product Range (7/7)


Commodities and Alternatives

Data Source: UBS Global Asset Management as of 28 August 2015.


All UBS ETFs mentioned in this product overview are UCITS compliant, have UK Reporting Fund status and are SIPP and ISA eligible.

64

UBS ETFs Risk Information


UBS ETFs investing in equities
UBS Exchange Traded Funds invest in equities and may therefore be subject to high fluctuations in value. For this reason, an investment horizon of at least fve
years and corresponding risk tolerance and capacity are required. All investments are subject to market fluctuations. Every fund has specifc risks, which can
signifcantly increase under unusual market conditions. The funds assets are passively managed. As a result, the net asset value of the funds assets is directly
dependent on the performance of the underlying equities. Losses that could be avoided via active management will not be offset.
UBS ETFs investing in Real Estate Funds
The funds invest in real estate funds under Swiss law that are denominated in CHF and invest exclusively in Swiss properties. The price of the underlying fund
units is not determined by estimates of market value but by investor supply and demand. All investments are subject to market fluctuations. Every fund has
specifc risks, which may increase considerably in unusual market conditions. Please contact your client advisor if you wish to receive further information on the
investment risks associated with this product.
UBS ETFs investing in Metals
The UBS Exchange Traded Fund investing in metals may be subject to considerable fluctuations in value. Investors therefore require an investment horizon of at
least fve years and corresponding risk tolerance and capacity. All investments are subject to market fluctuations. All funds have specifc risks, which may
signifcantly increase under unusual market conditions. The funds assets are passively managed. As a result, the net asset value of the funds assets is directly
dependent on the performance of the underlying equities. Losses that could be avoided via active management will not be offset.
UBS ETFs investing in Agriculture, Oil and Commodities
The Fund delivers the returns of a broadly diversifed commodity index and may therefore be subject to high fluctuations in value. For this reason, an
investment horizon of at least fve years and corresponding risk tolerance and capacity are required. The returns payable on the Fund are dependant on
payments received by the Fund from the Swap Counterparty under the terms of the Relevant Swap and, therefore, are subject to the credit risk of the Swap
Counterparty. In the event that the Swap Counterparty defaults under the terms of the Relevant Swap, the Fund may suffer a loss. Assets are passively
managed meaning losses that could be avoided via active management will not be offset. The net asset value of the Funds assets are materially dependent on
the performance of the underlying investments. In case the currency of the product is different from your reference currency, the return may increase or
decrease as a result of currency fluctuations. All investments are subject to market fluctuations. Every fund has specifc risks, which can signifcantly increase
under unusual market conditions.
UBS ETFs investing in HFR
The Fund delivers the returns of a broadly diversifed hedge fund index and may therefore be subject to high fluctuations in value. For this reason, an
investment horizon of at least fve years and corresponding risk tolerance and capacity are required. The returns payable on the Fund are dependant on
payments received by the Fund from the Swap Counterparty under the terms of the Relevant Swap and, therefore, are subject to the credit risk of the Swap
Counterparty. In the event that the Swap Counterparty defaults under the terms of the Relevant Swap, the Fund may suffer a loss. Assets are passively
managed meaning losses that could be avoided via active management will not be offset. The net asset value of the Funds assets are directly dependent on
the performance of the underlying investments. In case the currency of the product is different from your reference currency, the return may increase or
decrease as a result of currency fluctuations
UBS ETFs investing in Fixed Income
This UBS Exchange Traded Fund invests in government bonds of a single country and may therefore be subject to fluctuations in value. For this reason, an
investment horizon of at least fve years and corresponding risk tolerance and capacity are required. All investments are subject to market fluctuations. Every
fund has specifc risks, which can signifcantly increase under unusual market conditions. As a result, the net asset value of the funds assets is directly
dependent on the performance of the underlying index. Losses that could be avoided via active management will not be offset.
65

UBS ETFs Disclaimer


UBS Global Asset Management (UK) Ltd is a subsidiary of UBS AG. Registered in England. UBS Global Asset Management (UK) Ltd and UBS Global Asset Management Funds
Ltd are authorised and regulated by the Financial Conduct Authority. UBS Global Asset Management Life Ltd is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Telephone calls may be recorded.
This document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any circumstances.
The document has not been prepared in line with the FCA requirements designed to promote the independence of investment research and is not subject
to any prohibition on dealing ahead of the dissemination of investment research.
The Luxembourg and Irish domiciled funds are recognised scheme under section 264 of the Financial Services and Markets Act 2000. They seek UK Reporting Fund Status.
The protections offered by the UKs regulatory system, and compensation under the Financial Services Compensation Scheme, will not be available.
The Switzerland domiciled funds are not recognised under section 264 of the Financial Services and Markets Act and are therefore subject to the restrictions on promotion in
section 238 of the Financial Services and Markets Act.
The returns payable to the fund are dependent on payments received by the fund from the swap counterparty under the terms of the relevant swap and, therefore are
subject to credit risk of the swap counterparty. In the event that the swap counterparty defaults under the terms of the relevant swap, the funds may suffer a loss.
This material supports the presentation(s) given. It is not intended to be read in isolation and may not provide a full explanation of all the topics that were presented and
discussed. Care has been taken to ensure the accuracy of the content, but no responsibility is accepted for any errors or omissions. Please note that past performance is not
a guide to the future. The value of investments and the income from them may go down as well as up, and investors may not get back the original amount invested. This
document is a marketing communication. Any market or investment views expressed are not intended to be investment research.
The document has not been prepared in line with the FCA requirements designed to promote the independence of investment research and is not subject to any prohibition
on dealing ahead of the dissemination of investment research. The information contained in this document should not be considered a recommendation to purchase or sell
any particular security and the opinions expressed are those of UBS Global Asset Management and are subject to change without notice. Furthermore, there can be no
assurance that any trends described in this document will continue or that forecasts will occur because economic and market conditions change frequently. This document
does not create any legal or contractual obligation with UBS Global Asset Management. The recipient agrees that this information shall remain strictly confdential where it
relates to the Investment Manager's business. The prior consent of UBS Global Asset Management (UK) Ltd should be obtained prior to the disclosure of commercially
sensitive information to a third party (excluding the professional advisors of the recipient). Information reasonably deemed to be commercially sensitive and obtained from
UBS Global Asset Management (UK) Ltd should not be disclosed. This information is supplied with a reasonable expectation that it will not be made public. If you receive a
request under the Freedom of Information Act 2000 for information obtained from UBS Global Asset Management (UK) Ltd we ask that you consult with us. We also request
that any information obtained from UBS Global Asset Management (UK) Ltd in your possession is destroyed as soon as it is no longer required. This document may not be
reproduced, redistributed or republished for any purpose without the written permission of UBS AG.
This document is issued by [UBS Global Asset Management (UK) Ltd] and is intended for limited distribution to the clients and associates of UBS Global Asset Management.
Use or distribution by any other person is prohibited. Copying any part of this publication without the written permission of UBS Global Asset Management is prohibited. Care
has been taken to ensure the accuracy of its content, but no responsibility is accepted for any errors or omissions herein.
UBS 2015. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. E3

66

Myths and misconceptions


of indexing with Exchange
Traded Funds (ETF)s
Todd Schlanger, CFA
Investment Strategy Group
Vanguard Asset Management, Limited

This document is directed at investment professionals and should not be distributed to, or relied
upon by retail investors. The value of investments, and the income from them, may fall or rise and
investors may get back less than they invested.

ETFs in Portfolio Construction

Philip Bailey

or,

How to save your clients


money.
whilst charging them more.

Philip Bailey

Who are Assetfirst?

Subsidiary of:Provisio Wealth Management


Adviser Charging adopted in March 2008
Pioneers of a ETF investing in the retail
sector
Founders of assetfirst - a unique
outsourced investment solution for IFAs

Assetfirst
Virtual Investment Committee
Risk tailored portfolios
Disciplined Strategic asset allocation
Active Tactical asset allocation & regular
rebalancing
Enabling bespoke portfolios
Subscription fees paid by the IFA, not
the client.

Assetfirst vs Risk Targeted Multi-Asset


Sectors. Five years to 31st July 2015

11/4/15

72

Risk verses Return Asset Allocation Technique

11/4/15

73

Asset Allocation
How Different Asset Classes perform

11/4/15

74

Rigorous independent research

Bespoke
Detailed asset allocation research
Robust methodology
Stress tested portfolio design
Strategic Asset Allocation
Back tested performance
Expected Risk (Standard Deviation)

Risk Graded Model Portfolios

Expected Annualised Risk and Return

Asset Mix

Geometric
Return

Annual Standard
Deviation

Defensive

6.5%

7.2%

Defensive to Balanced

7.5%

9.2%

Balanced

8.0%

10.7%

Balanced to Aggressive

8.6%

12.7%

Aggressive

9.4%

16.3%

Balanced High Yield

7.0%

9.7%

About Fund Selection

11/4/15

78

10 year: Median Fund vs Benchmark

11/4/15

79

The devils in the fees !

11/4/15

80

ETF Application

11/4/15

81

ETFs Perfect tool for Portfolio Construction

High Liquidity
Low cost Average Equity TER 37bps
Extremely low tracking error
Returns superior to most active
managers
No risk of style drift
No risk of portfolio manager turnover
Ensure accurate asset allocation
Easier control of portfolio risk.

11/4/15

83

11/4/15

84

Pure Asset Allocation

11/4/15

85

Pure Asset Allocation

11/4/15

86

Purer Asset Allocation

11/4/15

87

The 5 Ps - Passive Portfolios Produce Predictable Performance

Expected Annualised Risk and Return

Asset Mix

Geometric
Return

Annual Standard
Deviation

Defensive

6.5%

7.2%

Defensive to Balanced

7.5%

9.2%

Balanced

8.0%

10.7%

Balanced to Aggressive

8.6%

12.7%

Aggressive

9.4%

16.3%

Balanced High Yield

7.0%

9.7%

Balanced Model

Save your clients money whilst charging more.


3rd Party
Costs

Average
underlying
Fund TER

Total Costs
on 10m
total client
portfolio

Regulatory
Risk

500 +
VAT

0.40%

40,000

Low

Pick Funds

nil

1.15% *

115,000

High

Fund of
Funds

nil

1.71% *

171,000

Medium

0.75%

1.15% *

190,000

Low

nil

1.15% *

115,000

Low

Portfolio
Management
Method

assetfirst
Guided
Architecture

Discretionary
Fund
Manager
Model
Portfolios

Dont forget the Adviser Fee (1%) and Wrap Fee (.25%). Total Assetfirst cost 1.65%
..and ETF Trading Costs are significantly lower.

How ETF based portfolios can benefit


your business

Institutional quality investment & cost

Deliver a transparent fee based service

Remain at the centre of the client relationship

Maintain Independence advice & research

Deliver low cost investment solutions

Move your practice from 0.5% to 1% fee

Bullet Proof your future income

Legal disclaimer

This communication is for professional advisers only


and is not intended to be used by retail clients.

No liability is accepted for any loss or damage


occurring as a result of reliance on any statement,
opinion or any error or omission contained in the
preceding presentation.

Any statement or opinion reflects our understanding of


current or proposed legislation and regulation which
may change without notice.

These presentations should not be seen as a


substitute for professional advice.

Myths and misconceptions


of indexing with Exchange
Traded Funds (ETF)s
Todd Schlanger, CFA
Investment Strategy Group
Vanguard Asset Management, Limited

This document is directed at investment professionals and should not be distributed to, or relied
upon by retail investors. The value of investments, and the income from them, may fall or rise and
investors may get back less than they invested.

Myths and misconceptions


of indexing with Exchange
Traded Funds (ETF)s
Todd Schlanger, CFA
Investment Strategy Group
Vanguard Asset Management, Limited

This document is directed at investment professionals and should not be distributed to, or relied
upon by retail investors. The value of investments, and the income from them, may fall or rise and
investors may get back less than they invested.