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07 Aug

Bigger ETF market gives investors chance to outperform

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State Street Global Advisors’ chief operating officer for Asia Pacific said many investors were building portfolios solely from ETF products. Photo: Jessica HromasSavvy investors are tapping into the vast array of exchange-traded funds (ETFs) – which started out as a passive benchmark achiever in a portfolio – to generate outperformance in their own right.
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James MacNevin, chief operating officer for State Street Global Advisors Asia Pacific, part of the team that launched Australia’s first ETF in 2001, says the much-expanded product range means investors can choose to forgo active strategies altogether.

“We have lots of experience with investors being able to build a well diversified portfolio using nothing but ETFs,” MacNevin told AFR Weekend on the 15th anniversary of the launch of the SPDR S&P/ASX 200 and S&P/ASX 50 funds.

While benchmark funds such as the S&P/ASX 200 or S&P 500 funds remain among the most popular, MacNevin says investors are becoming more sophisticated and moving towards “smart beta” products, funds that scan company balance sheets in picking stocks rather than simply by index weight.

“Other investors have an appetite to do a kind of barbell approach, where they have index as well as core beta ETFs, and then complement that around active investments,” he adds. “What we’re looking to do is provide those investment exposures via ETFs,” he said.

Tim Murphy, director of manager research at Morningstar, says while it is possible to build an ETF-only portfolio, it is far from the norm and not advisable for many investors. There are some areas, such as small cap equities, where active managers have been able to consistently outperform.

“It is not a black and white scenario like many paint it. In a lot of these investing ideas you can get some polarising arguments. But, like most things in life, the right answer probably sits somewhere in the middle,” he adds.

Of the four major ETF players in Australia (including BlackRock, Vanguard and BetaShares), SSGA holds $4.8 billion of the total assets under management in Australia. Of that, $2.9 billion sits in its flagship ASX 200 fund, with an average daily trade turnover of $9 million.

MacNevin says while the rise of the ETF market had been a slow burn in its first 10 years, since 2001 the market has grown exponentially, with $23 billion under management. He believes the market  could hit $100 billion by 2020, such is ETF popularity particularly among self-managed superannuation funds.

“The benefits for investors will continue to be quite profound: a full range of ETFs for all asset classes and exposure to sectors,” he adds. It also means more competitors joining the market, putting the onus on SSGA to deliver thoughtful products while keeping the cost to entry low, a big draw for increasingly fee-conscious investors.

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07 Aug

Holden’s Jamie Whincup wins to reach Supercars ton

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Jamie Whincup, winner of the Sydney SuperSprint, is sprayed by vanquished teammate Craig Lowndes. Photo: Daniel Kalisz Whincup on his way to victory at Sydney Motorsport Park. Photo: Daniel Kalisz
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V8 superstar Jamie Whincup spoiled veteran Craig Lowndes’ race record party as he celebrated another Supercars milestone of his own at the Sydney SuperSprint on Sunday.

Already the most titled driver in Australian touring car racing history with a record six Supercars crowns, Whincup joined Lowndes in the exclusive club of winners of 100 or more championship races by beating his popular teammate in the second race at Sydney Motorsport Park.

The win denied Lowndes a fairytale victory in his record-breaking 600th championship race start after he blazed into the lead from fourth position on the grid to dominate the first 30 laps.

Whincup jumped Lowndes during their second pit stops, getting away fractionally faster to hit the front and run away to an unchallenged 100th race victory.

He achieved his century 14 months after Lowndes became the first to reach the ‘ton’ of race wins, a mark he has since extended to 105 successes.

While it took Lowndes, 42, almost two decades to amass his 100 wins, 33-year-old Whincup got there in just over 10 years.

He scored his first victory in his first event with the Triple Eight Holden team at the 2006 season-opening Adelaide 500, whereas Lowndes’ first two wins were in his championship debut in 1996 at Sydney Motorsport Park, which was previously known as Eastern Creek Raceway.

Whincup’s 100 wins is the latest milestone in his remarkable 10-year rise to become the most dominant and successful driver of his generation, and the best of all time if measured by his unmatched tally of championships.

Along with his narrow defeat by his other Triple Eight teammate Shane van Gisbergen in an epic battle in the closing stages of Saturday’s opening race of the Sydney SuperSprint, his win on Sunday – his third this season – consolidated his title points lead as he bids for a record-extending seventh Supercars title.

He is 137 points ahead of van Gisbergen, who faded to fifth place on Sunday, while Lowndes regained third place in the championship standings, 198 points off the lead, to stay in contention for an elusive fourth V8 crown 17 years after his last title-winning season.

Whincup was presented with a gold-painted replica of his race helmet in recognition of reaching his century, an achievement he acknowledged with typical humility.

“I’d be lying if I said there wasn’t a bit of relief there,” he said. “I’m very, very proud to join Lowndesy on the ton. It’s an honour. I think today (with Lowndes joining him on the podium) was very fitting.

“I like to think it’s 100 not out. There’s still a lot left in me.

“I’m not trying to tick boxes. I’m just out there for the fun of racing. The feeling of winning never gets old and that’s what drives me.”

Lowndes paid tribute to Whincup, who has been his teammate and nemesis for the past decade, and predicted he would eventually surpass his records for race wins and starts.

“I think it’s fantastic,” he said. “It was a matter of when rather than if. He’s had a stellar career and he’s still as intense as ever.

“Records are made to be broken and there’s no doubt in my mind Jamie will do it (break Lowndes’ records).”

The next Supercars event is the September 16-18 Sandown 500 in Melbourne – the first of the two-driver endurance races and the traditional warm-up for the October 6-9 Bathurst 1000.

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07 Aug

[email protected]: Investors still on the sidelines

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Local sharemarket set for another flat open as global markets had a quiet night, with investors waiting on Janet Yellen’s speech at Jackson Hole on Saturday morning (AEST), while earnings season rolls on, with Coca-Cola, Mayne Pharma and Star Entertainment among those reporting.
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1. ASX: SPI futures are up 5 points

2. Equities: Dow -0.2%, S&P 500 -0.1%, Nasdaq -0.1%, Stoxx 50 -0.7%, FTSE -0.3%, CAC -0.7%, DAX -0.9%

3. Currencies: Aussie dollar still very flat, gaining +0.04% to 0.7616. It is fetching 76.59 Japanese yen, 67.51 Euro cents and 57.75 British pence

4. Energy: WTI oil gained +1.22% to 47.34 after Iranian oil minister said he would attend OPEC. Brent crude +0.5% to $US49.27 a barrel

5. Commodities: Spot gold -0.1% to $US1322.28 an ounce

6. Overseas data: Japanese CPI

7. US: BHP +1.2%, Rio +1%

8. Earnings: Coca-Cola Amatil (CCL), Corporate Travel Mgmt (CTD), Mayne Pharma (MYX), Saracen Mineral (SAR), Select Harvests (SHV), Star Entertainment (SGR), Super Retail Group (SUL)

Waiting on Yellen

Well the final countdown to Janet Yellen’s speech at midnight AEST has begun, and after a week where most markets have barely moved from where they started there are likely a number of traders who would relish a bit of volatility this evening. There certainly is a fear evident in markets that Janet Yellen is going to be surprisingly hawkish and talk up a September hike, this may be devoid of any real evidence apart from constant calls from the band of perma-hawk US economists, but nonetheless market liquidity has dried up in fear. Volumes have been down all week, while the volume on the S&P 500 overnight was more than 15% below its 100-day moving average and the Dow Jones had volumes down more than 27%.

Gold woe

The gold price has been battered this week as the threat of rising US bond yields has seen it lose 1.5% this week. Gold has been relatively well cushioned above the US$1,312 level since the start of July, but has been pulling back to this support level as hawkish Fed commentary has picked up in the past two weeks. Of course, should Yellen fail to follow through on her expectedly hawkish comments about an imminent September rate hike, gold could well be set for a rally.

US durable goods and capital goods orders both performed well overnight. Durable goods ex-transport gained 1.5% month-on-month (MoM) and capital goods nondefense ex-aircraft gained 1.6% MoM. If you saw these sorts of figures replicated throughout 3Q in the US that would be very positive for GDP and could help remove the major drag that we saw from inventories in 2Q, which could provide the basis for a December rate hike. But there are a lot of ifs yet before that happens.

EpiPen scandal hits healthcare

The scandal over Mylan’s pricing of its EpiPen has spilled over into the broader healthcare sector in the S&P 500 overnight with the sector losing 0.8%. This is not the first time that Hillary Clinton has emphasised her concerns over seemingly egregious price hikes for healthcare products, and with her dramatically leading in the polls, a number of investors began to pile out of other high-pricing biotechs. Alexion Pharmaceuticals has dropped 5.9% in two days as the Mylan saga blew up because it mostly relies on the revenue from one of the most expensive drugs in the world – Soliris – a treatment for rare blood disorders that costs US$500,000 a year. These parts of the market may continue to struggle in the lead up to the US election if Clinton’s likely success continues to firm.

Unexciting Asian session ahead

Asian markets are set to open relatively flat. It is likely to be a fairly low volume and unexciting Asian session as many investors looks set to sit on the sidelines ahead of Janet Yellen’s speech. Oil saw a nice bounce overnight as Iranian oil minister Bijan Zanganeh confirmed he would attend the OPEC meeting in September, which should be a positive for energy stocks. Materials stocks were the best performer in the S&P 500 overnight, and BHP’s ADR rallied 1.2% boding well for the ASX session today.

What happened yesterday

The Australian sharemarket ended weaker on Thursday despite a valiant lift from Woolworths and Amcor, surging despite booking hefty profit losses.

Taking its weak lead from Wall Street, the S&P/ASX 200 spend most of the day trading lower ending down 0.4 per cent or 20 points to 5541.9. The All Ordinaries ended 0.4 per cent or 22 points lower at 5631.4.

 This column was produced in commercial partnership    between Fairfax Media and IG Markets

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07 Aug

NBN expects $5 billion of annual revenue by 2020, corporate plan shows

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Communications Minister Mitch Fifield said the total cost of the project was now an estimated $54 billion, about $2 billion lower than forecast in last year’s corporate plan. Photo: Alex Ellinghausen The NBN hopes to gain 7m customers over the next four years. Photo: Rob Homer
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NBN Co expects to be earning $5 billion annually within four years, with average monthly revenue from each user at $52, according to a corporate plan released on Friday morning. It also expects to have 8.1 million households using the network within four years, up from 1.1 million today.

However, payments to Telstra and Optus to compensate the telcos for losing fixed-line customers will leave NBN with negative earnings until 2020, and it won’t be profitable until about 2022 due to high capital expenditure and operating costs.

And the forecasts released by NBN Co on Friday show it is tracking predictions made last year, but has run out of money much quicker than the Coalition expected when it was campaigning for office in 2013. This is due to annual capital expenditure costs in 2017 and 2018 being nearly twice what it estimated.

The Coalition expected funding to last a lot longer and reach only $28.8 billion by 2019. Instead, NBN Co will use up the last of its $29.5 billion in the next ten months and the Department of Finance has to find an additional $10 billion by July next year and $20 billion by 2020. NBN Co will have spent $48.6 billion by 2020 on current projections.

The government is still working out future funding options.

“The Government has not yet determined what form this support would take if it were required and continues to assess a number of options to ensure the best possible value for taxpayers is achieved,” Finance Minister Mathias Cormann said on Friday.

However, Communications Minister Mitch Fifield said the total cost of the project was now an estimated $54 billion, about $2 billion lower than forecast in last year’s corporate plan.

“The network is ahead of schedule and ahead of its financial targets,” the Minister said on Friday morning.

Earlier this week the Australian Federal Police raided Senator Stephen Conroy’s office in Parliament House searching for the source of documents leaked by someone at NBN Co to the opposition. Senator Conroy is claiming parliamentary privilege on the documents.

“Matters of privilege are determined by the Senate itself…All I really can do is outline for you roughly what the process will be,” the Minister said.

The number of households connected by fibre-to-the-node technology, which partly uses the copper network, has increased from an estimated 4.5 million to up to 6.5 million households. And there may be 500,000 more fibre-to-the-premises connections than previously expected, for a total of 2.5 million. Nearly half of these will be houses built in coming years.

However, NBN Co still thinks it can get speeds of 100 megabits per second [Mbps] to 70 per cent of Australians, and 1 gigabit per second [Gbps] to 40 per cent of the population.

“It is with pleasure that we can actually produce such a plan that we believe advances the nation into the digital era,” NBN chief executive Bill Morrow said.

And the number of households expected to be connected by a hybrid fibre coaxial [HFC] cable connection has dropped from 4 million to between 2.5 million and 3.2 million households. NBN found the cost of connecting houses to HFC was about $2,300, not $1,800. Mr Morrow said this change demonstrates the benefit of a flexible technology mix.

NBN Co has discovered the cost of modems, equipment, construction, and cables for HFC was higher than it expected, which led to a “higher cost per premise than what we had estimated last year”, Mr Morrow told BusinessDay.

“The reduction of the number of premises [getting HFC] is because not all premises are equal to the average of $2,300. Some are cheaper and some are more expensive. For those that were way more expensive, it was the cross-over point to say ‘those homes will be better served with our remit of as-soon-as-we-can-with-the-least-possible-cost to move over to an alternative technology.”

Examination of the old copper telephone network has found it to be “in line with expectations”. This is important, because of a potential blow out in repair and maintenance costs.

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07 Aug

As EpiPen outrage mounts, Mylan offers some patients discounts

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Responding to a growing outrage from consumers and politicians, US pharma giant Mylan said on Thursday that it would lower the out-of-pocket costs to some patients who need EpiPens, which are used to treat life-threatening allergy attacks.
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The company said it would immediately offer more financial assistance with co-payments for patients with commercial insurance and expand the number of uninsured patients eligible for free EpiPens.

But the moves did not mollify critics of Mylan because the company did not lower the list price of the EpiPen, which has risen to $US600 for a pack of two from about $US100 in 2007.

So the total cost to the health system, a cost borne largely by insurers, the federal government and school districts, will remain the same.

“Mylan should not offer after-the-fact discounts only for a select few – it should reverse its massive price increases across the board immediately,” Maryland’s Democratic Representative Elijah Cummings, who has been investigating rising drug prices, said in a statement. Blaming the insurers

In its announcement of the new measures, Mylan put much of the blame for the problem not on its price increases but on insurance companies for placing a higher burden on patients for out-of-pocket costs.

“We have been a long-term, committed partner to the allergy community and are taking immediate action to help ensure that everyone who needs an EpiPen Auto-Injector gets one,” Mylan’s CEO Heather Bresch said in a statement.

“We recognise the significant burden on patients from continued, rising insurance premiums and being forced increasingly to pay the full list price for medicines at the pharmacy counter.”

The EpiPen is an auto-injector containing the hormone epinephrine that can be used to counter or stave off anaphylactic shock caused by an insect bite, bee sting or food allergy. It is pressed against the thigh and automatically injects the drug.

Mylan said that out of the $US608 list price for EpiPen, it gets only $US274. The rest goes to pharmacy benefit managers, insurers, wholesalers and retail pharmacies.

Offering co-payment assistance and free product is part of the standard playbook for makers of expensive drugs. Making sure patients do not go without medicines reduces any political furor. Also, providing financial assistance only to those who need it reduces a pharmaceutical manufacturer’s revenue much less than cutting prices across the board.

The discounts call attention to how the out-of-pocket costs for drugs vary widely for consumers, depending on their insurance coverage.

The New York Times

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