Welcome to the Friends with Money podcast, brought to you by Money Magazine, creating financial freedom for Australians since nineteen ninety nine.

Welcome to the Friends with Money podcast, brought to you by Money Magazine, creating financial freedom for Australians since nineteen ninety nine.

Hello and thanks for joining us for another episode of Friends with Money, money Magazine's podcast to help you earn, save, and achieve your financial goals. My name is Tom Watson, a senior journalist here at Money Magazine, and as always, it is a pleasure to be with you all. Today we are back on to what I think is fair to say is one of our favorite subjects on Friends with Money. It's exchange traded funds ETFs. But what we're really going to be focusing in on today is a particular breed of ETFs, a breed which seems to have grown and grown and grown, at least in terms of the number of products available in recent years. We are talking about thematic ets, and if that's a term that you've never come across, or you're only vaguely familiar with, do not worry, because we have an ETF expert here to explain what they are all about. So on that note, I am very pleased to say that we are joined today by founder and chief executive of stock Spot, Chris Bricky. Chris, welcome back to Friends with Money.

Hello and thanks for joining us for another episode of Friends with Money, money Magazine's podcast to help you earn, save, and achieve your financial goals. My name is Tom Watson, a senior journalist here at Money Magazine, and as always, it is a pleasure to be with you all. Today we are back on to what I think is fair to say is one of our favorite subjects on Friends with Money. It's exchange traded funds ETFs. But what we're really going to be focusing in on today is a particular breed of ETFs, a breed which seems to have grown and grown and grown, at least in terms of the number of products available in recent years. We are talking about thematic ets, and if that's a term that you've never come across, or you're only vaguely familiar with, do not worry, because we have an ETF expert here to explain what they are all about. So on that note, I am very pleased to say that we are joined today by founder and chief executive of stock Spot, Chris Bricky. Chris, welcome back to Friends with Money.

Well, thanks for having me back. Tom, It's great to be back on the show.

Well, thanks for having me back. Tom, It's great to be back on the show.

Always lovely to have you on.

Always lovely to have you on.

Chris.

Chris.

Perhaps you can start us off by helping us to nail down the kind of the what in the equation, specifically, what exactly thematic ETFs are and what kind of you know, themes and inverted comm is we are talking about here.

Perhaps you can start us off by helping us to nail down the kind of the what in the equation, specifically, what exactly thematic ETFs are and what kind of you know, themes and inverted comm is we are talking about here.

Absolutely well, I think most of your listeners will be familiar with the traditional sorts of ETF. So historically, the first ETFs that came about in Australia just tracked very broad market indices and so the ASX two hundred is an example, or in the US the SMP five hundred. So these are big, big indices with lots of different sectors and lots of different companies all mushed together into one single ETF. Now, a lot of those ETFs got created to cover all the big broad markets. But then the ETF companies, the issuers of these products, realized that not only is their interest in the whole broad market, but actually people were interested in buying particular sectors of the market or particular ways of diving up the market into little segments and that's how thematic ETFs came about. They're really a way of getting exposure to just a niche area of the market rather than the whole market. And some examples would be divid end ETFs would be a thematic ETF, Environmental and socially responsible ETFs or ESG type ETFs is a thematic technology ETFs, or even if you want to get more granular AI related ETFs would be at thematic ETF. So you can really divide up the market in any sort of way you want to create and a thematic ETF, and it just allows people to really focus their investments into a particular area of the overall market.

Absolutely well, I think most of your listeners will be familiar with the traditional sorts of ETF. So historically, the first ETFs that came about in Australia just tracked very broad market indices and so the ASX two hundred is an example, or in the US the SMP five hundred. So these are big, big indices with lots of different sectors and lots of different companies all mushed together into one single ETF. Now, a lot of those ETFs got created to cover all the big broad markets. But then the ETF companies, the issuers of these products, realized that not only is their interest in the whole broad market, but actually people were interested in buying particular sectors of the market or particular ways of diving up the market into little segments and that's how thematic ETFs came about. They're really a way of getting exposure to just a niche area of the market rather than the whole market. And some examples would be divid end ETFs would be a thematic ETF, Environmental and socially responsible ETFs or ESG type ETFs is a thematic technology ETFs, or even if you want to get more granular AI related ETFs would be at thematic ETF. So you can really divide up the market in any sort of way you want to create and a thematic ETF, and it just allows people to really focus their investments into a particular area of the overall market.

Chris, I want to kind of get into some of those specific kind of categories of thematic ets in a second, including something that you've already touched on, but I also want to drill down into something that you would just kind of explaining there, which is why might people choose to build a portfolio of thematic ETFs rather than say, focus on ETF which track the kind of indices that you were talking about before, like the SX two hundred, like the S and P five hundred, like one of the many kind of popular indexes in the world.

Chris, I want to kind of get into some of those specific kind of categories of thematic ets in a second, including something that you've already touched on, but I also want to drill down into something that you would just kind of explaining there, which is why might people choose to build a portfolio of thematic ETFs rather than say, focus on ETF which track the kind of indices that you were talking about before, like the SX two hundred, like the S and P five hundred, like one of the many kind of popular indexes in the world.

Well, there's a few different reasons so that. I mean, the first reason would be if people have a particular view about that sector of the market doing well. So you might find that someone has an opinion that technology, for instance, is going to continue to outperform more do better than the other sectors of the market, and so they want more exposure to that particular sector in their portfolio. You know, certainly within our client group, we see that where a certain sector has done well and they think, because of the components of that particular ETF that that's going to continue to do well, so it allows you to have a more concentrated bet in that area. The other similar but related reason might be that and we notice it in Australia, a lot of people already have exposure to sectors like financial services and mining through owning either the direct shares like the bank shares and BHP and RIO, or through owning a broad ETF like the AX two hundred ETF. But they might feel that they're lacking exposure in other sectors that are bigger in other parts of the world but not as big in Australia. So rather than just buying a global broad market ETF, they might select those specific sectors that they want to have more of in their portfolio for better balance.

Well, there's a few different reasons so that. I mean, the first reason would be if people have a particular view about that sector of the market doing well. So you might find that someone has an opinion that technology, for instance, is going to continue to outperform more do better than the other sectors of the market, and so they want more exposure to that particular sector in their portfolio. You know, certainly within our client group, we see that where a certain sector has done well and they think, because of the components of that particular ETF that that's going to continue to do well, so it allows you to have a more concentrated bet in that area. The other similar but related reason might be that and we notice it in Australia, a lot of people already have exposure to sectors like financial services and mining through owning either the direct shares like the bank shares and BHP and RIO, or through owning a broad ETF like the AX two hundred ETF. But they might feel that they're lacking exposure in other sectors that are bigger in other parts of the world but not as big in Australia. So rather than just buying a global broad market ETF, they might select those specific sectors that they want to have more of in their portfolio for better balance.

Overall, it's kind of a bit of a diversification play for some people.

Overall, it's kind of a bit of a diversification play for some people.

Then it can be. I'd say that's probably less common from what we say, see, typically these thematics are really used to express a view or really take a position on an area of the market that's growing. And you see this often from the types of ETFs that are getting launched in this thematic space. They're often in areas that everyone's talking about, whether it's cryptocurrency or AI or technology or the Asian tiger economies that they're usually topics that are in the news that they want to create a product to allow people to access specifically, and usually these areas make it into the news when they're doing well. You won't often read a news article about a sector that's underperforming and that no one's really caring about. And so, you know, the trend is typically for these thematics to follow sectors that have actually performed al right.

Then it can be. I'd say that's probably less common from what we say, see, typically these thematics are really used to express a view or really take a position on an area of the market that's growing. And you see this often from the types of ETFs that are getting launched in this thematic space. They're often in areas that everyone's talking about, whether it's cryptocurrency or AI or technology or the Asian tiger economies that they're usually topics that are in the news that they want to create a product to allow people to access specifically, and usually these areas make it into the news when they're doing well. You won't often read a news article about a sector that's underperforming and that no one's really caring about. And so, you know, the trend is typically for these thematics to follow sectors that have actually performed al right.

I think that's a great point. I'm sure that anyone that's been paying attention to these thematics in recent years would know exactly what you're talking hip out there. I think this is a good opportunity to kind of start to drill down then, Chris. You know, obviously, as you said, there are so many areas that we could drill down into. So you know, I thought it'd be a good idea to take a look at two broader thematic EDF categories being technology and sustainability, and within each of those, will will run through some of the specific ets available and how they've performed in recent years, with the help of some analysis that I know that your team are at stock Spot has done recently, Chris. So let's start with tech then. It's as you said, it's clearly an area that a lot of invested are interested in. So what are some of the tech focus ets available to Aussie investors, Chres and what type of companies do they typically include?

I think that's a great point. I'm sure that anyone that's been paying attention to these thematics in recent years would know exactly what you're talking hip out there. I think this is a good opportunity to kind of start to drill down then, Chris. You know, obviously, as you said, there are so many areas that we could drill down into. So you know, I thought it'd be a good idea to take a look at two broader thematic EDF categories being technology and sustainability, and within each of those, will will run through some of the specific ets available and how they've performed in recent years, with the help of some analysis that I know that your team are at stock Spot has done recently, Chris. So let's start with tech then. It's as you said, it's clearly an area that a lot of invested are interested in. So what are some of the tech focus ets available to Aussie investors, Chres and what type of companies do they typically include?

So I would say from our client's perspective, this has probably been the biggest area of interest in terms ofs and largely due to the really strong performance we've seen over the last five years. So I think a lot of your listeners will be familiar that you know, US technology shares have been some of the best performers globally over the last five and ten years, and you know, they are companies that aren't listed locally, so in order to get exposure to them, you do need to, you know, look at products like ETFs to be able to get them into your portfolio. You know, this has really led to the development of these technology specialist thematic ETFs over the last few years. You know, there's a whole range of them now, I'd say there's at least half a dozen, and if you want to count some of the ones in some more specific niches, they'd be probably more like ten. And they're offered by not just one issuer, so there are different issuers of ETFs. In Australia, they're offered by quite a few of the issuers now and maybe if I started the ones that are the most broad. There are some ETFs that you know, cover the stocks in broad markets, like the NASDAK. So the NASDAK is the broad technology market in the US, and so that ETF really tries to include the companies you know, broadly in that market all the way down to much more granular ETFs that look at only a very small sector of technology. So an example of that one would be the hack ETF that looks at cybersecurity stocks or even the Fang ETF that includes those famous Fang stocks. So you know, it really gives people a lot of choice. Do you want a broad exposure to technology or do you want a more niche exposure. The other way that ETFs divvy up exposure to sectors, and in a thematic way, is through countries. And so there are some ETFs that only provide technology exposure, for instance, in Asia. And so if you don't want the big US technology stocks like the Amazons and the Microsofts and the Metas and the Navidias, but you actually want some of those famous Chinese and Hong Kong and it may be Indian as well as South Korean tech stocks, then as an ETA for that as well. And so we often see that clients might want a bit of both. You know, over the last few years, technology in the US has done a lot better than technology in Asia, but there may be a period where that reverses, and so people want to have a bit of both in their portfolio.

So I would say from our client's perspective, this has probably been the biggest area of interest in terms ofs and largely due to the really strong performance we've seen over the last five years. So I think a lot of your listeners will be familiar that you know, US technology shares have been some of the best performers globally over the last five and ten years, and you know, they are companies that aren't listed locally, so in order to get exposure to them, you do need to, you know, look at products like ETFs to be able to get them into your portfolio. You know, this has really led to the development of these technology specialist thematic ETFs over the last few years. You know, there's a whole range of them now, I'd say there's at least half a dozen, and if you want to count some of the ones in some more specific niches, they'd be probably more like ten. And they're offered by not just one issuer, so there are different issuers of ETFs. In Australia, they're offered by quite a few of the issuers now and maybe if I started the ones that are the most broad. There are some ETFs that you know, cover the stocks in broad markets, like the NASDAK. So the NASDAK is the broad technology market in the US, and so that ETF really tries to include the companies you know, broadly in that market all the way down to much more granular ETFs that look at only a very small sector of technology. So an example of that one would be the hack ETF that looks at cybersecurity stocks or even the Fang ETF that includes those famous Fang stocks. So you know, it really gives people a lot of choice. Do you want a broad exposure to technology or do you want a more niche exposure. The other way that ETFs divvy up exposure to sectors, and in a thematic way, is through countries. And so there are some ETFs that only provide technology exposure, for instance, in Asia. And so if you don't want the big US technology stocks like the Amazons and the Microsofts and the Metas and the Navidias, but you actually want some of those famous Chinese and Hong Kong and it may be Indian as well as South Korean tech stocks, then as an ETA for that as well. And so we often see that clients might want a bit of both. You know, over the last few years, technology in the US has done a lot better than technology in Asia, but there may be a period where that reverses, and so people want to have a bit of both in their portfolio.

I think I think your explanations just kind of really highlighted how you can have these. You know, there are different ways to kind of approach these, right with as you said, kind of sectors within sectors, and then looking at it from a geographical perspective. It's all kind of so interesting. One of the crucial questions here, though, Chris, is obviously how these et apps in the I guess the tech sector more broadly have performed recently. Though, So do you have any kind of indications in terms of what their performance has been like in the past year, or the past five years, or whatever time period that you'd like to pick out.

I think I think your explanations just kind of really highlighted how you can have these. You know, there are different ways to kind of approach these, right with as you said, kind of sectors within sectors, and then looking at it from a geographical perspective. It's all kind of so interesting. One of the crucial questions here, though, Chris, is obviously how these et apps in the I guess the tech sector more broadly have performed recently. Though, So do you have any kind of indications in terms of what their performance has been like in the past year, or the past five years, or whatever time period that you'd like to pick out.

Yeah, I think I mean five years, tom is probably a fair way to look at them, because, especially given the market volatility at the moment, if you look at one year returns, that can change quite a lot just day to day or week to week at the most.

Yeah, I think I mean five years, tom is probably a fair way to look at them, because, especially given the market volatility at the moment, if you look at one year returns, that can change quite a lot just day to day or week to week at the most.

So I'm glad I didn't ask you how they performed it the last week and then the last months.

So I'm glad I didn't ask you how they performed it the last week and then the last months.

So yeah, I changed by five percent at the moment, But you know, five years. I mean, we we recommend clients be looking at longer term anyway for investing, because over shorter terms you just don't really know. But over five years, to give you an example, you know, actually one of the best performing ETFs has just been the broad market technology ETF focused in the US, which is the Nasdaq ETF. NDQ is the is the code for that one. You know. One of the reasons that's become so popular is because of its strong performance. It's returned just under twenty three percent per annum over the last five years, you know, which really I guess you know, encaptures the strong performance of those big US tech stocs, you know, and some of the more concentrated ETFs in that area like Fang have done even better. But that particular ETF hasn't been around for five years yet, but even over three years, that ETFs done better than the Nasdaq ETF, just because it's actually been the large cap stocks in the US that have done the best, and that ETF has a more concentrated exposure to those large caps. On the other side of the spectrum, tom Asian Tech has been a real disappointment over the last five years. You know, You've had all of the policies in the in China that's really led to some of those those Chinese tech stocks not performing so well, and they've only returned just under eleven percent per annum over the last five years, so still a decent return, but a long way off the twenty three percent that US technology stocks have delivered. But I think it really shows listeners that even within a sector like technology, you can see quite you know, disparate returns between you know, one ETF and another just based on what are the actual stocks within that ETF.

So yeah, I changed by five percent at the moment, But you know, five years. I mean, we we recommend clients be looking at longer term anyway for investing, because over shorter terms you just don't really know. But over five years, to give you an example, you know, actually one of the best performing ETFs has just been the broad market technology ETF focused in the US, which is the Nasdaq ETF. NDQ is the is the code for that one. You know. One of the reasons that's become so popular is because of its strong performance. It's returned just under twenty three percent per annum over the last five years, you know, which really I guess you know, encaptures the strong performance of those big US tech stocs, you know, and some of the more concentrated ETFs in that area like Fang have done even better. But that particular ETF hasn't been around for five years yet, but even over three years, that ETFs done better than the Nasdaq ETF, just because it's actually been the large cap stocks in the US that have done the best, and that ETF has a more concentrated exposure to those large caps. On the other side of the spectrum, tom Asian Tech has been a real disappointment over the last five years. You know, You've had all of the policies in the in China that's really led to some of those those Chinese tech stocks not performing so well, and they've only returned just under eleven percent per annum over the last five years, so still a decent return, but a long way off the twenty three percent that US technology stocks have delivered. But I think it really shows listeners that even within a sector like technology, you can see quite you know, disparate returns between you know, one ETF and another just based on what are the actual stocks within that ETF.

So interesting, I finally enough, I was at the pump the other night and someone actually brought up one of the one of the very popular tech stocks that was particularly popular during the pandemic and has since not fared so well. So it was interesting to hear about that in real life and be brought up by someone unprompted by me. So there you go. Obviously people are talking about thematics are in the wild as well as they as they say.

So interesting, I finally enough, I was at the pump the other night and someone actually brought up one of the one of the very popular tech stocks that was particularly popular during the pandemic and has since not fared so well. So it was interesting to hear about that in real life and be brought up by someone unprompted by me. So there you go. Obviously people are talking about thematics are in the wild as well as they as they say.

Well there, and it sounds like that person was talking about an unloved one, which maybe means that they're yeah, they're thinking about things in the right way and not just chasing the one that's doing the best today.

Well there, and it sounds like that person was talking about an unloved one, which maybe means that they're yeah, they're thinking about things in the right way and not just chasing the one that's doing the best today.

Exactly right, exactly right. Well I'll pass on that compliment to them as well. Nothing wrong with a bit of critical thinking, Chris. Let's move on to sustainable and ethical ETFs. Then this is obviously another you know area that people clearly are giving more consideration to So, what are some of the options you know, available again in Australia for investors if they do want to, you know, put their money into a sustainable or ethical focus ETF.

Exactly right, exactly right. Well I'll pass on that compliment to them as well. Nothing wrong with a bit of critical thinking, Chris. Let's move on to sustainable and ethical ETFs. Then this is obviously another you know area that people clearly are giving more consideration to So, what are some of the options you know, available again in Australia for investors if they do want to, you know, put their money into a sustainable or ethical focus ETF.

Well, yeah, as you mentioned, I mean, sustainable or ESG investing has been a friend that's really been growing around the world for the last ten years or so. I'd say it's been strongest in Europe. It's been you know, quite strong in Australia, not as strong as Europe, and then in the US is I think the US has sort of been behind in terms of adoption of these types of products. Now it's interesting again, rather than kind of geographical differences, these products often differ in you know, what sort of selection criteria they use for deciding which stocks can come into these ethical indices. And this itself is a bit of a controversial topic because some ETFs choose you know, either more strict or more lenient methodologies, and that can lead to stocks that some people may not consider to be ethical ending up in some of these ethical ETFs. And so, you know, something we recommend clients really think about if they're looking at these types of ETFs is to consider their own you know ethics and values and decide on a product that really aligns with how they think about the world, and don't just use the don't just rely on the fact that an ETF is called an ethical ETF or a sustainable ETF because it may not align with your values. So in Australia now again there's a large group of these ETFs available. Some of them are based on rules, so these are traditional ETFs. You know, there aren't active managers deciding which stocks to come in and out of these ETFs. They're all rules based, and there's quite a few of these ETFs around that are rules based ethical ETFs. But there's also as well some active ethical ETFs or exchange traded managed funds they're called technically where someone's actually deciding which stocks to come in and out of these portfolios. And these exist both for Australian shares tom but also for global shares. And so you know, when we looked at this space, the feedback we got from clients was that the area that they were most focused on if they were interested in ESG investing, was on carbon emissions, and so that was the area that we looked at most critically when selecting which ETFs to recommend to clients. We wanted to look at the ones that were really, you know, most focused on removing or reducing their carbon emitting companies or the large carbon emitting companies from their portfolios. I'd make one other point then, Tom, that this is also a controversial area for another reason, which is that the regula to ASSEK has been really focused on this area because there's been a few ETF companies but also just companies generally recommending ESG or sustainable investing that have got in trouble for what's known as greenwashing, which is a word to describe like overstating the claims of ethical investing. And so you know, the regulator is now on really focused on making sure that consumers are fully informed and they're not misled when they're picking products in this category.

Well, yeah, as you mentioned, I mean, sustainable or ESG investing has been a friend that's really been growing around the world for the last ten years or so. I'd say it's been strongest in Europe. It's been you know, quite strong in Australia, not as strong as Europe, and then in the US is I think the US has sort of been behind in terms of adoption of these types of products. Now it's interesting again, rather than kind of geographical differences, these products often differ in you know, what sort of selection criteria they use for deciding which stocks can come into these ethical indices. And this itself is a bit of a controversial topic because some ETFs choose you know, either more strict or more lenient methodologies, and that can lead to stocks that some people may not consider to be ethical ending up in some of these ethical ETFs. And so, you know, something we recommend clients really think about if they're looking at these types of ETFs is to consider their own you know ethics and values and decide on a product that really aligns with how they think about the world, and don't just use the don't just rely on the fact that an ETF is called an ethical ETF or a sustainable ETF because it may not align with your values. So in Australia now again there's a large group of these ETFs available. Some of them are based on rules, so these are traditional ETFs. You know, there aren't active managers deciding which stocks to come in and out of these ETFs. They're all rules based, and there's quite a few of these ETFs around that are rules based ethical ETFs. But there's also as well some active ethical ETFs or exchange traded managed funds they're called technically where someone's actually deciding which stocks to come in and out of these portfolios. And these exist both for Australian shares tom but also for global shares. And so you know, when we looked at this space, the feedback we got from clients was that the area that they were most focused on if they were interested in ESG investing, was on carbon emissions, and so that was the area that we looked at most critically when selecting which ETFs to recommend to clients. We wanted to look at the ones that were really, you know, most focused on removing or reducing their carbon emitting companies or the large carbon emitting companies from their portfolios. I'd make one other point then, Tom, that this is also a controversial area for another reason, which is that the regula to ASSEK has been really focused on this area because there's been a few ETF companies but also just companies generally recommending ESG or sustainable investing that have got in trouble for what's known as greenwashing, which is a word to describe like overstating the claims of ethical investing. And so you know, the regulator is now on really focused on making sure that consumers are fully informed and they're not misled when they're picking products in this category.

A great point to bring up, and I think that probably emphasizes the point that you know, maybe even more so than the other ets that you know, anything in this space is really worth looking under the hood, looking at the kind of companies that you know, these ETFs do have includeds as part of them. Chris, obviously, again performance something that everyone's interested in. How have these kind of sustainable ethical ESG kind of focused ETFs performed over that kind of five year time period that we were talking about before.

A great point to bring up, and I think that probably emphasizes the point that you know, maybe even more so than the other ets that you know, anything in this space is really worth looking under the hood, looking at the kind of companies that you know, these ETFs do have includeds as part of them. Chris, obviously, again performance something that everyone's interested in. How have these kind of sustainable ethical ESG kind of focused ETFs performed over that kind of five year time period that we were talking about before.

Well, yeah, it's interesting. So ethical ETFs focused in the Australian market generally have actually underperformed our market index over that period over three or five years, although they've done a bit better over a ten year period, so I'd say they've performed more in line with the broad market index index over that period of time. You know, part of the reason is that some of these ethical ETFs don't have as much weight in or have completely removed you know, mining shares and sometimes banking shares that have actually performed quite well, which leads to the important point that often when you're investing in the sustainable or ethical thematic ETFs, you're taking bets that certain sectors of the market are going to do well and some and you're taking a bet that some aren't going to go well, and sometimes you're going to be right, and sometimes it's not going to work out that way. So Australian esgts have actually underperformed a little bit, to give you an idea over five years. You know, one of the largest one, which is the beta shares Australian Sustainable Lility leaders ETF has returned around five percent perannum over five years, so again a positive return, still a good return, but a bit less than the overall market index over that period. What's interesting is in global ESG ETFs, it's the opposite trend we've seen so with the global ETFs have actually outperformed a lot of the global broad market index ETFs and the reason for that is that the ESG ETFs globally tend to have a larger weight towards technology companies, and technology companies are the sector that's done very well. So again it's just due to the underlying sector exposures that have really driven why ESG ETFs will have done better or worse than the overall market. To give you some other examples, and you know, using that same suite that Beta Shares offers, their Global Sustainability leaders ETF has returned seventeen and a half percent perannum over huge different ideas, so quite a quite a strong return. And similarly, van K has a similar product that we also include in our sustainable portfolios, which is the International Sustainable Equity ETF, and it's returned around thirteen percent paranum over that period.

Well, yeah, it's interesting. So ethical ETFs focused in the Australian market generally have actually underperformed our market index over that period over three or five years, although they've done a bit better over a ten year period, so I'd say they've performed more in line with the broad market index index over that period of time. You know, part of the reason is that some of these ethical ETFs don't have as much weight in or have completely removed you know, mining shares and sometimes banking shares that have actually performed quite well, which leads to the important point that often when you're investing in the sustainable or ethical thematic ETFs, you're taking bets that certain sectors of the market are going to do well and some and you're taking a bet that some aren't going to go well, and sometimes you're going to be right, and sometimes it's not going to work out that way. So Australian esgts have actually underperformed a little bit, to give you an idea over five years. You know, one of the largest one, which is the beta shares Australian Sustainable Lility leaders ETF has returned around five percent perannum over five years, so again a positive return, still a good return, but a bit less than the overall market index over that period. What's interesting is in global ESG ETFs, it's the opposite trend we've seen so with the global ETFs have actually outperformed a lot of the global broad market index ETFs and the reason for that is that the ESG ETFs globally tend to have a larger weight towards technology companies, and technology companies are the sector that's done very well. So again it's just due to the underlying sector exposures that have really driven why ESG ETFs will have done better or worse than the overall market. To give you some other examples, and you know, using that same suite that Beta Shares offers, their Global Sustainability leaders ETF has returned seventeen and a half percent perannum over huge different ideas, so quite a quite a strong return. And similarly, van K has a similar product that we also include in our sustainable portfolios, which is the International Sustainable Equity ETF, and it's returned around thirteen percent paranum over that period.

Interesting, so interesting to hear about that difference, but as you said, the underlying companies in there, that makes a lot of a lot of sense. Chris, final question from me because we were running a little bit short on time. Your investment options at stock Spot are obviously heavily focused around ETF. So where does stock Spot stand on thematic investing and how do you, so I guess, approach it with your investors.

Interesting, so interesting to hear about that difference, but as you said, the underlying companies in there, that makes a lot of a lot of sense. Chris, final question from me because we were running a little bit short on time. Your investment options at stock Spot are obviously heavily focused around ETF. So where does stock Spot stand on thematic investing and how do you, so I guess, approach it with your investors.

Well, our view is that most people don't really need to stray too far from a sensible, low cost, diversified portfolio of very indexed ETF So you don't really need sustainable in ETFs to be successful, and most of our clients don't have sorry, not sustainable ets but rather thematic ETFs. Most people don't have thematic ETFs in their portfolios and they do absolutely fine, But we do notice there's a group of people that want to have a bit more say over what stocks are in their portfolio ultimately and which sectors they have exposure to. And so it's those clients that want a bit more control that we offer a range of different thematic options that they can add into their portfolio. But importantly they can't put their whole portfolio in those thematic ETFs. We limit it to about twenty percent of their overall portfolio, and the reason is that we really want to balance the risk that these these ETFs bring, and by allocating too much more than that, you lose a lot of the diversification benefits, and actually we believe take too much risk. So we allow clients to add two or three of these thematic ETFs to their portfolio of their choice. We can help them pick them. We can we create these bundles of thematic ETFs, which are like ETFs in a similar category, where we choose them for them, or people can choose these thematic ETFs individually. And we do see a small group of our clients going down this path. What we really try and focus on for this group of clients is to help educate them around what are some of the dangers and pitfalls of investing in this way and really trying to address some of those common challenges. And before the show, I mentioned to you that there's been a study that actually came out this week around around this specifically, which is a fantastic one and i'd certainly suggest that your listeners look it up. If they're interested in this space. And the studies called mind the gap, and it was looking at what they describe as the behavioral gap with investing, which is the difference between the returns the actual funds earn or ETFs earn verse the returns that investors in those funds receive. And what this study actually found was that sector ETFs, or these thematic ETFs focused on a sector of the market. When people invest into those, the returns that they earn are two point six percent perannum less than the returns of the ETFs themselves. And the reason for this is largely driven by the fact that people gravitate towards thematic ETFs at exactly the wrong time, after they've already performed well and everyone's already talking about them, and everyone's already excited about them, and it's at that point that they tend not to perform well over the next few years. And interestingly, this same study found that diversified portfolios that contain ETFs of lots of different asset classes or funds of different asset classes actually perform most closely with what investors in those funds receive, so the gap was much smaller. And what this shows is that if people are well diversified, you know, there's less life to be chasing whatever's hot, and they're more likely to stick to a strategy and not be focused on market timing. And so the point really is that if people are focused on thematic ETFs in their portfolio, to be very careful to not just pick them because they're hot at the moment. And if you are picking them because they're hot at the moment, make sure that you've got an appropriate time horizon to actually realize returns from them, because it's quite likely if you're buying something because it's really getting talked about a lot at the moment, then it's going to have a period of disappointment that it's going to have to go through before you ultimately enjoy great returns from it.

Well, our view is that most people don't really need to stray too far from a sensible, low cost, diversified portfolio of very indexed ETF So you don't really need sustainable in ETFs to be successful, and most of our clients don't have sorry, not sustainable ets but rather thematic ETFs. Most people don't have thematic ETFs in their portfolios and they do absolutely fine, But we do notice there's a group of people that want to have a bit more say over what stocks are in their portfolio ultimately and which sectors they have exposure to. And so it's those clients that want a bit more control that we offer a range of different thematic options that they can add into their portfolio. But importantly they can't put their whole portfolio in those thematic ETFs. We limit it to about twenty percent of their overall portfolio, and the reason is that we really want to balance the risk that these these ETFs bring, and by allocating too much more than that, you lose a lot of the diversification benefits, and actually we believe take too much risk. So we allow clients to add two or three of these thematic ETFs to their portfolio of their choice. We can help them pick them. We can we create these bundles of thematic ETFs, which are like ETFs in a similar category, where we choose them for them, or people can choose these thematic ETFs individually. And we do see a small group of our clients going down this path. What we really try and focus on for this group of clients is to help educate them around what are some of the dangers and pitfalls of investing in this way and really trying to address some of those common challenges. And before the show, I mentioned to you that there's been a study that actually came out this week around around this specifically, which is a fantastic one and i'd certainly suggest that your listeners look it up. If they're interested in this space. And the studies called mind the gap, and it was looking at what they describe as the behavioral gap with investing, which is the difference between the returns the actual funds earn or ETFs earn verse the returns that investors in those funds receive. And what this study actually found was that sector ETFs, or these thematic ETFs focused on a sector of the market. When people invest into those, the returns that they earn are two point six percent perannum less than the returns of the ETFs themselves. And the reason for this is largely driven by the fact that people gravitate towards thematic ETFs at exactly the wrong time, after they've already performed well and everyone's already talking about them, and everyone's already excited about them, and it's at that point that they tend not to perform well over the next few years. And interestingly, this same study found that diversified portfolios that contain ETFs of lots of different asset classes or funds of different asset classes actually perform most closely with what investors in those funds receive, so the gap was much smaller. And what this shows is that if people are well diversified, you know, there's less life to be chasing whatever's hot, and they're more likely to stick to a strategy and not be focused on market timing. And so the point really is that if people are focused on thematic ETFs in their portfolio, to be very careful to not just pick them because they're hot at the moment. And if you are picking them because they're hot at the moment, make sure that you've got an appropriate time horizon to actually realize returns from them, because it's quite likely if you're buying something because it's really getting talked about a lot at the moment, then it's going to have a period of disappointment that it's going to have to go through before you ultimately enjoy great returns from it.

Excellent point and a fascinating note to end on. We'll get the report name from you, will pop it in our show notes so everyone listening can go and have a look themselves if they like.

Excellent point and a fascinating note to end on. We'll get the report name from you, will pop it in our show notes so everyone listening can go and have a look themselves if they like.

Chris.

Chris.

It has been an absolute pleasure having you on, as it always is, so thank you so much for doing such an excellent job of explaining all things for the matic ETFs to us and We'll look forward to having you back on the show next time.

It has been an absolute pleasure having you on, as it always is, so thank you so much for doing such an excellent job of explaining all things for the matic ETFs to us and We'll look forward to having you back on the show next time.

Thank you, Tom, and yes, always happy to come back.

Thank you, Tom, and yes, always happy to come back.

We'll definitely are. We'll definitely get you back Chris very soon. That's it for this episode of the Friends with Money podcast, But don't forget to jump on our website moneymag dot com dot Au for all your financial news needs, or you can go grab yourself a copy of the latest edition of Money Magazine in all good newsagents. As always, Friends of Money will be right back in your podcast feeds next week, so until then, I am Tom Watson. Goodbye for now.

We'll definitely are. We'll definitely get you back Chris very soon. That's it for this episode of the Friends with Money podcast, But don't forget to jump on our website moneymag dot com dot Au for all your financial news needs, or you can go grab yourself a copy of the latest edition of Money Magazine in all good newsagents. As always, Friends of Money will be right back in your podcast feeds next week, so until then, I am Tom Watson. Goodbye for now.

Thanks for listening to the Friends with Money podcast. For credible, independent and easy to understand financial commentary, visit moneymag dot com dot au. Please remember that the views and opinions expressed in this podcast are general in nature, and further independent advice and research based on your personal circumstances should be sought before making an investment decision.

Thanks for listening to the Friends with Money podcast. For credible, independent and easy to understand financial commentary, visit moneymag dot com dot au. Please remember that the views and opinions expressed in this podcast are general in nature, and further independent advice and research based on your personal circumstances should be sought before making an investment decision.