Join Camilla Love and Kirsty Dent of Money Made Simple podcast for the second of a series of two podcasts. This time, we focus on what Active ETFs are and what eInvest really does.
Kirsty and Camilla cover:
How the 5 eInvest Active ETFs work and their role in a portfolio
Why Active ETFs are a good place for beginners to start investing
The difference between dividends and ETF distributions and how they work
How to invest using Pearler
A big thank you for having us, Kirsty, and congrats on one year of Money Made Simple!
Disclaimer: Please note that these are the views of the author, Camilla Love, Managing Director, eInvest, and is not financial advice.
To find out how to invest in our active ETFs, visit here. The product disclosure statement and more can be found at www.einvest.com.au
If you’d like to keep learning further, please feel free to follow any of our socials listed below.[/vc_column_text][/vc_column][/vc_row]
The information given in these podcasts is for general information only it should not be taken as constituting professional advice. For more information on our disclaimer, please visit money made simple.net. Welcome back to another episode of money made simple this week’s episode. We are again, joined by Camilla Love, who is the managing director of eInvest and founder of future females in finance. This is week two of our special series, and we will chat more in depth with Camilla about eInvest what it is all about and how you can utilize eInvest to invest in the future. Thank you so much for joining us again on another episode, Camilla. It’s great to have you here.
Thanks for having me. Let’s
Start by getting a bit more of an understanding about eInvest eInvest is an active ETF provider. What does that mean?
Good question. So let’s start with ETFs. So ETF stands for exchange traded funds, and that’s what they are in a nutshell, a managed fund that is found on the exchange that you can trade just like a share. What that means is is that instead of buying one company like you do as a share, you’re buying a full portfolio of companies, and that might be 30 companies. If you’re looking at more concentrated portfolio all the way through to some of the indices that have like 2000 investments in them. So that’s one ETF is what we mean by active ETF. In the financial field, there are terms called active and passive passive or index related investments are really based on an index, sits out there. So it might be the S and P 500, which is a global index. It might be the ASX 200, which is the Australian index.
It could be anything in the fixed income space. It could even be an index that is built by a provider that specializes in something. So it could be sustainability, or it could be gold, or it could be robotics, for example, and these are all sort of indexes. And what that means is every company that’s in that index, that fund will hold every single one of them at the weight that it is found in that index. So as that index moves up and down, your fund is moving up and down with that index, right? What active management is, is tapping into the investment intellect of professionals who look at companies day in and day out, and that’s their day job. Right? And they will choose stocks that they really like, and they will also choose stocks that they really don’t like. And so the stocks that they really like, they might have a big waving in and the stocks, they really don’t like they either have no waiting in, or they might have a small waiting in.
Right. And so what you’re doing there is that those investment professionals are essentially taking a view on that company to say whether they are going to outperform or whether they’re going to underperform, right. So rather than having every single stock in the index, and you’re just getting whatever the index provides, you, you know, relying on those investment professionals to make a decision on what they think is going to outperform. And that’s what active management is. Active management will go through periods of under-performance and outperformance, but over time, generally our performance occurs, particularly in those asset classes where active management makes sense, such as smaller companies, such as emerging markets, for example, that’s sort of what it is in a nutshell.
Yes. Thank you for that. That was a really good explanation about the differences between the two. Sometimes it is quite hard to get a nutshell overview of what the differences are, but that was a really good high level understanding for us. Now, why would I, as a first time investor, be more driven to invest in an ATF than say a share of an individual company, like for example, a Quantis or a BHP.
Yeah. So there’s a couple of things. So normally what happens with the first time investor is they don’t have a lot of money, right? You might start off with $500 say, and to get adequate diversification over $500 is quite difficult. If you buy one or two shares that are already a hundred dollars each it’s not really useful for you as an investor. The other thing to think about is that scale piece. So investing in the ETF means that you have access. You can put that $500 and still have access across 2000 companies and how they go up and down or, you know, sort of depending on what, what you choose. So there is scalable. The other thing is that your getting put in with a whole bunch of money from, from everybody else, right? So I might put money in that fund. You might put money on that finer together.
Our money has much more economies of scale than your individual $500. The other thing about ETS is they’re really transparent. So unlike unlisted managed funds, you get to have a look at what’s in them pretty easily. There’s lots of good reporting and communication that comes through to that. And it means you can trade them pretty easily as well. So instead of, you know, some managed funds have daily pricing, some managed funds have monthly pricing, some managed funds have quarterly pricing, ETFs have intraday pricing. So you can go onto the exchange today. And right now it’s the time at 9 55 and make a, make a trade. Actually, you can’t right now because it’s closed, but you can trade at whatever time you want and get that cash today. So you’ve got transparency, you’ve got economies of scale, you’ve got liquidity together. ETFS are a really great way to make your first investment.
And as your pot of money grows. And as you feel more comfortable in putting your money at risk, because that’s what investing is, you can go on and buy Telstra and the HP and Tesla and whatever else, right. There’s a really great training ground for you also as an investor, because underneath the hood of those ETFs that you’re investing in, you can actually deep dive into those companies, understand what’s going on with them, get the research from the ETF provider on those companies and what they’re seeing, and, you know, educate yourself about different aspects in different industries and different segments of the market. So really great starting point, really great starting point.
Yeah. You make a point there that is diversification. What is diversification and why is it so important?
So diversification is important. So what is diversification? So diversification in an asset management sense means that you don’t put all your money in one basket, right? So think about that. That might be taking that $500 and putting it all on Afterpay or taking that $500 and putting it all in mining or all in Australian equities, all in. So there’s different levels of diversification. But what that does is if you do, if you put all your money on after pay and after pay decides to go down 10%, all your money is going down 10%. So if you diversify across and go, okay, cool, I’m going to put it in, you know, an ETF that is, you know, a small cap CTF, for example, and your $500 gets put across 60 different companies. One company moves up and down by is important, but over time, you know, those all companies are moving up and down and you generally rise up with that, with that sort of diversification and multi investment opportunities, probably what the best way to describe it.
I’ve heard it described as a board and or a bowl of fruit. I’ve done different ways of doing it. But I think sometimes just coming back into the simple bits, you know, I’d really love to have, you know, all ice cream tonight, but really I just want ice cream, sprinkles and chocolate. Yeah. I have ice cream, sprinkles and chocolate with a flake at the top every day. So, so that’s what diversification is why it’s important is because particularly you want to reduce the variability in your portfolio, right. And particularly reduce the variability on the downside. So going into negative territory and you do that through diversification, there are some points through the economic market cycle where, you know, we saw in COVID during that COVID period of March and April last year, where everything fell off, right? The Australian market was down 35%. I think over that month and shore, you’re going to fall over that period of time.
But diversification may mean if you’ve got a bit of fixed income in your portfolio, that even though your Australian shares are falling 35%, your fixed income proportion, isn’t falling by anywhere as much as that. And so on average, you might be higher than a negative 35% over that one month. That’s what diversification. And particularly in those negative negative periods, that’s what it’s there for. And so you need to think about diversification, not only from a company and security point of view, but through sort of sectors and industries through different asset classes. And you need to look at things that, and I’m going to use a big word, art correlated. So moving differently against each other. I think that’s really important when putting together a portfolio.
Yeah. Thank you for that explanation just around diversification, what it is and why it is so important. It is especially important for investors who have a low risk tolerance to understand and implement diversification. Now invest have five different funds that you can invest in. What are the main differences between the funds and why would I as an investor choose one over
The other. Yeah. Okay. So legal point of view, not financial advice where investors not advisors, if you really want to take advice, see a professional and definitely go to the website, they invest dot condo to you. If you want to go and have a look at all this sort of stuff, and you could find the PDS is there. So going back onto your question, we’ve got five ETFs. They they’re different and they’re different for a reason. But one thing in common is they’re all sit in areas where we believe active management makes sense, right? So there’s one thing. There’s one thing in common. The other thing in common is they’re all ETFs. So you can all buy, you can buy them on the exchange. You can purchase them through your online broking and they’re really easy to trade. So that’s the thing. So let’s step through them.
So we’ve got three fixed income funds. So a cash fund, which will give you a little bit more than your term deposit. It’s a really low risk, very liquid fund. It’s sort of, you know, if you’re looking at parking your money somewhere with very little risk, so don’t get me wrong. It does have some risks, but very little risk. ECAS is the code. So eInvest cash booster is, is something for you. So there’s that then there’s eInvest core income fund. That again is a fixed income fund is mainly based on credit securities. It is aiming for a return of the RBA cash rate, which is pretty low right now, plus 200 basis points or 2%. And we take a little bit more risk in that from the cash funds. So I’m stepping up in risk levels here. It may have a negative return every year say, but again, it’s there for diversification is then there for alternative to other low risk opportunities that you might have your fund in, in your funds.
In the next one, up in risk is EMAX, which is the eInvest income maximize a fund. So it is again, mainly fixed income, but it’s taking another step up in risk. And this it’s looking for the performance benchmark of RBA , the cash rate. So again, it’s quite low plus around about 4%. So it’s a little bit more risk it’s average credit rating. And I’m talking really, really technical stuff. So average credit rating of triple B, which is further down the, the credit scale, but still investment grade, right? So that’s a different sort of kettle of fish. Then stepping up in the next, in the risk spectrum is a portfolio called EIGA, which is invest income generator fund. It is an Australian shares based fund, really focusing on providing franked income monthly, right. It aims to provide about a 7% target yield every year. And it invests in companies that you would have heard of like the big four banks like Telstra, that sort of stuff, companies that pay dividends regularly, right?
And that’s really for clients who are looking for extra income or looking particularly for a franked dividends. So again, another technical term franking is an interesting term. And then my favorite all time fun, you know, the children, you’re not allowed to have favorites, but this one, I definitely have a favorite IMPQ are small caps, sustainability fund love this fund cracking fund. So that the code, as I said, is IMPQ invest in Australian small and mid-cap companies who are really doing good for society. So the funds name is the better future fund. And that’s what the companies inside it are trying to do, create a better future for all the stakeholders that they are involved in and for the community. And I know there’s some cracking interesting companies in there from the education and base. There’s some really interesting stuff in the medical space because healthcare is going through a lot of transition at the moment, some really interesting stuff going on in, you know, energy and stuff like that, or in your energy. I just think there’s fun is like the base NACE. So yeah, so don’t have favorites, but can you tell, yes,
We did an episode on ethical investing. So it is interesting to hear about IMPQ and what the companies within that portfolio are doing towards environmental issues, but also gender diversity as well.
Definitely. So we all, we have a gender diversity policy where we at least have, we’d like to see one female on the boards, we’d write to them often. We’ve just had a really great win on Blackmores, which I think is really great. They’ve just put a few females on their boards, hopefully through a bit of engagement that we’ve had, but there’s, you know, some really cracking little companies, you know, Australia has some really great tech and really interesting diversification, really interesting companies that are coming through in that small space. And you’re supporting them for doing good as well as changing the world, I think is just amazing.
Yeah. I agree. Now do the funds pay dividends and if so, are these automatically reinvested?
So technical thing. So in ETFs dividends are actually distributions. So the companies pay out a dividend and the ETF pays out a distribution. So that’s all just technical term. So some do and some don’t. So the fixed income ones, and I guess they pay out a monthly distribution and that’s one of their core purposes. They’re there to provide income to people. The small caps fund, the purpose actually is capital growth because it’s really small caps. And when you’re investing in smaller companies, you are wanting them to reinvest their profits, to grow their company over time. So if there is distributions to be provided there, providers generally in June of every year, when everything capital gains and income needs to be paid out. But other than that, we love to see the companies that IMPQ investing re-investing and grow to become bigger companies
Off our conversation. The question that I do ask all of our guests is if you could go back to when you graduated school, what is one thing between then and now that you would perhaps do differently?
Oh, there’s so many, right. Life is a more a meandering path, right? It’s not that linear line. A couple of things I probably would say is on all aspects, probably take some more risks. So more risks in early days of mine and more risk in the, in the early days. And now I’m starting to do that with my career. And I think that’s probably, if I had to leave you with one thing I would take, I would take more risk in, in everything that I do. Although I have jumped out of a plane a few times and I dare say that’s quite risky. So, so yeah, but definitely with my career and definitely with my investing early days, I would have taken more risks, you know, ask for things, you know, things don’t come to people who really wait. I mean, I know that’s the saying, but you know, if you don’t, if you’re not your own advocate, if you don’t ask me, if you’re not asking people for a coffee or tell me what they do, or give me a pay rise, or, you know, put this in this company in my portfolio, because I really like it.
That sort of stuff just, you know, ask for us, ask for it.
Yeah. That’s really a really good point. I think also that, that goes hand in hand with networking, right? Especially for me, like I would not have the job I have today, if it weren’t for networking, even though it’s really sometimes scary and something that you would rather avoid, but networking is so important and Australia, and even within states in Australia, in the financial industry, everybody knows everybody. So it’s really, really important,
Absolutely critical. And I, you know, if I had to come back as a superhero, I’d be the networking noodle. I love it. Most people think I’m crazy. I walk into a room and go, I don’t know anyone. Yes. Let’s see who we can meet, but it is a learned skill. And you’re absolutely right. You need to take that in bed, realize that everybody in that room is as embarrassed as you are that doesn’t know any anyone. And the one networking skill I will, you know, tip that I’ll give you is just smile because by smiling, you becoming more welcoming and people are more likely to come up to you or introduce you around. And you know, and actually I’ve written a LinkedIn blog post on networking. So if you’re interested, you said,
Yes, I will definitely have to check that out. So thank you so much, Camilla, for joining us on the two special episodes of money made simple. You are such an inspiration to younger Italians and particularly women within the financial services sector. I wish you all the best of luck in the future. And thank you again for sharing all of your wealth of knowledge and advice.
Thanks Curphey and good luck with money. My simple, you guys are doing a great job here
Now. That’s all for this week. Thank you for tuning into episode 19 for season two. If you do wish to check out eInvest as an investment pathway, the website to go to is invested.com.edu. Remember to read all product disclosure statements prior to investing to ensure the product is right for you. I invest in eInvest using Perla. We have an affiliate link on our website, which is money made simple.net.edu under the helpful links tab as always our Instagram page at money made simple AAU is the place to be during the week. But I also look forward to you joining me again next Monday to continue to learn just how simple it is to become financially independent.