©2016 Morningstar, Inc. All rights reserved.

ETFs and LICs - Either, Neither or Both?

Chris Stott, Chief Investment Officer and Portfolio Manager, Wilson Asset Management

Robin Bowerman, Head of Market Strategy and Communications, Vanguard

Moderator: Alex Prineas, Senior Research Analyst, Morningstar

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Total assets under management (TAUM)

Data as of 31/12/2015

Source: Morningstar Direct, Morningstar Australian Asset Flows report

ETFs and LICs still a small slice of the industry

Australia’s fund industry is growing…

Australia - Total Assets Under Management - A$1.35 trillion

Data as of 31/12/2015. Source: Morningstar Direct & Morningstar Australian Asset Flows report

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Total Industry Assets (AUD billions)

…but much of the growth is driven by rising stock markets, not flows

Australia - Total Assets Under Management - A$1.35 trillion

Data as of 31/12/2015. Source: Morningstar Direct & Morningstar Australian Asset Flows report

S&P/ASX 200 Index

returns

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Total Industry Assets (AUD billions)

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Australian ETPs - Products and funds under management

Data as of 31/12/2015, Source: Morningstar Direct

Australia’s ETF market is growing rapidly, measured by assets and products

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Australian LICs - launches since 2013

Data as of 13/05/2016, Source: Morningstar Direct

Australian listed investment companies (LICs) are also growing in number and assets

LIC Ticker Net Assets Inception Date

WAM Leaders WLE Not yet listed May 2016 ?

Platinum Asia Investments Ltd Shs PAI 265,852,519 21/09/2015

Future Generation Glb Investment Co. Ltd FGG 283,639,979 10/09/2015

Argo Global Listed Infra Limited ALI 286,181,276 3/07/2015

Wealth Defender Equities Limted WDE 110,646,106 21/05/2015

Perpetual Equity Investment Company Ltd PIC 251,638,048 18/12/2014

Future Generation Inv.Co. Ltd FGX 255,268,737 8/09/2014

QV Equities Limited QVE 240,184,773 22/08/2014

Global Value Fund Limited GVF 113,601,404 21/07/2014

Blue Sky Alternatives Access Fund BAF 126,146,714 16/06/2014

PM Capital Asian Opportunities Fund Ltd PAF 58,979,355 21/05/2014

PM CAPITAL Global Opps Fund Limited PGF 340,974,212 12/12/2013

Australian Masters Yield Fund No 4 AYK 54,176,742 31/10/2013

Australian Masters Yield Fund No 3 AYJ 98,644,277 31/10/2013

Watermark Market Neutral Fund Limited WMK 92,867,020 18/07/2013

US Select Private Opportunities Fund II USG 115,899,084 9/04/2013

NAOS Emerging Opportunities Company Ltd NCC 46,449,114 26/02/2013

Assets in LICs launched since 2013 2,741,149,360

Total LIC assets 27,492,156,047

gA stream of fully franked dividends – meaning enhanced after-tax returns to shareholders

gClosed pool of capital – allowing fund managers to focus on investment fundamentals

g Strong corporate governance – protecting shareholders welfare

gActive management – enhancing returns to shareholders and aligning fund managers’ and shareholders’ interests

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Source: Wilson Asset Management

The listed investment company (LIC) structure can provide:

gOutperformance

g Paying fully franked dividends

g Engaging with shareholders

g Treating shareholders with respect

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Source: Wilson Asset Management

What makes a good LIC?

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Share price relative to NAV

Data as at Jan 2016, Source: Bloomberg, Vanguard Investments.

ETF premium/discount to NAV – comparing ETFs to LICs

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Share price relative to NAV

Source: ASX Monthly Report 30/04/2016, Vanguard Investments.

ETF premium/discount to NAV – comparing ETFs to LICs

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The five lowest cost Australian equity ETFs and LICs

Data as of 31/03/2016, Source: Morningstar Direct

At the cheapest end of the scale, ETF and LIC fees are similar

ETFs Morningstar Ticker Net Assets Inception Date Management Fee

iShares Core S&P/ASX 200 (AU) IOZ 405,623,200 6/12/2010 0.15

Vanguard Australian Shares ETF VAS 1,457,154,314 4/05/2009 0.15

UBS IQ MSCI Australia Ethical ETF UBA 130,774,674 18/02/2015 0.17

SPDR® S&P/ASX 200 ETF STW 2,902,227,994 24/08/2001 0.19

Vanguard MSCI Australian Large Coms ETF VLC 57,890,410 23/05/2011 0.20

LICs Morningstar Ticker Net Assets Inception Date Management Fee

Milton Corporation Ord MLT 2,710,178,647 30/01/1962 0.12

Carlton Ord CIN 953,882,540 28/02/1971 0.13

Argo Ord ARG 4,669,225,542 1/01/1947 0.15

Australian Foundation Investment Company Ord AFI 6,035,852,409 1/01/1936 0.16

BKI Investment Company Ord BKI 876,147,831 12/12/2003 0.18

Important Information

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