The Next Big Theme: How major global thematics will shape our future and drive opportunities for ETF investors.

Our next speaker is from our ETF perspectives.

The head of distribution of GlobalX, Mr. Kanishi Cook, just joined the call.

GlobalX ETFs was founded in 2008 to empower investors with unexplored and intelligent solutions with more than 90 ETF strategies and over US$41 billion

in assets under management.

GlobalX is a member of Meeray Asset Financial Group, a global leader in financial services with more than $620 US billion in assets under management.

Kanesh's presentation topic today is the next big theme, how major global thematics will shape our future and drive opportunities for ETF investors.

Welcome, Kanesh.

Thank you so much for having me.

I'd like to kick off the presentation now and just talk around thematic investing and paradigm shifts.

Before I continue, obviously I'd like to show our disclaimer and any information provided today is general in nature.

Please speak to a financial professional and also read through the product disclosure statements and TMDs that are available on our website, www.globalxetfs.com.au.

Now, as was just recently stated, you know, GlobalX is a leading powerhouse within the thematic solutions within the ETF space.

We have over $75 billion of assets under management.

So what that means is we're managing over $75 billion worth of clients money within our broad range of ETFs across actually what is now 150 ETFs.

And what's interestingly from a GlobalX standpoint,

we are present in majority of developed markets, you know, whether it be across Asia, Europe, Latin America, North America, and now obviously Australia, GlobalEx has really entered into the ETF market, offering investors some very unique solutions.

And when we think about thematic investing, that's really what today's presentation is all about.

You know, thematic investing

For a lot of investors over the past three to four years, they've looked to tap into different themes.

But what does that mean?

Essentially, what we look at from GlobalX, and we are very strong in how we approach our product development when we're launching new thematic ETFs and ensuring that investors have the appropriate themes to invest in, we want to identify from a top-down perspective, those powerful macro-level trends.

We want to look, and then from a bottom-up perspective,

indexes, so equity indexes, equity benchmarks that can highlight companies that stand to benefit from those particular trends.

So it's one side to actually identify what are the macro level trends that are going to disrupt and going to help, you know, move our communities forward.

They have to be long term.

They have to be a focus on growth.

We have to think about them as being unconstrained.

You know, we can't think of these thematic ETFs as being constrained by geographic area or a sector.

And also that concentrated portfolios often have biases, whether it be towards certain countries, certain sectors, or certain factor tilts.

And the final thing with themes is they have to be somewhat relatable.

And I'd probably add one more thing here is you have to ensure that when you're looking at themes, when you're thinking about thematic investing, you want to ensure that that macro level disruptive trend has government support.

And I talk about that really from this perspective,

as to what you should think about when choosing a theme.

So when we think about taking a step back, you know, you've got your portfolio, you're thinking about how do you allocate different themes within that?

And I think thematic investing and thematic ETFs have been seen a lot of growth.

We've seen a lot of new thematic ETFs that have been launched in recent years.

So if we take a step back, we have to think about, does this particular theme that you're looking at have conviction?

Does it have a multi-year timeframe?

So what do I mean by conviction?

Do we perceive that this particular mega trend will have structural changes, whether it be in the demographics of a particular nation or region or globally?

Will it be disruptive and structurally change technology, behaviour, and also politics and regulation?

So an example I'm going to put out there is electric vehicles.

And we'll talk a bit more about electric vehicles in another few slides,

we've seen really strong policy shifts to supporting the electric vehicle adoption.

You have to ensure that's investable and I think this is really important because when we look at product development you know we are one of the leaders of the thematic ETFs not only in Australia but around the world when we consider what types of thematic ETFs we're wanting to launch and support we have to ensure that there are enough companies

that we can invest in that are pure play, that really are linked to that particular theme.

And there's some really interesting examples of different themes that have been launched in recent years.

And a good example was a clean technology thematic.

Now, there was a provider, a very big US provider that had a clean technology ETF.

They launched a clean technology thematic product.

And that particular product invested in a broad range of companies around the world

some very small companies.

It didn't have sort of rules in place to limit how much they owned of one company.

And what happened there was when you had a big flow of new investors coming into that particular ETF, which occurred with a big institutional investor, all of a sudden it moved the market for some of those smaller companies that were linked into that portfolio.

So that's really important.

We have to ensure that there is an investable universe that we can invest in.

And we have to ensure that there is certain rules in place so we don't own too much of some of these smaller companies, which may be linked to some of the more nascent themes.

And finally, I talked about it being multi-year timeframe.

When investing in thematics, you have to take a long-term view.

And I say that purely because when we look at our next slide, and this is our famous S-curve.

And what this is showing is that when you think about thematic investing, it follows this structural curve.

It's not cyclical,

It's not going up and down in peaks and troughs.

It's following the structural S-curve.

So what we're looking at is you can see that a lot of the themes that we talk about or that investors talk about are really in that early stage, whether it be the innovator or early adopter.

Now this particular S-curve, the timeframe from a theme that goes from innovator all the way to a laggard can be

relatively quick.

I think it's, it's quicker than what we might say, you know, the adoption of automobiles over multi decades.

It's still going to be years though.

And so that's why we talk about when we're thinking about mega trends, when we're thinking about thematics, we at Globalist are very much focused on multi-year themes.

And what's interesting is you think about some of these thematics things, something like social media versus the metaverse.

So a company like Meta or Facebook, for example,

very much a leader in social media.

Over the past 10 to 15 years, they've gone from being an innovator of social media and that the particular thematic has moved into that late majority.

But the company of Facebook has had to reinvent itself.

It's had to constantly look at how it can re-engineer and look at how it can continually disrupt.

And for meta at the moment, it's looking at areas of AI, but also looking at areas of thematic such as metaverse.

So it's bringing itself back forward into this S-curve at the innovator stage as well.

Now, a lot of investors would like to be invested in particular things when they're at that early stage, whether it's an innovator or early adopter.

All I would say is the earlier the thematic is in terms of that S-curve, so at that sort of innovator stage, the higher the risk is, but potentially the higher the return is.

So more volatility can be associated with those themes.

So that's something to be considerate of when investing in particular thematic ETFs.

The two particular themes I'm really going to focus on today is around decarbonisation and looking at green metals in particular.

And I think it's very, you know, we all know it.

Decarbonisation, it's one of the most pressing globally shared objectives of the 21st century across countries, companies and investors and consumers around the world.

We know that with natural disasters, with climate change really forcing an impact and change in weathers, we're seeing an impact.

We think about the human impact in terms of lives lost, buildings being, cities being affected, you know, so infrastructure.

But then we think about the cost as well.

And what we can show you here is that there's an accelerating cost and frequency in the US, for example, of climate disasters.

Now, what this actually means is you look at Australian bushfires, for example, the total cost

to government, to corporates, to consumers, to residents was over $157 billion.

And that was those bushfires that occurred in 2019, 2020.

So really there is an actual monetary impact that we're seeing from climate change as well.

And when we think about how do we move forward, I think we need to be conscious of the fact that if we want to adopt clean technologies, so whether it be electric vehicles, nuclear, hydro, wind, solar, hydrogen, whatever it may be,

you're going to need minerals, you're going to need resources.

And this is a really interesting table just showing you from the IEA.

Now this is as at May 2021, but it just shows you the different types of metals or minerals that are going to be required with the different types of clean technology.

So for example, within solar, you're going to need a lot of copper and a lot of aluminium.

You're going to need less of say cobalt, nickel, lithium.

But then you look at wind, nickel is a moderate inclusion as is rare earth metals as well.

And to take that a step further, we can see here in Clean Technologies, what is the required minerals that are going to be needed?

And you can see there in offshore wind, for example, just copper alone is a main mineral or resource required.

And that's probably one of the reasons why we've seen a lot of uptake

a lot of price movement in some of these underlying minerals and resources, as we've seen the shift towards clean technology policies, both by the government and corporate level.

And just to focus on this a little bit more, what we're actually talking about in terms of those disruptive materials is that lithium demand, for example, could be anywhere from 13 to 42 times higher than 2020 levels.

So what you're looking at here is the estimated disruptive materials growth by 2040.

So this is a range that you can see.

So for example, with graphite or cobalt between six to 21 times or graphite between eight to 25 times what its 2020 levels are.

And again, this is off the back of clean technologies being developed, bought and introduced into society, what's required to help fund that and fuel that.

And finally, just on copper and the supply and demand,

This is just important to note that we've seen a lot of talk in the markets recently because of some merger and acquisition.

So with copper's demand only going to increase, we've seen companies like BHP really enter and be quite aggressive in the space around M&A and even, for example, within tech and Anglo-American mines as well.

So we know this from a perspective of an ETF that we have wire.

which focuses on the copper miners.

And we've seen a lot of interest just to try and capture if they can't get access to Australian copper miners companies, how do they access that?

And thematic ETFs such as those really benefit investors within their portfolios.

And in terms of that renewable, we've talked about this shift.

I think it's only going to continue further.

You know, it is not just one particular clean technology that will prosper.

It is a combination.

Electric vehicles are very good use in cars, in small transportation, but hydrogen, for example, potentially has an ability to really benefit industrial use and also large-scale commercial transportation as well, such as ships.

Now, the other theme I want to talk about, so we've talked about decarbonization, and I'll touch on some of the funds that we have, but AI.

I think we can all say that we use some form of artificial intelligence in our life currently.

We may not use it to the full extent that we have the ability to, such as chat to APT.

But whether you use Google, Amazon, Alexa, for example, or Siri within your Apple iPhone, you're using some form of AI.

And AI is actually not a new technology.

It's all the way back from the Turing test in 1950.

There has been AI technology that's been developed.

And you think about open AI, well, that was actually first launched in 2015.

And it's taken seven to eight years to get to this point

where we have chat GPT and the impact that it's having, and obviously the user is having from consumers, but Siri, for example, in 2011.

And when you think about what does that actually mean?

Well, from a revenue perspective, we can see there on the chart on the left, just the estimated revenue that OpenAI potentially has to access.

Now, what Microsoft is currently doing is it's trying to use OpenAI and chat GPT as a software as a service-based model.

So it's trying to incorporate it within its Bing search engine, obviously trying to counter the competition and trying to be a bigger player in that search engine space against Google.

And just today, by the way, it announced that as a licensing fee of $30 per month, you can access and incorporate.

chat GPT within your Microsoft 365 service or license.

So again, it's trying to access and using some of these AI technologies within a traditional revenue-based model that we currently see across all technology companies.

We can also see there that AI as a service spending is only going to increase as technology increases.

And in terms of

impact.

So how does the investor access the AI theme?

It can do that through chip manufacturers, such as GPU-based AI acceleration hardware.

So companies like Nvidia, for example, or TSMC, Taiwan Semiconductors.

And we can see there that Nvidia's supplied hyperscalers with over 15 billion in chipsets for 2022.

So its data center revenue has yet to actually hit its book.

So we're actually going to see some really big numbers come with Nvidia over the next year or two.

And then finally, I just want to highlight this one particular area is there are big companies associated with some of these things.

So we can sometimes get big bogged down in trying to identify small companies.

But there are two ways to play different thematics.

And I think when we think about decarbonisation, these are some of the thematics ETFs that we have listed here on the Australian Stock Exchange.

So company ETFs like wire focusing on copper miners or AC DC focusing on battery tech and lithium.

And this is just a quick slide.

You know, ACDC looks at the value chain of the battery tech thematic.

And when we think about AI, you're thinking about whether it's multi thematic, so FANG ETF, and that looks at 10 stocks such as Microsoft, Apple, Amazon, Google, Facebook, Tesla.

You know, it's really looking at different themes.

AI being one of the biggest focuses for a lot of those companies.

Or you can go a bit deeper and you can focus on something like a robotics ETF.

So a robo ETF really looks at automation

robotics and AI as a specific theme.

So 80 companies from around the world, or as I talked about, tapping into the semiconductor thematic.

So AI's technology obviously is only going to continue to grow, but it's going to have a benefit for semiconductor companies, as does a lot of different technological advancements.

And we have an ETF called Semi, really just focusing on that particular thematic as well.

So that's a really short, sharp sort of overview around GlobalX and our

focus on thematic ETFs and thematic investing.

Thank you.

Thank you, Kanesh.

Great presentation.

Just in the interest of time, we have time for one question.

We noticed Global Access 3 AI-focused ETFs have all been great performance in recent months.

Is there any crossover between these three ETFs?

And if you have to pick one of these tech ETFs to own longer term, which one would it be?

Look, the crossover is minimal.

So the crossover between Robo and Semi is very minimal.

So Robo, as I said, is focusing on companies like Fanuc, who does industrial automation, or John Deere, a tractor company that is very much focused on artificial intelligence and autonomous vehicles within the agricultural space.

So you don't have much crossover between Robo and Semi.

There is a crossover between Fang and Semi in companies like NVIDIA or AMD.

That is understandable.

So FAANG is focusing on your top 10 large mega cap US listed companies around innovation and technology and medium communication disruption.

So as I talked about some of those companies there.

What I would say is for the type of investor FAANG is traditionally can be a core building block.

It's a very growth orientated portfolio.

It's 10 stocks, so it's concentrated.

So that's something to be aware of.

You know, it's had some very strong returns this year off the back of some of that strong returns in some of those mega cap names.

You know, it's nearly 70% plus year to date as at 30th June in terms of its performance.

But as a result of being so concentrated, it can also have some implied high volatility.

So something to be aware of.

It's more for the growth orientated investors.

And for something like Semi or Robo, that's also as a satellite.

It's a complement to some of your core building blocks to really highlight and focus on one of these particular themes, which as I said, they're multi-year megatrends.

So it's conscious to make sure that you take that into consideration, that long-term investment horizon.

Thank you, Kenneth.

Great to see you.

Have a good night.