17 BetaShares NASDAQ 100 ETF Product Review

ISSUE DATE 23-09-2020

Product Review BetaShares NASDAQ 100 ETF

Key information

FUND MANAGER

BETASHARES CAPITAL LTD

ASSET CLASS

GLOBAL EQUITIES

SECTOR

GLOBAL LARGE CAP

SUB SECTOR

US - PASSIVE

INVESTMENT TYPE

EXCHANGE TRADED FUND ('ETF') LISTED ON THE AUSTRALIAN STOCK EXCHANGE ('ASX')

PDS OBJECTIVE THE FUND AIMS TO PROVIDE INVESTORS WITH THE OPPORTUNITY TO EARN A RETURN THAT AIMS TO TRACK THE PERFORMANCE OF THE NASDAQ-100 INDEX, BEFORE FEES AND EXPENSES.

INDEX PROVIDER

NASDAQ

UNDERLYING INDEX

NASDAQ-100 INDEX

DERIVATIVE USE LIMITED BUT CANNOT BE USED FOR SPECULATION OR LEVERAGE

SECURITIES LENDING

THE FUND DOES NOT INTENT TO ENGAGE IN SECURITIES LENDING BUT MAY DO SO IN THE

FUTURE

ASX LISTING DATE

MAY 2015

DISTRIBUTION FREQUENCY

SEMI-ANNUAL

FUND SIZE

$1,140M

Fees

MANAGEMENT COSTS

0.48% P.A. (INCLUDES EXPENSE RECOVERY FEE UP TO 0.10% P.A.)

Daily trading information TICKER 52 WEEK LOW 52 WEEK HIGH LAST PRICE LAST NET ASSET VALUE (NAV) PREMIUM / DISCOUNT TO NAV (DAILY) AVERAGE DAILY TRADED VOLUME AVERAGE DAILY TRADED VALUE

NDQ $19.05 $28.11 $25.92 $25.21 0.028% 169,100 $3.68M

What this Rating means

The `Recommended Index' rating indicates that Lonsec has strong conviction the financial product can generate risk adjusted returns in line with relevant objectives. The financial product is considered an appropriate entry point to this asset class or strategy.

Strengths

? The Fund provides investors with an effective and efficient means to access the growth potential of UStechnology companies.

? The Fund is currently the only ETF in the Australian market offering passive exposure to the US Nasdaq Index.

Weaknesses

? The management cost of the Fund is higher than other ETFs that track broader-based market capitalisation weighted US equity indices e.g. S&P 500 Index.

? The Fund faces a moderate to high level of concentration risk by sector and by individual stocks.

Fund Risk Characteristics

BUSINESS SUSTAINABILITY RISK CAPITAL VOLATILITY SECURITY CONCENTRATION RISK SECURITY LIQUIDITY RISK

LOW MODERATE HIGH

Risk categories are based on Lonsec's qualitative opinion of the risks inherent in the financial product's asset class and the risks relative to other financial products in the relevant Lonsec sector universe.

BIOmetrics

Aggregated risks 1234567

STD RISK MEASURE

A Standard Risk Measure score of 6 equates to a Risk Label of `High' and an estimated number of negative annual returns over any 20 year period of 4 to less than 6. This is a measure of expected frequency (not magnitude) of capital losses, calculated in accordance with ASFA/FSC guidelines.

RISK TO INCOME

LOW MODERATE HIGH

Features and benefits

COMPLEXITY ESG

LOW MODERATE HIGH

ANALYST: NATHAN UMAPATHY | APPROVED BY: PETER GREEN

P 1-7

We strongly recommend that potential investors read the product disclosure statement Lonsec Research Pty Ltd ABN 11 151 658 561 ? AFSL No. 421 445 ? This information must be read in conjunction with the warning, disclaimer, and disclosure at the end of this document. This report supersedes all prior reports.

BetaShares NASDAQ 100 ETF

ISSUE DATE 23-09-2020

Fee profile

FEES VS. UNIVERSE FEES VS. ASSET CLASS FEES VS. SUB-SECTOR

LOW MODERATE HIGH

Fee BIOmetrics are a function of expected total fee as a percentage of expected total return.

What is this Fund?

? BetaShares, ('the Manager') adopts a passive investment strategy in managing the BetaShares NASDAQ 100 ETF ('NDQ' or `the Fund'). The Fund is designed to track the performance of the NASDAQ-100 Index (or `the Underlying Index') before fees and expenses.

? The Underlying Index is a modified market capitalisation weighted US equity index comprising of the 100 largest non-financial stocks exclusively listed on either the NASDAQ Global Select Market or NASDAQ Global Market (unless a company has maintained a dual listing on another US market prior to January 1 2004). As of July 2020, the Underlying Index included nine companies (i.e. Baidu Inc., ) incorporated outside of the United States for which the Fund held American Depositary Receipts (ADRs) to gain economic ownership. ADRs trade on the NASDAQ but represent a specified number of shares in a foreign corporation.

? The Fund is currency unhedged and its assets are denominated in US dollars. The returns of the Fund will therefore be impacted by fluctuations between the US dollar and the Australian dollar.

? The Fund's portfolio as at July 2020 comprised of 103 securities listed on NASDAQ exchanges. The number of securities in excess of 100 is generally due to multiple class listings of a company included in the Underlying Index i.e. the Fund holds Alphabet ? Class A and Alphabet ? Class C securities.

? The two main stock exchanges in the US are the New York Stock Exchange (NYSE) and the NASDAQ. Whether a firm elects to list on the NYSE or with NASDAQ can be influenced by a number of factors. Listing cost structures, financial qualification requirements and corporate governance issues are generally key points of consideration. The NASDAQ exchange has tended to attract more technology companies; reflected in that Apple, Microsoft, , Facebook and Alphabet comprise approximately 47.0% of the Fund's portfolio. As of July 2020, Information Technology as a sector comprised 47.7% of the Fund's exposure, followed by Communication Services at 19.7%.

? That said, there are no `hard and fast' rules for whether a company lists on the NYSE or the NASDAQ. LinkedIn Corp., a professional networking website, elected to list on the New York Stock Exchange (NYSE) in 2011. Kraft Heinz Co in 2012 transferred its listing from the NYSE to NASDAQ citing cost efficiencies and brand awareness generated by the NASDAQ billboard in Times Square as key points of appeal. Kraft Heinz Co currently comprises 0.01% of the Fund's portfolio.

? The Fund has a management cost of 0.38% p.a. and an expense recovery of 0.10% p.a., leading to a management expense ratio ('MER') of 0.48% p.a.

The Fund's MER is considered by Lonsec to be reasonable when compared to other US equity smart beta ETFs peers as well as global technology sector ETF peers. Lonsec notes that the Fund does not have any direct peers at present. However, the Fund is more expensive than funds offering a simple beta exposure to the US stock market (i.e, S&P500). Lonsec adds that the Fund offers a differentiated strategy compared to the S&P500.

Using this Fund

This is General Advice only and should be read in conjunction with the Disclaimer, Disclosure and Warning on the final page.

? The Fund is a `long only' US equity product and as such will generally sit within the growth component of a balanced portfolio. Owing to the Fund's concentrated exposure to Information Technology stocks, Lonsec considers the Fund to be suitable for blending with other beta or 'smart beta' funds.

? It is important to note that the Fund's distributable income is derived from a portfolio of listed assets, and as such, distributions can fluctuate as listed companies are not obligated to maintain a certain level of, nor pay, dividends on a regular basis. This is unlike what is normally associated with traditional income producing assets (for example, fixed interest).

Suggested Lonsec risk profile suitability

SECURE DEFENSIVE CONSERVATIVE BALANCED GROWTH HIGH GROWTH

For guidance on appropriate asset allocations and risk profiles, refer to the latest Lonsec Strategic Asset Allocation Review and Risk Profile Definitions on our website.

Changes Since Previous Lonsec Review

? Lonsec notes that there were two recent changes in the portfolio management team. The team added Jessica Leung as an Assistant Portfolio Manager in July 2020, however, lost Luke Sheather as Investment Analyst in August 2020.

? Outside of this, the investment process has remained the same since the prior review.

Lonsec Opinion of this Fund

People and resources ? BetaShares is a specialist provider of ETFs with

approximately $13.0 billion in funds under management (FUM) across 65 exchange-traded products as at August 2020. This includes both active and passive ETFs. ? BetaShares was formed in 2009 with Horizons ETFs ('Horizon') being a strategic shareholder at the time. Post-BetaShares inception, Horizon was acquired by Mirae Asset Management (`Mirae'), a South Korean asset management firm with significant scale. Subsequently, Mirae became a substantial shareholder in BetaShares. Mirae is one of Asia's largest asset management firms with a global presence. Mirae has created over 200 ETFs since 1998. Lonsec considers that this relationship with Mirae ensures that the Fund has appropriate resourcing at the Group level.

Lonsec Research Pty Ltd ABN 11 151 658 561 ? AFSL No. 421 445 ? This information must be read in conjunction with the warning, disclaimer, and disclosure at the end of this document. This report supersedes all prior reports.

ANALYST: NATHAN UMAPATHY | APPROVED BY: PETER GREEN

P 2-7

BetaShares NASDAQ 100 ETF

ISSUE DATE 23-09-2020

? The Fund is managed by an investment team of six in Louis Crous (CIO), Thong Nguyen (Senior Portfolio Manager), Chamath De Silva (Portfolio Manager), Don Hoang (Assistant Portfolio Manager), Jing Jia (Assistant Portfolio Manager) and Jessica Leung (Assistant Portfolio Manager). Lonsec notes that Leung recently joined and Luke Sheather, previously Investment Analyst, has left the team. Lonsec notes that outside of this departure the team has been stable. Lonsec has met with Crous, Nguyen and De Silva on numerous occasions and believes them to be suitably experienced and qualified to oversee this strategy in the Australian market.

? Nevertheless, Lonsec notes that BetaShares currently manage a large number of ETFs listed on the ASX. While the current size of the investment team is growing, the team is still smaller relative to peers with the number of Funds offered. In saying that, Lonsec remains comfortable with the firm's current resourcing given the simple structure of the Fund. The Manager has signalled that will continue to launch new products in line with its strong growth. As such, Lonsec will continue to review the firm's resourcing capacity during future reviews. Lonsec also notes that given the highly systematic approach to portfolio construction, key person risk is considered low.

? The Fund is currently supported by multiple market makers and authorised participants. Lonsec believes this arrangement benefits investors, as it promotes competition and tighter spreads within the primary and secondary markets.

? The Underlying Index is maintained by NASDAQ OMX Group, the same entity that operates the NASDAQ stock exchange. While it is more customary for third parties to calculate indices, Lonsec believes any conflict arising from the NASDAQ OMX Group acting as index sponsor to be manageable.

Investment approach

? Lonsec considers the index methodology to be relatively simple and straightforward. Lonsec has largely held a positive view of this index given it offers a differentiated strategy compared to the more traditional S&P500.

? The Underlying Index provides access to largeand mid-cap US equities and is more focused on capturing the potential growth of US technology companies while excluding the Financials sector. This compares to the S&P500 Index which is used more for beta exposure to the broader US equity market.

? However, Lonsec would caution investors that the Underlying Index is much more diversified than just providing investors with technology-related exposure. For instance, as of July 2020 only 47% of the Underlying Index was allocated to Information Technology.

Overall

? Lonsec has maintained the Fund's 'Recommended (Index)' rating. Lonsec believes the Fund offers investors an efficient means to access NASDAQ 100 Index, a differentiated US equities exposure which provides investors with the growth potential of the US technology sector.

? However, relative to peers that seek to replicate more `mainstream' broad based, market capitalisation weighted US equity indices, the fee load is relatively higher.

People and Resources

BetaShares Holdings was established in 2009 as a specialist provider of exchange traded products. It is 51% owned by Mirae, 46.5% owned by BetaShares' management team and the remainder owned by private investors. Mirae is a Korean based asset management entity with over US$130b of FUM. Mirae is particularly active in emerging market equities and is currently expanding its ETF platform globally. The Horizons family of ETFs has over $30b in assets in ETFs listed across six countries. BetaShares has approximately $13b of FUM across 65 ETF products as at August 2020.

Size and experience

NAME LOUIS CROUS THONG NGUYEN CHAMATH DE SILVA DON HOANG JING JIA JESSICA LEUNG

EXPERIENCE

INDUSTRY /

POSITION

FIRM

CHIEF INVESTMENT OFFICER

19 / 10

PORTFOLIO MANAGER

15 / 9

PORTFOLIO MANAGER

10 / 3

ASSISTANT PORTFOLIO MANAGER

9 / 5

ASSISTANT PORTFOLIO MANAGER

7 / 1

ASSISTANT PORTFOLIO MANAGER

6 / ................
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