ETF Investment: Types, Performance and Risk Analysis

Executive Summary
Exchange Trade Fund (ETF) is one of the most popular investment avenues for many across
the world. It is less risk and also provides comparatively good return. ETF is very popular
amongst Australian Investor and generating lots of interest among its citizens.
There are many types of ETF funds are available for investor to choose from, based on need
of the investors. Also, it depends upon risk profile of investor. All given 9 ETF with a few
exceptions has shown high degree of correlation with its associated index. This study is all
about ETF investment and kind of return investor can expect to get from it. This study also
tried to analyse many ETF funds and compared it with index fund and try to give suggestion
to an inventor who wants to invest its hard earn money in ETF Fund.

1. Importance and Introduction of ETF (Exchange traded fund)
ETFs have become popular and widely used investment vehicles. In a world where
investment products come and go with the blink of an eye, ETFs might be considered one of
the most innovative financial products in the last two decades. They have fundamentally
changed how both institutional and retail investors construct their investment portfolios.
ETFs have opened a new panorama of investment opportunities. Essentially, ETFs are index
funds that are listed and traded on exchanges like stocks, allow investors to gain broad
exposure to specific segments of equity, fixed income, and commodity markets with relative
ease, on a real-time basis, and at a lower cost than many other forms of investing.
2. Types of ETFs
There are many different types ETFs are available, including:
 Australian Broad Based ETFs
 Australian Sector ETFs
 Australian Strategy ETFs
 International Broad Based ETFs
 International Sector ETFs
 Commodity ETFs
 Currency ETFs
3. Performance of Australian ETF
i) AUST AU Equity (Beta Shares Managed Risk Australian Share Fund)
Fund Structure
Large Cap Beta share managed, Australian share fund is an exchange traded fund
incorporated in Australia. It was started in October 2015.
Objective
The fund aims to provide exposure to a broadly diversified portfolio of Australian shares,
generally consisting of 200 of the largest equity securities on the ASX. It also aims to reduce
the volatility of the fund’s equity investment returns and cushion downside risk.
Sector wise diversification
Its sector wise investment is given below as percentage:
Bank: 25.23%
Mining: 13.7%
Food: 7.02%
REITS: 6.97%
Biotechnology: 5.75%
Insurance: 4.44%

Commercial Services: 4.24%
Oil & Gas: 3.80%Telecommunication 3.17%
Diversified Financial Services 2.33%
Performance
This fund’s 1 and 3 years return was remained at 5.25 and 6.76% respectively.
Risk Analysis
Tracking error is the difference between the performance of the underlying index and that of
the ETF (Nseindia.com. 2019). Always prefer ETF which has a smaller tracking error
(Meenakshi, S. 2018). Lower the tracking error, closer are the returns of the fund to that of
the target Index. Here in this ETF tracking is at 4.5
ii) ETF - CBDAX GR Equity (ComStage ETF DAX)
Fund Structure
SomStage Etf DAX is a UCITS compliant exchange traded fund established in Luxemburg in
2008.
Objective
The objective of the fund is to track the performance of the DAX index. Dividends included
in the performance of this index. All fund income is reinvested and hence increases the
performance of the ETF.
Sector wise diversification:
Chemicals – 16.3%
Insurance – 12.41%
Software – 9.54 %
Auto manufacturer – 9.46%
Miscellaneous Manufacturers – 8.28% etc.
Performance
It 1 year 3 years and 5 years return was respectably -7.76%, 3.69% and 4.95% and
The DAX is a blue chip stock market index which this ETF track, DAX performance was -
7.89%, 3.96% and 5.20% for same 3 time periods.
Risk Analysis
It tracking error is on bit higher side, it currently stand at 3.232, which indicates that it
performance it deviating from its index DAX of Germany.
iii) ETF - LYXDAX GR Equity (Lyxor Dax UCITS )
Fund Structure

It is an open end UCITS IV compliant exchange traded fund established in Luxembourg. It is
a Large Cap ETF.
Objective
The fund investment objective is to track the performance of the DAX index of Germany.
Sector wise diversification
Its main sector allocation remained like this:
Chemicals 16.3%
Insurance 12.39%
Software – 9.49%
Auto manufacturer – 9.23%
Miscellaneous Manufacturers – 7.83%
Performance
It 1 year, 3 years and 5 years performance remained at -7.82%, 3.70% and 4.92% and index
(DAX) performance was at -7.89% , 3.96% and 5.20% for the same 3 years.
Risk Analysis
Its tracking ratio was at 3.113 which is bit deviation from it index and required to be monitor
by fund manager.
iv) ETF - SH US Equity (ProShares Short S&P 500 )
Fund Structure
It is a large cap passively managed ETF fund from USA.
Its track the performance of S&P500.
Objective
The fund seeks for daily investment results that correspond to the inverse of the daily
performance of the S&P 500 index.
Sector wise diversification
Large Cap of S&P500
Performance
It 1 year, 3 years and 5 years return was at -1.34%, -10.04 and 10.35% for said 3 years and it
index performance was 2.95%, 11.92% and 10.83% for the same 3 years as earlier given.
Risk Analysis
This rate has extremely high tricking error, which is 33.582, which is very high and needs to
be reduced.
v) ETF - SPXL US Equity (Direxion Daily S&P Bull 3X Shares)
Fund Structure

It is a large cap fund of USA and track S&P 500 Bull 3X. It is largely invest in large cap
fund.
Objective
The Fund’s objective it to invest in large cap market. It track the performance of the S&P 500
large cap index. It was founded in Nov. 2008.
Sector wise diversification
Top geographies and industries of world.
Performance
It 1 year, 3 years and 5 years return was at -5.16%, 26.91% and 23.61%% for said 3 years and
it index performance was 2.95%, 11.92% and 10.84% for the same 3 years as earlier given.
Risk Analysis
Tracking error is the difference between the performance of the underlying index and that of
the ETF. Tracking error of ETF is good measures of risk analysis of ETF, smaller the
tracking errors better it are for fund. It latest tracking error was at 32.64.
vi) ETF - SSO US Equity (ProShare Ultra S&P500 ETF)
Fund Structure
It is also a large cap fund and track S&P 500 of USA.
Objective
The fund seeks daily investment results that correspond to twice (200%) the daily
performance of the S&P 500 index.
Sector wise diversification
SPDR S&P 500 –SPY SWA – 15.157
Net other Assets/cash - 10.85%
S&P 500 index SWAP – 7.258%
S&P 500 index SWAP – 6.781%
S&P 500 index SWAP – 5.883%
S&P 500 index SWAP – 4.767%
S&P 500 index SWAP – 4.057% etc.
Performance
It 1 year, 3 years and 5 years return was at -0.81%, 19.60% and 17.73%% for said 3 years and
it index performance was 2.95%, 11.92% and 10.83% for the same 3 years as earlier given.
Risk Analysis
Tracking error, it is the difference between the performance of the underlying index and that
of the ETF. Expense ratio also needs to check before investing. Tracking error of ETF is

good measures of risk analysis of ETF, smaller the tracking errors better it are for fund. It
latest tracking error was at 16.429.
vii) ETF - XDAX GR Equity (Xtrackers DAX UCITIS ETF
Fund Structure
This ETF Fund physically replicated the performance of the DAX Index. It is one of the large
cap based fund.
Objective
The ETF offers direct investment in German equities. Provide exposure to the top 30 blue
chip stocks. This is one of the Xtrackers core funds.
Sector wise diversification
Chemicals 16.3%
Insurance 12.39%
Software – 9.49%
Auto manufacturer – 9.23%
Miscellaneous Manufacturers – 7.90%
Pharmaceuticals – 6.99%
Apparel – 5.37% etc.
Performance
It 1 year, 3 years and 5 years return was at -7.78%, 3.72% and 5.00%% for said 3 years and it
index performance was -7.89%, 3.96% and 5.20%% for the same 3 years as earlier given.
Risk Analysis
Tracking error, it is the difference between the performance of the underlying index and that
of the ETF. Tracking error of ETF is good measures of risk analysis of ETF, smaller the
tracking errors better it are for fund. Always prefer ETF which has a smaller tracking error
(Seeto, T. 2019).
It latest tracking error was at 3.095.
viii) ETF - XIC CN Equity (iShare C ore S&P/TSX Capped Composite Index ETF)
Fund Structure
This ETF growth oriented broad market Fund based in Canada. It was started in February
2001.
Objective
The ETF Fund seeks to provide long term capital growth. The fund invests in shares of the
companies that make up the S&P/ISX Capped Composite index in the same proportion as
they are reflected in the Index (Asx.com.au. 2011).
Sector wise diversification
Banks -22.06%

Pipelines – 8.72%
Mining – 8.60%
Oil & Gas – 7.35%
Insurance – 6.15%
Transportation – 6.00%
Telecommunication – 4.77%
Retail – 3.98%
Electric – 3.69%
Venture Capital 2.80%
Performance
It 1 year, 3 years and 5 years return was at 3.01%, 6.66% and 4.54%% for said 3 years and it
index performance was 3.06%, 6.65% and 4.54%% for the same 3 years as earlier given.
Risk Analysis
Tracking error, it is the difference between the performance of the underlying index and that
of the ETF. Tracking error of ETF is good measures of risk analysis of ETF, smaller the
tracking errors better it are for fund.
It latest tracking error was at 0.820 which is excellent number by any standard.
ix) ETF - SPY US Equity (SPDR S&P 500 ETF TRUST ETF
Fund Structure
SPDR S&P 500 ETF Trust is an exchange –traded fund incorporated in the USA. It tracks the
S&P 500 index. The Trust consists of a portfolio representing all 500 stocks in the S&P 500
index. It is primarily large cap US stocks (ETFdb.com, 2019).
Objective:
The ETF objective is to work as a unit investment Trust and pays dividends on a quarterly
basis. The holdings are weighted by market capitalization.
Sector wise diversification
This fund’s sector wise investments are following:
Internet -9.31%
Software – 8.04%
Banks – 6.14%
Pharmaceuticals – 5.61%
Insurance – 4.09%
Retail – 5.57%
Computers – 5.24% etc.
Performance:
It 1 year, 3 years and 5 years return was at 4.33%, 12.32% and 10.75%% for said 3 years and
it index performance was 4.38%, 12.43% and 10.85% for the same 3 years as earlier given.

Risk Analysis
Tracking error, it is the difference between the performance of the underlying index and that
of the ETF. Tracking error of ETF is good measures of risk analysis of ETF, smaller the
tracking errors better it are for fund (Market Index, 2019). It latest tracking error was at
0.471, which is excellent number by any standard.
Part II
a)
Why ETF?
ETFs are a form of investing that pools your money into a widely diversified portfolio of
stocks with a single investment. They are overseen by a professional fund manager. ETFs can
be an option worth considering for investors who are interested in shares or similar assets, but
are looking for relatively low-cost, lower-risk products that could provide slightly lower and
steadier returns than some other products. This investment product is traded on the share
market and can be accessed with an online share trading platform or through a broker. The
first ETFs to list in Australia were the SPDR S&P/ASX 50 Fund (SFY AU) and SPDR
S&P/ASX 200 Fund (STW AU) on the Australian Securities Exchange (ASX) on 27 August
2001 (Bloomberg.com. 2019).
Provided fund of US $ 100 million invested equally among all the 9 ETF as given in table
below and subsequently its return were also calculated based on Markowitz Portfolio
Optimization (Shane Van Dalsem, S. 2016).
Weightage of all 9 ETF
Portfolio
XDAX GR Equity 0.1111
XIC CN Equity 0.1111
SSO US Equity 0.1111
SH US Equity 0.1111
CBDAX GR Equity 0.1111
SPXL US Equity 0.1111
LYXDAX GR Equity 0.1111
AUST AU Equity 0.1111
SPY US Equity 0.1111
Though, all fund allocated same amount of fund into all 9 ETF, that is 1.111 ratios, but all
have them generated different types of return.
As we can find that SPXL US Equity generated maximum return of 39.82% and SSO US
Equity generated 27.56% return., Whereas, minimum return garneted by SH US Fund, that is
-14.49%, it is the only fund which generated negative return on its investment, second lowest
return was generated by CBDAX GR Equity Fund of 3.83%.
Return on equally weighted
portfolio (ETF)
XDAX GR Equity 5.88
XIC CN Equity 8.52
SSO US Equity 27.56
SH US Equity -14.49
CBDAX GR Equity 3.83
SPXL US Equity 39.82
LYXDAX GR Equity 5.95
AUST AU Equity 4.85
SPY US Equity 14.00