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BetaShares Australian Small Companies Select Fund (ASX:SMLL) ETF

Key Information

  • Name: BetaShares Small Companies Select Fund ETF
  • Ticker code: SMLL
  • Issuer: BetaShares
  • Management Expense Ratio (MER): search our complete list
  • Exposure: Australian shares - small cap
  • Potential allocation: Tactical

What does SMLL do?

The BetaShares Small Companies Select Fund ETF (SMLL) is an ASX-listed managed fund that aims to outperform the S&P/ASX Small Ordinaries Accumulation Index and provide investors with regular capital growth and income.

What is SMLL used for?

The SMLL fund/ETF aims to provide diversification through a portfolio of 50-100 companies that are typically between the 101-350 largest on the ASX by market capitalisation. This means investors are not being overexposed to the largest 100 companies that they may already hold through other ETFs or superannuation.

What SMLL Invests In

ASX-listed companies are screened by Betashares to identify businesses with positive earnings/profit and a strong ability to service debt.

Take Note

Investing in shares of smaller companies tends to come with increased volatility and sometimes weaker balance sheets. Hopefully, the SMLL ETF’s screening methods can eliminate the weaker performers but it cannot be guaranteed!

BetaShares is one of Australia's largest ETF issuers, by number of ETFs issued on the ASX. At the end of 2018, Betashares had $6.1 billion of money invested in its ETFs.

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BetaShares was founded in Sydney by a group of finance professionals who have a venture capital (VC) business called Apex Capital Partners. BetaShares was an 'in house' investment for Apex but grew quickly as ETFs took off.

Betashares is part-owned by Mirae Asset Global Investment Group, a specialist ETF business which manages nearly $130 billion.

$6b+ invested in BetaShares ETFs

BetaShares launched its first ETF in 2010 but has grown its ETF count rapidly to have around 50 ETFs in the market today.

BetaShares has issued index fund ETFsrules-based ETFs and actively managed funds in an ETF wrapper. To launch its active funds, BetaShares teamed up with Legg Mason and AMP.

A managed fund is a pool of investors' money, which is invested by a professional. For example, 1,000 investors invest $10,000 each into a special bank account and get 10,000 "units" in return. That is, $1 might buy you 1 unit.

Once the money is in the fund, the professional fund manager (which may be an individual, a group of analysts or an entire company, will invest that money. If the investments do well the unit price will increase.

If you had invested $10,000 and the 'unit price' (which is normally published on the fund manager's website) went up 10% (to $1.10 each), your original investment is now worth $11,000 (10% more). You could sell your units (also called a withdrawal or 'redemption') and take your cash.

What Is An ASX Managed Fund ETF?

The major difference between a normal unlisted 'managed fund' and an ASX-listed managed fund is how you get your money in-and-out of the fund.

An Exchange Traded Managed Fund (ETMF) or Active ETF is simply a managed fund which is listed on the stock exchange. The ASX categorises these differently to let you know that they might use a more active strategy than a normal index fund.

Basically, ASX managed funds use an ETF 'wrapper'.

Having a managed fund available on the ASX makes it easy to invest because all you need to do is click "buy" or "sell" in your share brokerage account. 

Are Managed Funds The Same As Index Funds, ETFs, Rules-Based ETFs and Hedge Funds?

No.

Index funds, hedge funds, ETFs and Rules-Based ETFs are types of managed funds. Click the links below to learn more.

Education:

The bestETFs Australian shares sector includes ETFs, managed funds and index funds which cover the ASX and national stock exchange (NSX). It also includes other sharemarket-focused ETFs and funds which may hold investments overseas (e.g. via the New Zealand or US exchanges).

Performance Characteristics

Over the ultra-long-term, the Australian share market has proven to be among the best-performing in the world. We truly are 'the lucky country'.

One of the unique features of the Australian sharemarket is a willingness by companies to pay substantial dividends back to shareholders. We believe this may be a result of Franking Credits.

bestETFs assesses the performance of this ETF against its peer group, which commonly use the ASX 200 or ASX 300 indices as their benchmark. The ASX 200 includes Australia's top 200 companies, ranked by market capitalisation. The ASX 300 includes the top 300.

We believe this benchmark provides the most reliable, consistent and relevant benchmark for assessing this fund/ETF against others in the sector and the market more broadly.

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The benchmark we use to assess the ETF's performance -- and help us determine whether the ETF would be a good fit in our model portfolio -- may differ from the fund's chosen benchmark.

Income-focused / yield ETFs

image showing a bag of money

Income or dividend-focused ETFs place a higher value on shares with large dividend yields or coupons from bonds. For example, a global shares income-focused (rules-based) ETF might only buy shares with trailing dividend yields of 5% or more.

Unfortunately, investors have to be very careful because the dividend income from these ETFs often comes at the expense of growth! For example, some of these ETFs will buy into shares that are 'value traps' and have a high trailing dividend yield for a reason.

Make sure the income-focused ETF you're looking at isn't going backwards by paying you dividends at the expense of growth (hint: look at the NAV or 'unit price' of the ETF over many years). Talk about robbing Peter to pay Paul!

The Australian sharemarket is heavily skewed towards financials (i.e. banks and insurers), resources and property. These companies tend to be 'cyclical', meaning they move in-line with the direction of the broader economy and financial markets.

Note: you should always consult a licensed and trusted financial adviser before doing anything. This information is factual information and should not be considered financial advice.

Some risks to investing in this sector include:

  • Market risk: This is the risk that the performance of the ETF/fund rises or falls unexpectedly day-to-day, month-to-month or even year-to-year. We believe these price movements are unpredictable. Therefore, we believe investing for multiple years is the most prudent way to invest.
  • Home country bias: That happens when you invest a larger amount of your money in local/Australian investments and exclude overseas markets. This may be because it is 'too difficult' or 'too complex' to invest in overseas markets.
  • Concentration: The Australian share market is made up of many companies. However, traditional market indices have a very high proportion of their performance tied to just a few investments, such as blue-chip shares in the financial and resources.
  • Regulatory risk: Australia is a market with a robust financial system. Changes to the rules or laws regarding public investments could alter the performance of ETFs and funds in the sector.

Note: you should always consult a licensed and trusted financial adviser before doing anything. This information is factual information and should not be considered financial advice.

This ETF could be used as part of a 'tactical' or 'satellite' allocation in a diversified long-term portfolio because of its unique strategy, costs, risk-reward profile and the expectation of long-term returns.

What is The Core-Satellite Approach?

A core-satellite approach puts investments into two 'buckets' depending on the expected risk and returns.

Bucket 1: Core Investments

The 'core' is the larger part of an investment portfolio and could be reserved for more conversative investments. For example, this might include diversified, low-cost and easy to understand funds, bonds, shares or ETFs.

If you're new to investing, the core is a good place to start.

Core ETFs might include:

Bucket 2: Satellite/Tactical Investments

The 'satellite' or tactical bucket is the smaller part of a portfolio (e.g. 0% to 30% of your entire portfolio). In this section, investors might decide to take more risk, invest in unique or unproven strategies, buy fast-growth individual shares, etc.

Tactical strategies could be higher risk, higher cost and more complicated strategies that are used in the hope of outperforming the averages (e.g. ASX 200, S&P 500, etc.).

Tactical ETFs might include:

The bestETFs website currently provides free access to a database of Australian ETFs, index funds and (soon) selected managed funds. The website contains factional information only and should NOT be considered a source of financial advice (meaning you should NOT act on the information presented here).

If you are wondering whether this ETF is a good investment, you should speak to a licensed and qualified financial adviser. Alternatively (or in addition) you should always read the ETF's Product Disclosure Statement (PDS), which should be available on the ETF provider's website. The PDS explains some of the risks, the fees and other important information.

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FAQs

What Is An ETF?

Investing in an Exchange Traded Fund or ETF is typically a way to buy a tiny slice of many different shares, bonds or currencies with one investment. Technically, ETFs are 'funds' or legal 'trusts' which allow investors to pool their money together in one place and invest in the same strategy.

Learn more here.

What Is An Index Fund?

An index fund is a type of 'managed fund' which pools money in one place and follows an index. For example, an ASX 200 index fund buys all 200 shares included in the S&P/ASX 200 index maintained by Standard & Poor's.

Learn more here.

What's The Difference Between An 'Active' and 'Passive' Investment?

Traditionally, 'active' investors pick individual stocks they think will outperform the market (e.g. ASX 200 index). For example, an 'active' fund manager would pool investors' money together and invest that money in their best stock ideas.

'Passive' investors are investors who buy into standard index funds, like one that follows the ASX 200 or USA's S&P 500. These are also run by fund managers but they don't use their 'skills' or 'analysis' to pick individual stocks. Instead, they invest in the entire market and investors benefit from the growth of all companies, on average.

What Are Rules-Based Investments?

In recent times we've witnessed the emergence of 'rules-based' or 'smart beta' investment strategies, which are kind of in-between active and passive.

Typically, these strategies use automated rules to invest with strategies covering stocks/shares, bonds/fixed income, currencies, commodities (e.g. gold) and derivatives contracts (e.g. options). For example, a rule might be 'buy this share if XYZ happens' or 'sell that share if ABC is true', etc..

Learn more here.

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