This is a new ETF to the MM report, it tracks the ASX 300 but deliberately excludes the 20 largest companies on the ASX, removing the Big 4 banks, BHP, Rio Tinto, CSL, Wesfarmers, Macquarie, and the other mega-caps that dominate most Australian index funds, and investors’ portfolios. The mid-cap domestic economy, where the ex20 is focused, is more sensitive to the rate cycle than the mega-caps; these are companies more reliant on domestic consumer spending, business investment, and housing activity. When the RBA holds or cuts, the relief flows disproportionately to this part of the market rather than to the big banks and miners. Similarly, in the US, the Russell 2000 small-cap Index is far more sensitive to bond yields than the S&P 500.
This is an interesting broad-based ETF with no positions above 3%, it’s a good size (capped at ~$640m), and feels well placed while inflation behaves.
- We see more upside for the EX20 than the QFN ETF, assuming we’re correct on rates, but note it’s forecast to yield ~2.6% over the next 12 months, slightly less than the QFN.
