20 ETF facts on 20 years of investment shake-up in SA
Investors pump over R100bn in ETFs since first rand invested in Nov 2000
This year SA's exchange-traded fund industry will mark 20 years in the country, with an almost 30% increase in investments in these listed, index-tracking funds in 2019 alone.
This year the South African exchange-traded fund (ETF) industry will mark the 20th anniversary of the first ETF launched here.
Since the first rand was invested in the Satrix Top40 ETF in November 2000, more than R100bn has been invested in close to 100 ETFs and exchange-traded notes (ETNs) that subsequently launched, according to the latest State of the South African Exchange Traded Product Industry report produced by ETF investment platform, etfSA.
Last year alone there was almost a 30% increase in investments in these listed, index-tracking funds, etfSA managing director Mike Brown says.
ETFs passively track the performance of an index or a commodity and have lower investment costs than funds managed actively by fund managers supported by a research team. ETFs are listed on the JSE, so you can buy or sell them like an ordinary share.
The huge advantage though is that ETFs give you exposure to a diverse range of shares or bonds, making it easy for inexperienced investors to buy into the stock or bond markets.
Over the past two decades, this is how ETFs have evolved to offer you, as an investor, some compelling alternatives to actively managed funds:
- There are 96 ETFs and ETNs offering exposure to local and global equity, bond and listed property markets as well as currencies and commodities.
- There are no investment minimums to invest in ETFs bought on investment platforms like Satrix Now or EasyEquities.
- Costs on ETFs, including trading costs, can be as low as 0.14% a year.
- Over the past 19 years, the oldest ETF, the Satrix Top40 ETF, has delivered a return of 13.52% a year, but underperformed the FTSE/JSE Top40 index by 0.29% a year.
- If you want exposure to the broad SA equity market, you can now choose between ETFs that track the FTSE/JSE Top40, the FTSE/JSE Top40 Swix index (which weights shares after excluding amounts held on foreign exchanges by companies with listings in both SA and other countries) and the S&P Top50, but you can only access funds tracking the All Share index or the Swix All Share as unit trusts.
- Despite this the Satrix Top40 ETF remains SA’s most popular ETF. It has, for two consecutive years been voted the most favoured ETF in a poll run for the SA Listed Tracker Awards. Voting for this year’s awards opens on February 10 at http://salta-awards.co.za/. The ETF with the most votes as well as top performing ETFs over three and five years and the funds that have attracted the most investments will be announced on March 11.
- There are now 25 ETFs that track indices of offshore equity, property and bond markets – some globally and regionally in the US, Europe, Japan or emerging markets.
- You can get exposure to global developing markets in a single ETF that invests in 500 shares listed in the US in the S&P500 index or more than 1,600 shares in developed markets via the MSCI World index.
- Following a decade of strong returns from US markets, the top-performing ETF over 10 years is the Sygnia Itrix MSCI USA, which delivered a return of 19.64% a year.
- The first multi-asset ETFs were launched in 2011 by Absa Capital under the NewFunds brand. The ETFs invest across index tracking portfolios for the different asset classes. The MAPPS Protect has delivered 7.4% and the MAPPS Growth Fund 8.6% a year since their launch, according to their fund fact sheets.
- There are now a few ETF options for investors who need an income from their investments. Satrix, CoreShares and Sygnia all have ETFs that invest in shares that pay high dividends.
- There are now three ETFs focused on the local listed property sector – Satrix and Stanlib’s 1nvest and CoreShares. There are four ETFs focused on the foreign listed property markets – three focused globally and one on the African property market.
- ETFs have evolved to mimic the investment styles used by active fund managers, using rules-based processes designed to select shares that benefit from certain factors in the market – for example, the Satrix Quality ETF identifies shares regarded as quality shares because they have low debt, stable earnings growth and other “quality” metrics. These funds, often known as smart beta funds, also mimic the value, momentum and low volatility styles.
- Managers are now marketing funds that combine factors to enhance performance. Satrix launched one as a unit trust fund, and late last year CoreShares launched the Scientific Beta Multi-Factor Index Fund, an ETF that tracks a customised index of six factors.
- Last year, NewFunds issued three new multi-factor “smart beta” ETFs that aim to prevent drawdowns or falls in your fund value by monitoring the volatility of the shares chosen to represent various factors and to manage exposure to these shares relative to cash.
- Absa’s NewGold ETF was the first of its kind in SA to allow institutional and retail investors to securely and easily invest in gold bullion at a low cost. When it launched in November 2004, it was only the third commodity ETF in the world and was, until recently, the only commodity ETF on the JSE. The fund has returned 14.3% a year since its launch.
- Since 2010, 14 ETNs have launched, offering exposure to a broader range of commodities including oil, wheat, corn and certain currencies. ETN providers, unlike ETF providers, do not necessarily invest in an index or commodity whose price they track. They offer the returns of that index or commodity but can invest in other securities or derivatives, introducing some risk to deliver on its promise.
- Both 1nvest and Sygnia offer ETFs focused on technology shares. The 1nvest ETF delivered 44.92% over the year to December last year.
- Many ETFs are also registered as unit trust funds and many providers offer the same portfolios as either ETFs or unit trusts, enabling you to access them on either share trading or unit trust investment platforms. When you buy an ETF as a share there is a spread between the buying and selling prices, while unit trust fund prices are based on the net asset value of the securities in the fund.
- You can invest in ETFs through retirement annuities or tax-free savings accounts offered by a number of providers, including those who offer ETFs like Satrix, or, on ETF platforms like etfSA, EasyEquities and iTransact.
*This article was first published in our sister publication Business Times.