This podcast is brought to you by Satrix, a leading provider of passive investment products in South Africa.
Understanding the vehicle you are investing in will help you make better investment decisions. Satrix explains the differences and similarities between unit trusts and ETFs so you know when to choose which one.
Tim Modise is speaking to Candice Paine of Satrix. Thanks for joining us Candice, to talk about the Satrix Unit Trusts in relation to Satrix’s ETFs. Welcome
Thanks for having me, Tim.
The pros and cons of both: please tell us.
At their essence, an ETF, which is an Exchange Traded Fund and a Unit Trust, which is a collective investment scheme are both funds. They’re both collective investment schemes. They’re both regulated by the FSB. They’re both pooled accounts, so that means many people pool their money together to gain access to the stock market at a lower cost. Once you understand that, it really does come down to access. How you’re going to be investing either in an ETF or in a Unit Trust. If you have the Satrix Top 40 Unit Trust or the Satrix Top 40 ETF, the outcome is going to be exactly, the same from a performance perspective. Traditionally, ETF’s (Exchange Traded Funds) have been used by professional investors and the reason I say this is because they trade like shares on the stock exchange. Professional investors had stockbroking accounts or they are running large portfolios where they need to be able to trade throughout the day and hence, they would be the ones buying an Exchange Traded Fund. Your longer-term investor or your retail investor – the man in the street – who doesn’t need to trade daily, doesn’t need to look at the price in the morning and at lunchtime and make decision (they really are ‘buy and hold’ investors) are usually more comfortable by going into Unit Trusts. The only difference between the Unit Trust and the ETF is that the Unit Trust price is once a day after the close of the Johannesburg Stock Exchange, while the ETF is trading continuously throughout the day.
What about access to these funds? If you have subscribed to one or the other…
With your ETF (as I said previously), you need to have a stockbroking account to access the ETF and you actually, given an instruction to the stockbroker to buy the ETF on your behalf. For that, you’d pay a brokerage fee for the trade. One of the other costs that involved in that sort of access is an exit fee because it’s another trade when you decide to sell out of the ETF. With the Unit Trust, there are a couple of ways that you can access it: (1) directly, through the Unit Trust MANCO. You simply buy into the Unit Trust and hold it or (2) through what we in the industry call a LISP (Linked Investment Service Provider), which is pretty much an administration platform that would offer a Unit Trust. There you would pay a fee for the administration platform, but you’d also pay the underlying management fee to hold the Unit Trust. Those are the different access routes. One of the other access routes that Satrix set up historically was the Satrix Investment Plan. The reason they did that was that if you’re going to have a stockbroking account, you usually need quite high minimums (R100K to R250k). The Satrix products really are a product for every man. In order for us to be able to offer the product at R300 debit order per month for example, they set up the investment plan, which then groups your money until you have enough to buy units in the underlying ETF and for that, you’d also pay. You pay for access and you pay for the underlying Fund and it really depends on what your time horizon, what type of investor you are, and which access route you want to use.
We’re talking about time horizons. What’s a reasonable time horizon?
Most of Satrix products are equity-based, meaning they invest in the stock market in various ways, shapes, or form. If you’re going to be investing in equities – a minimum of five years/seven years maximum. The stock market is a long-term game. It’s not a ‘get rich quick’ scheme.
And this applies to both the Unit Trusts as well as the Satrix ETF.
It applies to both the Unit Trusts and the ETF’s. One of the difference there is that within the Unit Trust range, there are two balanced portfolios. What that means is that they have a lower equity rating. The one is a balanced index fund, which has 75 percent in shares – that could be offshore and local. The other one is a low equity offering, which has a maximum of 40 percent so you can see that the risk has been brought down in those two Unit Trusts. There, you may be able to shorten your time horizon from an investment point of view. Investing is for the long-term, though. Trading is for the short-term.
Candice Paine of Satrix: thank you very much.
Thank you, Tim.
See also:
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