*This content is brought to you by Satrix
By Helena Conradie*
The short answer is yes, and getting cheaper. The long answer, which is far more interesting, is why?
Firstly, what are we asking? Are ETFs cheaper than what? Unit trusts of course. Remember mostly an ETF is a unit trust which trades on the JSE. So the question is, where can I access investing in the market at a lower cost?
We do need to take a quick detour through the difference between active and passive investing before we get onto actual costs. This is important because you as an investor have a choice to invest in either investment style. Or as we like to think at Satrix, you can always invest in both as they have complementary attributes.
Active management relies on a manager to select the right shares, outperform the market and earn the returns you need. With index tracking (passive) you rely on market performance to deliver the returns.
An active manager needs to be very skilled to outperform the whole market and has to be paid handsomely for this (arguably) rare skill. As a consequence, actively managed funds tend to be more expensive than index tracking funds.
Index tracking funds require good systems and excellent quantitative skills to track a market index. They also have many ways to reduce fees especially as funds get bigger and economies of scale around certain costs start to make a material difference to the overall price.
So, now that we’ve established that index tracking is cheaper than active management, you may be surprised to learn that the real costs come in the ACCESS to the fund.
Nerina Visser, Director at etfSA, has a very simple way of explaining access. Think about where you would buy tomato sauce. Your cheapest bet is probably in bulk at Makro. But then you have to buy a lot of tomato sauce. So if you only want one bottle, Pick ‘n Pay or Checkers is probably going to be the most cost effective for you. However, you may not want to travel far, or it may be after hours so now you’re purchasing from the corner café. For this convenience you are going to pay extra and happily so because you get what you want, when you want it.
Index trackers work in exactly the same way. Different access points are costed differently.
As discussed in previous ‘Satrix shares’ articles, we offer both ETFs and unit trusts. Both products track indices. Their costs are virtually the same. A unit trust is priced once a day and is more ‘user friendly’, perhaps because it’s more familiar. An ETF is essentially a share which trades throughout the trading day on a stock exchange. You will need a stockbroker to trade it for you, or a platform like SatrixNOW.
Both vehicles are regulated by the Collective Investment Schemes Control Act (CISCA) for your safety. Both are transparent (you know what is in them) and both are liquid (you can get your money back within a few days should you decide to sell).
While it is difficult to include all the ways you can access Satrix and all the detailed costs, below we have tried to give you a broad and fair idea of where you can purchase Satrix products and what it will cost.
- SatrixNOW – our paperless, online platform where you are able to trade all of Satrix’s ETFs. UTs will be added soon.
- Satrix Investment Plan – a platform administered by AOS where you can invest in Satrix ETFs. A call centre is available to assist you with your investment.
- Stockbroker – this is a traditional brokerage house who will buy and sell ETFs for you.
- LISP – a linked investment service provider is a platform where you can purchase many different unit trusts in one place. This makes administration of your investment simpler. Also, they hold licenses for you to invest in pension fund vehicles too e.g. if you have a retirement annuity (RA) on a LISP, you can buy Satrix Unit Trusts in your RA.
- Direct – this is directly through the unit trust management company so all you would need to pay is the unit trust management fee.
So which access route is best for you? There is no “one size fits all” which is exactly why Satrix offers investors all options. It very much depends on why you are investing, how long you are investing for and how much you have to invest. Once you have the answers to this, it will become apparent which access route is the one for you.
Always keep the following in mind when you are investing…
You know that investing in index trackers costs less. You also know that costs matter, and over the long term, they REALLY matter. And since there’s no performance compromise, an index tracker makes perfect sense. There’s a good reason why global passive investment stands at $3.9 trillion!
As always and till next time, #JUSTSTART.
*Helena Conradie is CEO of SATRIX
*Satrix Managers (RF) (Pty) Ltd is an authorised Financial Services Provider and a registered and approved Manager in Collective Investment Schemes in Securities and an authorised financial services provider in terms of the FAIS Act. The information in this article does not constitute financial advice as contemplated in terms of the Financial Advisory and Intermediary Services Act. Use or rely on this information at your own risk. Independent professional financial advice should always be sought before making an investment decision. Collective investment schemes are generally medium- to long-term investments. Unit Trusts and ETFs the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to it being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The index, the applicable tracking error and the portfolio performance relative to the index can be viewed on the ETF Minimum Disclosure Document and/or on the Satrix website.