South Africa’s Exchange Traded Funds (ETFs) are mushrooming as investors snap up exposure to global market indices and assets like gold for as little as R125/month. In 2000, the first EFT was launched. There are now about 105 ETFs and ETNs, issued by about a dozen companies, with more than R90bn invested in these funds. It is the biggest product of its type outside unit trust funds, and is bigger than the private equity and hedge fund sectors. The market capitalisation of the ETF sector jumped by about 20% over the past year. In this interview with BizNews Radio, ETF entrepreneur Mike Brown of etfSA.co.za explains why ETFs are hotting up as an investment option. He picks up on the types of ETFs that are becoming popular, those that are producing tantalising returns for investors and explains how smart beta funds – the sexy new investment option in passive investing internationally – work. If you are looking for investment ideas and want to narrow your choice between more than 100 ETFs available in South Africa, this podcast should be your first stop on the journey to identify an investment vehicle. – Jackie Cameron
By Jackie Cameron
The Exchange Traded Fund (ETF) sector is one of South Africa’s business success stories. At the end-June 2019, the total market capitalisation of all the listed Exchange Traded Products in South Africa amounted to R91,3bn, reports etfSA.co.za. “This implies a substantial increase from the total market capitalisation of R77.8bn at the end of 2018, a rise of 17.4%,” says the independent operator, in a report on the state of the ETF industry.
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In an interview with BizNews Radio, etfSA managing director Mike Brown explains how ETFs work and why they are growing in popularity in the country.
ETFs are investment funds that trade on stock exchanges like shares.
They are a lot like unit trusts in that they facilitate exposure to a basket of shares, so you won’t lose all your money if a company collapses.
In addition, the ETF return is a reflection of the broader performance of the basket of shares, so they allow an investor to ride on the performance of easy-to-monitor stock market indices.
There are more than 100 ETFs from which to choose and these include South Africa-based ETFs that facilitate exposure to global markets – a huge advantage because South Africa still has exchange controls that limit an individual’s ability to invest outside the country.
Brown says it has taken time for South Africans to cotton on to the benefit of these low-cost investment products but that slowly individuals are opting for ETFs rather than products related to life insurance companies.
Also attractive is that ETFs enable investors with small amounts of money, with minimum monthly investment requirements around R125/month, to access commodities and other assets traded on financial markets.
ETFs allow you to focus on different investment drivers, for example some can allow you to invest in momentum stocks – those that have generated high returns for a period, while avoiding those that have been poor performers.
Or you can invest in a basket of stocks with low volatility or high price-earnings ratio.
“So you focus on a specific type of outcome,” says Brown of how you can choose an ETF.
If you are looking for a solid investment, consider an ETF that tracks the top 50 companies on the Johannesburg stock exchange.
