Smart Betas and derivatives well and good, but ETFs guys, why not start at the beginning?

By Alec Hogg

ETF_ScrabbleGrindrod’s Coreshares hosted its inaugural ETF conference yesterday. I sat in for the afternoon and was suitably impressed at the deepening sophistication of participants in this rapidly developing market. Panellists and the audience were comfortable discussing highly complex investment strategies and portfolio structure. It was a great advert for the First World slice of the South African economy.

But on reflection, I wondered whether in the excitement of rapid growth the nascent ETF sector isn’t missing the big opportunity. GG Alcock estimates Stokvels have around R44bn stashed away in coffee tins hidden in members’ homes. Millions of other South Africans are confused by the stock exchange and need help understanding the most basic ETF like the Satrix 40. Both are obvious opportunities for the people in the room yesterday.

The best place for any industry to start is at the beginning. ETFs have of late been scoring huge gains against active managers, of whom only 20% beat the market last year. Could there ever be a better time for for them to really popularise the concept by taking it to “the people”?

From Biznews community member Peter Urbani

Several years ago I pitched Pick’ n Pay a low cost index fund linked bearer bond type certificate (“Own a share in SA’s top 100 companies”) which would be bar coded (+PIN for security and loss replacement) and redeemable for cash in Pick ‘n Pay at the maximum of the face value or spot price (i.e. principal guaranteed). It was aimed at getting the mass market into the equity market and PnPay would do in-store educational promotions around how many certs you needed for various aspirational items as well as medical and insurance policy type tie ins. They were interested but not ready at the time (2001). These days it would also be possible to guarantee the floor value of such a product so that there would be no risk of falling below the face value for less than 1c per Rand although Pick ‘n Pay would probably have to pick up the cost for that. The 100 index tracker tends to outperform the Satrix40 because you get the benefit of mid sized companies moving into the top 40s momentum as well as more diversification.

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