In this interview with Michelle Noth and Chris Eddy from Coreshares by 10X, we learn how a JSE rule change has enabled the introduction of actively managed ETFs into the South African market. Currently delivering 9.9%, the Coreshares actively managed Income ETF is a winner for those seeking high yields without having their money tied up for long periods – or being forced into risky paper. They spoke to Alec Hogg of BizNews.
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This interview discusses the introduction of actively managed exchange-traded funds (AMETFs) in South Africa. The speakers, Michelle Noth and Chris Eddy from 10X Investments, explain that AMETFs provide a new investment option alongside traditional unit trusts. AMETFs allow for both index-tracking and actively managed strategies, providing more choices for investors.
Chris Eddy mentions that 10X Investments aims to offer well-diversified income solutions through AMETFs. These funds provide access to asset classes that couldn’t be indexed before, such as multi-asset strategies. The main difference between an AMETF and an income fund is the way investors access them. While unit trusts are typically accessed through a platform or directly from the fund manager, AMETFs can be bought and sold on the Johannesburg Stock Exchange (JSE) like any other share.
Alec Hogg raises the question of brokerage fees associated with buying AMETFs. Chris Eddy explains that while unit trusts also incur brokerage fees, they are included in the overall fund costs. In contrast, AMETFs have explicit trading costs, providing more transparency and control over commissions and bid-offer spreads. Over the long term, the total investment cost (TIC) of a similar strategy in an AMETF tends to be lower than that of a unit trust due to the aggregation of trading costs in unit trusts.
Regarding accessibility, Michelle Noth confirms that AMETFs can be bought through online share trading accounts or traditional stockbrokers. The lower costs associated with AMETFs and the ability to build a globally diversified portfolio make them attractive to self-directed investors and wealth managers. The interview emphasises the democratization of investing through AMETFs, offering flexible and accessible options for various types of investors.
The discussion then delves into the specific details of the 10X AMETF, which aims to provide a well-diversified income solution. Chris Eddy outlines the allocation breakdown, which includes South African government bonds, inflation-linked bonds, South African credit (excluding state-owned enterprises), global credit (both investment-grade and high-yield), and liquidity. He highlights that the portfolio aims to deliver bond-like returns with less risk by capping the maximum duration at three years.
The interview concludes with a discussion about the appeal of the 10X AMETF to different types of investors. Michelle Noth mentions that wealth managers and self-directed investors are among the interested parties due to the attractive yield profile and controlled volatility. The lower drawdowns and steady yield of the AMETF make it appealing to older investors who prefer stable investments. The risk-controlled nature of the product targets CPI plus two and a half percent returns over three-year rolling periods.
Overall, the introduction of actively managed exchange-traded funds in South Africa expands investment options and provides investors with greater flexibility and transparency.
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