Publications
Partners
We all know the arguments in favour of cost-effective index tracking products and exchange-traded funds (ETFs), but are South Africans really voting with their wallets? While Absa Capital’s Newgold and Satrix40 products have continued to attract new investment from both retail and institutional investors, there’s little to suggest investors are making a real dent in a market that’s been dominated by actively managed unit trusts.
According to the Association for Savings and Investment South Africa the local collective investment schemes industry (CIS) is rapidly approaching the R1 trillion mark. At end-March this year the CSI had assets under management of R949bn.
There are currently 934 unit trust products registered in SA, although that’s expected to consolidate as new regulations are introduced. By contrast, there are just 40 products which fall into the ETF or ETN (exchange-traded note) sector, 10 of which have been brought online over the past three months.
Mike Brown, MD of etfSA.co.za, says passive products have been slow to make a dent in those markets dominated by active unit trusts. “From 2007 to 2009 there was evidence to suggest passive products were gaining market share, but last year that trend seemed to reverse,” says Brown.
SA’s ETF market is primarily dominated by the well-known Satrix product range, with the Satrix 40 product securing roughly R7bn in assets. Interestingly, the Absa Capital Newgold product has moved in tandem with the surging bullion price and now has a market capitalisation in excess of R15bn.
Apart from the R2,4bn sitting in the Stanlib/Liberty SWIX tracking product, there aren’t many other products that have attracted much in the way of meaningful assets.
Both Brown and Jeremy Gardiner, a director at Investec Asset Management, say investors have shown a preference for multi-asset funds, where a manager will more actively manage the asset allocation.
Typically, the ETF product range hasn’t allowed for much flexibility in that regard, with investors having to do their own asset allocation. Now there are products – such as the new MAPPS range from Absa Capital – that closer fit that mould. Brown says he expects more such products to come online in the future, which will more directly compete with traditional unit trust offerings. One such example is the soon to be launched ETN from Standard Bank, which will give access to retail investors seeking exposure to the rest of Africa. Those would compete head-on with traditional “managed” unit trust products, but at a lower cost.
Rowan Burger, head of investment strategy at Liberty Life, says retail investors continue to favour actively managed products. However, with the introduction of Regulation 28, more institutional managers are using passive products within their portfolios. “For example, institutional investors may like the fundamentals of somewhere like Colombia but don’t have the resources on the ground to understand the underlying investments. So they may opt for an index-tracking product for the region,” says Burger.
One area where he does anticipate growth is in the retirement sector, where investors are particularly sensitive to costs over the longer duration. That’s reflected in the emergence of new products coming to market, including those offered by asset management firm 10X. It has retirement annuity and preservation funds that track index products rather than actively managed ones. David Shochot, co-founder at 10X, agrees the retirement sector provides many growth prospects for passive products in SA.
However, Schocot raises an interesting point: namely, while the decision-making process for retail investors is relatively easy the same doesn’t always apply in the corporate sector. “There are some very powerful gatekeepers out there in the retirement space,” he says.
Shochot points out one of the plusses for employers to remember when thinking of passive products is it’s easy to communicate to employees in a pension scheme that with index tracking there are no managers taking big bets on sectors or trying to time the market. Those are on top of the lower costs. After fees, passive funds typically outperform the vast majority of actively managed funds.
One area identified by both Brown and Shochot is that passive products need to develop sufficient scale to cut costs. “There’s still some room to cut costs, especially when you take into consideration the platform fees that can be levied,” says Shochot.
If the platform fees are taken into account that means investors are losing some of the benefits of low-cost index investing and means they aren’t much more effective than managed unit trust products.
Shochot points to the Deutsche Bank X-Tracker products, which are listed both in SA and overseas. Domestically, these products charge fees on a sliding scale of 60 to 100 basis points. By comparison, overseas products are charging around 45 basis points.
One thing is clear: investors are seeing a proliferation of new passive products coming to market but are still nervous to vote with their wallets. And that’s going to take some significant mind-shifts to push passive products cheaper.
According to the Association for Savings and Investment South Africa the local collective investment schemes industry (CIS) is rapidly approaching the R1 trillion mark. At end-March this year the CSI had assets under management of R949bn.
There are currently 934 unit trust products registered in SA, although that’s expected to consolidate as new regulations are introduced. By contrast, there are just 40 products which fall into the ETF or ETN (exchange-traded note) sector, 10 of which have been brought online over the past three months.
Mike Brown, MD of etfSA.co.za, says passive products have been slow to make a dent in those markets dominated by active unit trusts. “From 2007 to 2009 there was evidence to suggest passive products were gaining market share, but last year that trend seemed to reverse,” says Brown.
SA’s ETF market is primarily dominated by the well-known Satrix product range, with the Satrix 40 product securing roughly R7bn in assets. Interestingly, the Absa Capital Newgold product has moved in tandem with the surging bullion price and now has a market capitalisation in excess of R15bn.
Apart from the R2,4bn sitting in the Stanlib/Liberty SWIX tracking product, there aren’t many other products that have attracted much in the way of meaningful assets.
Both Brown and Jeremy Gardiner, a director at Investec Asset Management, say investors have shown a preference for multi-asset funds, where a manager will more actively manage the asset allocation.
Typically, the ETF product range hasn’t allowed for much flexibility in that regard, with investors having to do their own asset allocation. Now there are products – such as the new MAPPS range from Absa Capital – that closer fit that mould. Brown says he expects more such products to come online in the future, which will more directly compete with traditional unit trust offerings. One such example is the soon to be launched ETN from Standard Bank, which will give access to retail investors seeking exposure to the rest of Africa. Those would compete head-on with traditional “managed” unit trust products, but at a lower cost.
Rowan Burger, head of investment strategy at Liberty Life, says retail investors continue to favour actively managed products. However, with the introduction of Regulation 28, more institutional managers are using passive products within their portfolios. “For example, institutional investors may like the fundamentals of somewhere like Colombia but don’t have the resources on the ground to understand the underlying investments. So they may opt for an index-tracking product for the region,” says Burger.
One area where he does anticipate growth is in the retirement sector, where investors are particularly sensitive to costs over the longer duration. That’s reflected in the emergence of new products coming to market, including those offered by asset management firm 10X. It has retirement annuity and preservation funds that track index products rather than actively managed ones. David Shochot, co-founder at 10X, agrees the retirement sector provides many growth prospects for passive products in SA.
However, Schocot raises an interesting point: namely, while the decision-making process for retail investors is relatively easy the same doesn’t always apply in the corporate sector. “There are some very powerful gatekeepers out there in the retirement space,” he says.
Shochot points out one of the plusses for employers to remember when thinking of passive products is it’s easy to communicate to employees in a pension scheme that with index tracking there are no managers taking big bets on sectors or trying to time the market. Those are on top of the lower costs. After fees, passive funds typically outperform the vast majority of actively managed funds.
One area identified by both Brown and Shochot is that passive products need to develop sufficient scale to cut costs. “There’s still some room to cut costs, especially when you take into consideration the platform fees that can be levied,” says Shochot.
If the platform fees are taken into account that means investors are losing some of the benefits of low-cost index investing and means they aren’t much more effective than managed unit trust products.
Shochot points to the Deutsche Bank X-Tracker products, which are listed both in SA and overseas. Domestically, these products charge fees on a sliding scale of 60 to 100 basis points. By comparison, overseas products are charging around 45 basis points.
One thing is clear: investors are seeing a proliferation of new passive products coming to market but are still nervous to vote with their wallets. And that’s going to take some significant mind-shifts to push passive products cheaper.
