Johannesburg - Exchange-traded Funds, or ETFs as they're known, have been quietly progressing into a major market option for investors across the globe.
Locally, however, South African investors are only now beginning to make them a key part of their portfolios. Nonetheless, there's a proliferation of new ETF products.
The best-known equity ETF in South Africa is the Satrix 40, which allows investors to buy into a basket of the 40 largest shares on the Johannesburg Stock Exchange.
Owing to the heavy weighting of resource shares in the Top40 index, however, the Satrix 40 has become a proxy for the resource companies and, therefore, does not always provide sufficient diversification.
Over time there have been a variety of other Satrix products listed including the Indi (25 industrial stocks), the Divi (30 best dividend payers), and the Satrix Rafi, which takes into consideration features such as sales, cash flow and company dividends
.Absa Capital has created its own range of new Rafi-styled ETFs as well, but now other asset managers are developing actively managed-type ETF products.
"The growth in the last year has been good, but we're still not as fast as in places like the US," said Helena Conradie, head of sim.smartcore which offers ETF solutions to Sanlam Investment Management (Sim) clients.
"The number of JSE-listed ETFs has grown from one product in 2000 to 25 by the end of April this year," she said. "In addition, there has been a staggering rise in the value of ETFs traded."
From about R222.9m in 2000, this has risen to about R31.4bn last year . In 2010 ETF trade has been equally vigorous, with close to R10bn already changing hands by the end of April.
Investors are looking at ETFs that not only track indices, but involve a bit of outperformance as well, Conradie said.
Recently Nedbank launched the Nedbank BettaBeta unit trust which holds 40 blue-chip companies, determined not by market capitalisation but by an equally weighted 2.5% exposure to each of the 40 index companies. These require more active management than ETFs which simply track an index.
The product has been well received by the market.
"What is important, is that the increasing selection of ETFs available to the investment community enables investors to choose from a spectrum of more conservative products," she said.
"Some combat volatility while others offer the full growth momentum of any market recovery," said Mike Brown, MD of ETF trading platform etfSA.co.za. He was commenting in a recent note to clients on the characteristics of the new Nedbank product.
"I suspect we are going to start seeing other actively managed asset classes packaged into ETFs," said Sim investment analyst Robert MacDonald .
However, MacDonald and Conradie agree that these newer "active" ETFs won't divert investors from traditional, actively managed investment products like unit trusts.
"They are different target markets and unit trusts are still a viable tool for investing," said MacDonald.
- Fin24.com