Great strides for ETFs

Johannesburg - Exchange-traded funds (ETFs) have advanced a great deal since the first product was launched under the Satrix brand in November 2000.

Now ETFs span a range of less volatile investments to highly sophisticated products.

The market for ETFs is still very small compared to the more than 600 unit trusts, in which R783bn is invested. About R30bn has been invested in ETFs.

There are currently some ETFs based on customising the JSE indices and factors other than mere market capitalisation. For instance, the Research Affiliates Fundamental Index (Rafi) bases indices on fundamentals rather than market cap.

There are also indices where weightings are proportionately reduced by leaving the number of foreign shareholders out of the equation. These are the so-called shareholder-weighted or Swix indices.

The latest addition to the array of ETFs is Nedbank Capital's BettaBeta, which invests in the Top 40 index, but no company has a weighting of more than 2.5% in the index.

Mike Brown, CEO of electronic trading platform etfSA, expects about 50 ETFs by year-end. Investment choice will consequently become more complex.

How to do it yourself

If you want to start an investment portfolio, Brown advises starting in simple products, after which other options might be considered.

An index tracking the Top 40 companies gives exposure to the country's 40 prime companies. As you become more proficient you can look at other ETFs, such as those tracking property indices or the gold price, Brown says.

As more ETFs enter the market with more complex concepts come to market, you will require the assistance of a financial adviser.

 - Sake24.com