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Johannesburg - Experts have called exchange-traded funds (ETFs) one of the greatest financial innovations. So what are they, and what makes them so special?
ETFs are investment products which track the performance of specific indices. They are passively managed, holding almost identical weightings as a particular index, as opposed to funds that are actively managed by a portfolio manager.
For instance, if investors want to track the JSE Top 40 index, they can buy the Satrix 40 (range of ETFs offered by the JSE), rather than shares in every company in the Top 40 index.
Just one of its advantages is that investment costs are much lower. For instance, the cost payable to invest in a Satrix ETF equals 0.4% of the amount invested, where other investment products may cost 1.7% or more.
"I think ETFs are the greatest financial innovation of the past two decades," said international economist at Thebe Securities Lih-Wen Chu.
According to Chu, ETFs' exposure to different indices, cost efficiency and convenience are causing a rapid uptake in the product worldwide.
JSE chief operating officer Leanne Parsons said there were 1 635 registered ETFs available internationally at the end of the first quarter; the JSE offers 26. In the first seven months of the year, the Satrix range of ETFs has seen inflows of R1.3bn.
If you want to invest in ETFs you can do so with the help of a stockbroker, or directly through the JSE (www.jse.co.za).
- Fin24.com
