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Shares for all seasons

Jun 22 2010 08:42
Financial advisors will admit – privately, at least – they’re increasingly running into ETFs in “their space”: their space being unit trust funds or life insurance products where they generally earn higher commissions.

But for intermediaries ETFs have become a fact of life and the popularity of these passive index-tracking vehicles is growing rapidly.

Some advisers acknowledge that, says Mike Brown, MD of ETF trading platform etfSA.co.za, and have signed up on his platform.

Brown is “Mr Satrix” – the Godfather of ETFs in South Africa.

He launched the first ETFs here in conjunction with the JSE as a shareholder almost 10 years ago.

His obvious passion and commitment to ETFs as the low-cost passive index-tracker for investors has continued ever since. He now heads his own company, allowing investors online access to the suite of Satrix ETFs and others listed on the JSE.

ETFs and unit trusts often come head-to-head.

ETF or Unit Trust?

Active managers demand higher fees and can beat the market or a predetermined benchmark.

Brown counters that most don’t over the long term, while ETFs will give investors the index they follow at a far lower cost, which in the end adds to the total return.

“Is the risk of buying a high cost, non-transparent unit trust worthwhile – most unit trusts don’t publish their current portfolios for competitive reasons – when ETFs provide a completely transparent alternative, the index components are know at all times?” he asks.

Brown also questions why investment advisers tend to focus on actively managed funds for their clients when passively managed ETFs often provide superior performance.

Gerhard Lampen, who heads the online portal Sanlam iTrade, says demand for ETFs is increasing.

“It’s mainly the Satrix ETFs, such as the Satrix 40, though I think the most popular is NewGold.”

Unlike other ETFs, NewGold doesn’t track an index but the physical rand price of gold.

Investors gain exposure to the value of gold through gold bullion debentures backed by physical gold.

“I think NewGold has taken away the allure of gold mining shares. Investors don’t have to worry about strikes or deeper, more dangerous and more expensive mining,” Lampen says.

He’s picked up a trend on Sanlam iTrade where smaller investors who can’t afford a diversified share portfolio gradually invest in an ETF, such as one of the Satrix Rafi products.

“When they’ve built up R50 000 to R100 000 then they sell the ETF and buy individual shares.”

ETFs serve many investment purposes: long-term savings, short-term trading and shorting an index.

“When the market crashed last year we saw some big clients come in, buy Satrix 40 and hedge it with a put warrant. iTrade offers investors comprehensive control over ETF investments,” says Lampen.

As long as ETFs remain this versatile and low-cost their popularity with investors must increase.

 - Finweek
 

sanlam  |  mike brown  |  invest  |  etfs
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