Renée Bonorchis
26 April 2007
Johannesburg — AT LEAST another four exchange-traded funds (ETFs) will be launched on the JSE in the next few months, increasing the number on the exchange by 45% to a total of 13.
An exchange-traded fund is a basket of shares that passively tracks an underlying index and is itself listed on a stock exchange. Worldwide they have become popular as investors do not have to hold the underlying asset and they incur less cost while still benefiting from any dividend payouts.
Roger Koep, vice-president of Deutsche Securities in SA, said yesterday that three new Itrix products were planned.
With the two existing Itrix products -- one that tracks the FTSE 100 and another that follows the Euro Stoxx 50 -- investors can trade the world's major indices via their local stockbroker in real time. Next up will be a US fund, a Japanese fund and then a fund that bunches some of the world's major indices together.
The only thing standing in the way of this is final approval from the Financial Services Board.
Perhaps the most exciting option for investors will be another Satrix fund, to be based on the JSE's dividend plus index launched in September last year. Mike Brown, MD of Satrix Managers, said yesterday that the JSE's new index had performed particularly well and that across the globe dividend-paying exchange-traded funds were a "hot area".
To date all of the exchange-traded funds in SA have been simple financial instruments.
"The vanilla funds are recognised and understood, but the next generation will follow soon. SA is at that stage," said Koep from his London office.
In London this week a company called ETF Securities launched five new exchange-traded funds in the market that caused quite a stir, giving investors access to commodities such as platinum, palladium and silver.
While the platinum price rose on the day of their launch, thanks to the anticipated increased demand for the underlying product, Brown and Koep agreed a platinum exchange-traded fund was not possible in SA just yet, despite the country being the world's biggest producer of the metal.
"If we didn't have exchange controls and could have a dollar-based market, we could launch a platinum exchange-traded fund," said Brown, while Koep said that in time there could be different ways to structure such products to make them viable for the local market.
The JSE's nine exchange-traded funds returned an average of 33,8% in the past 12 months with an average dividend yield of 1,56. The best-performing fund was the Itrix Euro 50, coming in at 44,1%. Over the same period the JSE all share index returned 34%.
Brown said one of the fastest-growing funds was the Satrix Swix.
The Swix is made up of the JSE's top 40 stocks, but the resource shares are underweighted.
While resource prices have gone nuts in the past two years, Brown said the Satrix Swix was probably a good choice for those with a 10-year view -- it would cut out some of the volatility that the top 40 usually experience.
There are some critics who say exchange-traded funds can skew a market. Koep said he did not buy the argument and neither did Brown.
"It doesn't apply to equity exchange-traded funds because they are a small portion of the market, but if you take a metal market with tight supplies and exchange-traded funds taking up big parts of that supply, then you can end up with a supply squeeze."
The US is the biggest exchange-traded fund market but Brown said that Europe was fast catching up thanks to its devotion to derivative-type instruments.
SA, said Koep, was still lagging. "SA is a bit behind world trends. We need to educate the investor base. People rely too much on financial advisers, but if you look at the performance and cost benefits, exchange-traded funds should be doing better."
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