SA’s exchange traded funds (ETF) industry is experiencing a purple patch with its market value surging 29% in 2023, ending the year at about R160bn, an increase of R36bn from a year earlier.
According to economist Mike Brown, this is a record for the index tracking exchange traded products (ETPs) on the JSE and the biggest realised since the first ETF was listed in SA in 2000.
ETFs are pooled investments that operate much like a unit trust but can be bought and sold on a stock exchange in the same way as equities. The products have become popular among retail investors as they offer the diversification benefits of unit trusts and are traded with the same ease as stocks.
Brown said the R36bn increase in the market capitalisation of the industry was driven by a strong recovery in global equity indices.
“Global equity indices recovered strongly in the second half of 2023 — the MSCI All-World Index, for instance, increased by 30.8% (in rand terms) over the course of 2023, so the market value of many of the ETFs listed on the local exchange benefited significantly from the market gains,” Brown said.
“New capital can be raised, or redeemed, for ETFs, which are open-ended and can be creates or delisted, at any time. Such listings actively raised R10.2bn during the course of the year, a fact which is not always realised by critics of the JSE who point to the consistent delistings by corporate issuers on the market.”
The biggest participants in the industry are Satrix, Sygnia and Absa. Satrix alone has R52.3bn worth of ETFs under management.
Despite selling most of its ETFs to Satrix as part of the sale of Absa Asset Management to Sanlam, Absa still the number three spot in the industry.
“However, its product range is limited, only focused on the volatile commodity markets and its future strategy will be awaited with interest. Strong competition exists for the next spot in the issuing house league table. 10X, formerly CoreShares, has moved into fourth position, just ahead of FirstRand/FNB,” Brown said.
“10X was the most successful of the 10 investment companies issuing ETPs in terms of raising new capital last year (R5.3bn). The emergence of a dynamic company that has a close relationship with Old Mutual adds significant energy to the ETP industry, and their further progress in 2024 and beyond will be followed with interest.”
Global investment manager PortfolioMetrix this week launched its actively managed exchange traded fund (AMETF), the PortfolioMetrix Active Income Prescient AMETF.
Philip Bradford, the company’s head of investments for SA, said the fund will predominantly invest in interest-bearing securities (bonds) and aims to achieve a high level of sustainable income while also prioritising capital preservation.
“The decision to offer the portfolio in a listed version was made against the backdrop of huge investor demand for high-income paying investments as well as SA’s shrinking equity market but flourishing bond market,” said Bradford.
“Professional and retail investors simply can’t buy most of the instruments we hold in the fund. There are over 2,200 bond instruments listed on the JSE, but availability and liquidity are limited to specialist institutional investors. This ETF gives investors easy access to the full range of instruments available; for example, the higher yielding bonds issued by SA’s major banks.”
Adèle Hattingh, business development & exchange traded products manager at the JSE, said the listing shows the sector is growing.
“We are pleased to welcome PortfolioMetrix’s AMETF to the JSE. This listing reflects the growing demand for diverse and innovative investment options within the SA market,” Hattingh said.
“Today’s listing highlights a significant milestone in the ETF market as it marks the 100th ETF to list on the JSE, boasting a market cap of close to R150bn. This demonstrates that ETFs continue to be an integral part of many investors’ portfolios and remains an attractive and diverse opportunity for both seasoned and novice investors.”
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