Exchange-traded funds in focus as chapter launch gives women leg up in investment
Iam writing this week’s column in my capacity as a member of Women in ETFs. Strange, you might think — a man writing a column for what appears to be a womenonly club. But stay with me and you’ll see how this apparent paradox plays out.
I attended an exchangetraded funds (ETF) conference at the JSE last week, organised by the entrepreneurial head of CoreShares, Gareth Stobie.
It was an excellent event, with the keynote address delivered by Deborah Fuhr, an acknowledged guru in the ETF arena, from ETFGI in London.
Many statistics show a passive strategy — ETFs and other index-tracking products — outperforms active investing under most conditions.
Generally, the only time this does not happen is when equity markets are falling and the active guys can indeed outperform their benchmarks, even if that just means losing money slower than the index.
Fuhr demonstrated this truism with numbers from S&P Indices Versus Active, showing in virtually all global equity markets, passive beats active over one, three and five years.
One of the biggest advantages of ETFs over active products is their widespread availability, Fuhr says. “ETFs are the only democratic investment product. All types of investors have access to the same product at low cost.
“It’s a level playing field. ETFs are also especially useful in getting exposure to offshore markets such as China, for example, where access to single company research written in English can be difficult,” she says.
In 2016, ETF assets noticeably overtook hedge fund assets in total global value for the first time, even though hedge funds have been around since the late 1940s and ETFs only since the early 1990s, Fuhr said. The US is the leader regarding exchangetraded offerings, with its asset category now making up more than 71% of total value of global ETF assets.
Now touching $3-trillion, the US ETF and associated products market accounts for around 50% of total available assets in that country.
In SA, it is a somewhat different story. While ETFs are growing in popularity, they only account for 2.4% of total local investment assets. What is it about SA that prevents ETFs from flourishing as they do in many other countries?
I may get chased out of town for saying this, but perhaps the fundamental, or even “cultural” answer to this question lies in the macho, testosterone-driven nature of South African society.
“S’African okes” are always up for a challenge and will ignore the mountains of empirical evidence about the benefits of passive investing.
I’m generalising, of course, but women tend to have a higher emotional quotient in the workplace and are perhaps more pragmatic when making decisions. If they think ETFs are the way to go, women may well be more likely to follow that route rather than trying to whistle in the wind and doggedly and repeatedly attempt to reach a different outcome.
Another matter the SA investment community needs to consider is the cost of local ETFs. Although ETF charges in SA are very low compared to those of active management, they are still an order of magnitude higher than in the US.
According to ETF strategist and adviser Nerina Visser, fewer than 20% of the total global investment community are women, while in the passive investment industry, women and previously disadvantaged demographics are more equally represented.
Visser and Fuhr are launching a Women in ETFs chapter in SA. With free membership, and being hugely democratic, it ignores gender, race and age and offers support and inspiration to all those in this still young and developing investment sector.
My membership has just been approved.