A confusion of choices
It was simple in the days when there was one reputable index tracker, Satrix 40, and it was the only exchange traded fund (ETF). Now R84bn is invested into 97 ETFS and their close cousins, exchange traded notes (ETNS). Many people are put off because ETFS have to be bought through a stockbroker, and are intimidated by the walnut panels and fob watches which populate the classic stockbroker’s office. This is changing now that more relaxed shops have opened, for example Easyequities from the Purple Group.
And ETFS are rarely available on the linked investment platforms through which almost all financial advisers invest. ETFS at least are considered collective investments but few financial advisers are allowed to sell ETNS.
This is no bad thing. While it is compulsory for ETFS to replicate an index, holding the shares in exact proportions, an ETN is just a promissory note from a bank to give the relevant return. They can provide a much wider range of options than standard ETFS — Absa and UBS have recently launched four notes which track actively managed portfolios, without actually investing in them.
Deutsche Bank once had an effective monopoly on foreign equity ETFS: clients could buy them without using their foreign-exchange allowance.
When Sygnia bought these funds it could surely not have been hoping to keep the monopoly. Ten of the 12 new ETFS in the nine months to September track foreign bond and equity indices.
I am just sorry that Gareth Stobie at Coreshares has been forced to close his Low Volatility fund, a commercial flop. There have been some quite sharp capital flows this year. Absa has had outflows of R7.5bn, Standard Bank R2bn. Sygnia’s Magda Wierzycka was a late convert to ETFS but now runs the most successful ETF shop, which gathered R1.8bn. Even Satrix, with the best brand in the sector, gathered only R1.1bn. Wierzycka launched her R317m Fourth Industrial Revolution Fund in December 2017 (a phrase not then in common usage). There are already enough ETFS to build a series of wrap funds. Lance Solms of itransact already provides what most investors need with his sensibly constructed range.
Conduit to bullion
The commodity ETFS are not considered collective investment schemes as they are simply a conduit to buy bullion. (Foord has a constant 3% exposure to commodity ETFS in its balanced fund).
So far this year R9.5bn has been pulled out of these funds, about twothirds from the Absa Newgold ETF.
This coincided with good performance from these “funds”.
Commodity trackers comfortably beat most local and international ETFS. Nerina Visser from etfsa tells me there are conflicting signals in the commodity market, with the Trump trade wars, Brexit and the slowdown in China.
Visser says tactfully that Absa and Standard Bank are not doing enough to educate investors about the benefits of holding commodities. It’s all about poor marketing, but no doubt Visser will educate clients on ETFS for them at a suitable rate.
Investors have become fed up with the endless discussions about the mining charter and instinctively see precious metals as a sector in decline, but reduced supply can only help physical metal prices.
It would be good to see more independent players in ETFS: Coreshares and Sygnia are the bigger boutique players. Cloud Atlas, with just R18.5m under management, is worth watching as it specialises in African funds.
Sygnia’s Magda Wierzycka was a late convert to ETFS but now runs the most successful ETF shop