Q: Have you seen any interest in a particular ETF or ETN recently?
There has been a lot of interest in NewGold Platinum (NGPLT)*, a recent- What are ETFs and ETNs? An exchange-traded fund (ETF) is a security that usually tracks an index. The ETF can achieve this by purchasing a basket of assets. The ETF trades like a stock and can be bought and sold anytime while the market is open. ETFs are structured so that the price stays very close to its net asset value ( NAV) – in other words, the value of the entities making up the basket or index. You can trade just about any type of asset using ETFs. Want to get exposure to the Japanese stock market? No problem, buy the ETF that tracks the Nikkei. How about trading gold? No problem, you need not purchase Kruger Rands, just buy NewGold, which is the ETF that tracks the gold price in rand.
ETNs (exchange-traded notes) are a cousin to ETFs and serve basically the same purpose for traders. ETNs also track indexes but there are some indexes where it is difficult to actually buy the basket of assets – it is for this reason ETNs were invented. ETNs are structured products that are issued by major banks as senior debt notes. The return you receive from the note is structured to give you the same return that you would receive if you could purchase a particular index. The main difference between an ETF and an ETN is that the ETN is a debt product whereas the ETF actually owns the underlying assets. There are a number of commodity ETNs listed on the JSE that would give an investor exposure to, including wheat, copper, oil, etc.
JSE listed ETFs and ETNs track equity indices (local and offshore), physical commodities and other asset classes (bonds, property, etc). There is also a shariah-compliant ETF listed that tracks a local shariah-compliant JSE index. ly listed ETF that provides investors with the opportunity to obtain exposure to the rand performance of platinum. What is unique about the metal is that approximately 70% of all platinum is sourced from South Africa and as such any interruption to supply due to industrial action or electricity shortages will positively impact the price. If SA mining production dropped, this would weaken the rand and help this ETF to move higher.
*For more on this ETF, please see Simon Brown’s comments on page 36. Q: What are CFDs? A: The CFD, or contract for difference, is an investment instrument that allows traders to participate in the price movement of securities or indices without full ownership of the underlying stock. CFDs enable investors to leverage an investment through the use of gearing. For aggressive, risk-taking investors, the ability to leverage the investment is a principal benefit of the product.
CFDs can also be used to hedge an existing stock portfolio. Rather than liquidate or sell one’s physical stock portfolio during a period of falling prices or volatile markets. Investors can quickly hedge potential risk by selling the equivalent position using CFDs for a short or long period, thus securing effective protection for their stock investments at little or no cost.