THE OUTLOOK It’s a fair exchange

The number of ETF investment options keeps going up and interest is growing

In spite of their advantages, ETFs have attracted just R50bn in SA, compared with R1,4 trillion in unit trusts.

More than half of this is accounted by two Absa products, New Gold (R17,4bn) and New Plat (R11,2bn). These ETFs invest directly into gold or platinum bullion which is held in storage on behalf of clients. New Gold is also available on the Botswana, Nigeria, Ghana and Mauritius exchanges.

The other giant fund is the R8,6bn Satrix 40, the original ETF on the JSE. But there are numerous subscale funds such as the R12m New Funds Swix and the R9m Rafi Resi. But volumes should increase as more convenient ETF-based products are launched.

Brown offers clients a model portfolio of ETFs that can be wrapped in an ETFsa retirement annuity, which was launched in September. The all-in cost of the wrapper, multi-management and underlying fund costs is 0,35%. “Intermediaries have indicated that they want a passive option, but don’t know how to put together a basket of ETFs,” he says.

The iTransact platform, which houses Brown’s fund, also offers a retirement annuity (RA) based entirely on ETFs, mainly through intermediaries.

Brown is considered the godfather of ETFs. Investors through his RA will be able to access a blend of ETFs intended to give a return of CPI plus 3%, 5% or 7%.

These blends will be put together by Nerina Visser and her team at Nedbank Capital. She says there is a lot more potential from these blends than from the two Nedbank-sponsored unit trusts, BettaBeta (an equally weighted Top 40) and Be Green, which have less than R300m between them.

Be Green has a niche appeal and is also sold through Nedbank financial planners with a guarantee rolled into the price. It rates shares based on their carbon disclosure ranking. “One day it would be useful to offer a full environment, social and governance (ESG) fund, we focus on the ‘E’ right now,” she says. But she says there is no doubt that environmentally responsible business also provides better returns to shareholders. Gareth Stobie One advantage of ETFs is that they are priced throughout the day

Nedbank is exploring a fixed income version of Be Green.

In the blended portfolios Visser will keep it passive by sticking to asset allocations, though some drift will be permitted if there is no compelling need to rebalance the portfolio.

Both ETFsa and iTransact plan to offer living annuities (for post-retirement investment) once companies other than life offices are permitted to offer them.

Yet ETFs hardly feature on the established investment platforms such as Glacier and Galaxy. ETFs are shares listed on the JSE and, unlike unit trusts, they are not set up to pay commission to intermediaries. Investors with sums of R1m or more can invest through a stockbroker, paying 0,1% brokerage.

Brown says few financial advisers are licensed to sell notes and debentures, meaning few can buy exchange traded notes (ETNs). ETNs are seen as a promise from a bank to replicate an index, they are not collective investment schemes. Unfortunately, many of the most interesting exchange traded products are ETNs, such as the Standard Bank commodity funds and the