WHAT IT MEANS

There are now 63 exchange traded funds (ETFs) and their close cousins exchange trades notes (ETNs) listed on the JSE. Also, it is now possible to build a diversified investment portfolio using nothing but exchange traded products.

They are best known for the equity indices, notably the Satrix 40, which now has direct competition from RMB, Investec and most recently Stanlib’s Top 40 tracker. But investors can also invest in midcap, financial, industrial or resources trackers — even an AltX tracker might soon be on the cards.

Access to all the major foreign markets, including China, the US and the Eurozone is available through Deutsche Bank’s Db-X trackers business, while Standard Bank offers a rest of Africa ETF. There are ETFs for most tastes: a green ETF, the Nedbank Be Green Fund; funds which track fundamental indices; and even copper, corn and wheat funds.

ETF-based portfolios are becoming a realistic alternative to unit trusts or direct investment. Grindrod ETFs head Gareth Stobie says one advantage of ETFs is that they are shares and therefore priced throughout the day — investors are often prepared to pay a modest premium on the fund’s net asset value.

It is not as if ETFs are always going to be average performers. RMB’s Inflation-X Fund was the Morningstar top bond fund of 2012. Mike Brown, who runs the ETFsa website, says these funds are cheaper and simpler to construct than unit trust-based options. There are even fads in ETFs: right now the Satrix Indi, which tracks the JSE industrial index, has had substantial interest and taken business away from Alsi 40 funds. This is on the back of strong three-year returns in the Indi index itself.

Brown was the founding CEO of Satrix, the first exchange-traded funds management company. Satrix is a brand that is still synonymous with ETFs to most of the public.