Strong growth in exchange traded products in third quarter

THE SOUTH African exchange traded product (ETP) industry has experienced a strong third quarter this year, with assets amounting to R99.3 billion, an increase of 27.6% since the beginning of the year.

Reporting on the state of the industry – which consists of issuers of exchange traded funds (ETFs) and debt instruments known as exchange traded notes (ETNs) – Mike Brown, the managing director of online ETF platform etfSA.co.za, said a gain of R8bn was made during the third quarter.

This stemmed mainly from a rise in commodity ETFs in issue and from price gains in these products.

Four new ETFs were issued in this period, all of these smart-beta products, which are passive funds that use factor indices to capture performance above that of the market average.

Absa Capital, with its range of NewFunds products, issued three ETFs that manage volatility by switching between cash and equities, depending on momentum and drawdown targets being reached.

The extent of the portfolio adjustments rely on various trigger levels being breached. This formula-driven approach is a first for South African ETFs, Brown says.

CoreShares replaced its Equally Weighted ETF with a smart-beta product, the Scientific Beta Multi Factor ETF, which uses six risk factor criteria to construct its portfolio. As the mandate differs materially from the Equally Weighted Top 40 ETF, it can be regarded as a new product, Brown says.

He reports that there are now 106 ETPs listed on the JSE (78 ETFs and 28 ETNs) issued by 12 separate companies, Brown reports.

The main issuers include:

◆ Absa Capital remains the dominant force in the South African ETP markets, with 26 ETFs/ETNs in issue and with a total market capitalisation of R32bn – close to onethird of the total industry.

◆ Sygnia Itrix remains a strong force, with 10 products in issue for a market capitalisation of R20.5bn.

◆ Satrix Managers remain in third place in the local ETF industry. It has 15 ETFs in issue covering global equity and equity indices. More recently, it has ventured into the area of smart beta, by issuing ETFs covering the investment factors of quality and momentum in the South African equity markets.

◆ Standard Bank has consolidated its position in the top four issuers of ETFs/ETNs in South Africa during the course of this year. It specialises in commodity ETFs and ETNs and now has over R8bn under management with 14 products in issue.

◆ CoreShares, one of the smaller companies issuing ETFs in South Africa, has steadily grown the range of products it issues and the assets it has under management. Market capitalisation for the nine CoreShares ETFs grew from R3.393bn at the end of last year, to R4.406bn the end of last month, a rise of 30%.

◆ Stanlib, the Standard Liberty Group, now has nine ETFs in issue with R3.227bn total market capitalisation at the end of last month.