Page 14 - SHB 2020 Issue 1

FEATURE – ETFs Profile’s Stock Exchange Handbook: 2020 – Issue 1

South African Exchange Traded Funds

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In November 2019, the total inflows into index trackers and To enable alpha generation so that their funds become
exchange traded funds were greater than inflows into active more attractive, active managers are now turning to
funds in Europe. It was the first time passive flows were changing sources of research by utilizing in-house research
more than active flows. This clearly indicates that passive capabilities more and enabling these capabilities better by
investing keeps on getting more popular as an investment leveraging off of new ideas analysts can generate by
vehicle, both among institutional and retail investors analyzing alternative datasets.
globally. With South Africa’s ETF industry turning 20 in Fund managers are also becoming more cost conscious,
2020, this trend is sure to continue on local ground as well. especially following the implementation of MiFID II, and as
Let alone performance, there are several reasons why an such fund managers are looking to implement more
investor would rather choose an ETF over an actively passive solutions for their clients and lower costs by
managed fund. exploring cheaper index providers.
Open-end mutual fund shares are usually only traded once It is clear that ETFs’ popularity is far from reaching an end,
per day after market closure, while ETFs can be traded but with over 70 ETFs available in South Africa alone to
during the day while the markets are open, which is a major choose from, it can be a daunting task to decide on which
advantage. Therefore, investors can buy and sell ETFs when one of these ETFs you will entrust your own or your clients'
they prefer during market trading hours which offers them hard-earned money.
flexibility. This is the reason why Refinitiv remains one of the hosts of
ETFs can also give investors easy access to specific asset the South African Listed Tracker Fund Awards (SALTAs).
classes or styles of investing, such as only investing in A gap in the market to assess and reward ETF providers for
companies that score well on Environmental, Social and their achievements locally, was identified and the inaugural
Governance (ESG) metrics. An example of this is the SALTA awards were hosted in 2018. The awards results are
iShares Thomson Reuters Inclusion & Diversity UCITS ETF. widely published so investors can get a full view of who the
In September 2018, Blackrock collaborated with Refinitiv local top-performing ETFs are across several categories
(back then Thomson Reuters) to launch this ETF which which doesn’t just include total return, but also tracking
gives investors access to companies who score well on efficiency, trading efficiency and largest capital raiser.
diversity and inclusion practices.
The industry’s 20 th Birthday is certainly a reason to
Lastly, the lower expense ratios offered by ETFs versus
celebrate and here’s hoping for another 20 years of growth
actively managed funds cannot be overlooked, especially and prosperity!
for younger investors who are more cost conscious.
The attractiveness of passives is now forcing active
– Franita Neuville, CFA
managers to start implementing new ways of generating
alpha and/or cost savings measures.

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