Copyright© JSE Limited 2008
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27 February 2010
The South African and Global Landscape of Exchange Traded Funds (ETFs)
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What is an Exchange Traded Fund (ETF)?
An ETF is
• an investment product listed and traded on the JSE
• usually registered as a Collective Investment Scheme with the FSB
• tracks the performance of certain underlying assets
• for example:
• a basket of shares,
• a basket of bonds,
• a commodity
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What is an Exchange Traded Fund (ETF)?
These “baskets” of shares or bonds are known as indices, for example:
• FTSE/JSE
Top40; Financial 15; Industrial 25; Resources 20; South African Property Index
• eRAFI™
Financial 15; Industrial 25; Resources 20
• GOVI; Government Inflation-Linked Bond Index
• FTSE 100, DJ Eurostoxx 50; MSCI Japan; MSCI World; MSCI USA
Commodity, for example:
• Gold and oil
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What is an Exchange Traded Fund (ETF)?
An ETF can then be bought and sold just like an ordinary share
The price of an ETF is determined by the demand and supply for the ETF
HOWEVER
Market Makers continuously provide liquidity for buyers and sellers
THUS
ETF prices closely tracks Net Asset Value (NAV)
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What is an Exchange Traded Fund (ETF)?
Example of how ETFs track an index (Satrix 40 ETF vs. FTSE/JSE Top 40)
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
5 000
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
2005/01/31 2006/01/31 2007/01/31 2008/01/31 2009/01/31
J200
STX40
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Global Growth in ETFs
As at year end 2009
• 1,947 ETFs world wide
• Assets of US$1 trillion (+-R7.5 trillion)
• 110 ETF providers on 40 exchanges around the world
• 423 new ETFs launched while 80 ETFs were closed
• Plans to launch 818 new ETFs
Source: ETF Research and Implementation Strategy Team, Barclays Global Investors, Bloomberg
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Global Growth in ETFs
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Global Growth in ETFs
Source: ETF Research and Implementation Strategy Team, Barclays Global Investors, Bloomberg
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ETFs in South Africa
Total value traded as at year end 2009, over R60 billion (buy and sell sides)
Assets Under Management (AUM) now over R20 billion
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 -
10,000,000,000
20,000,000,000
30,000,000,000
40,000,000,000
50,000,000,000
60,000,000,000
70,000,000,000
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Total Value
Total Volume
Total Trades
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ETFs in South Africa
First South African ETF listed on the JSE in 2000
24 ETFs currently listed the JSE with total of 6 ETF providers
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6
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11 1 Top 40 Equity ETFs
Equity Index ETFs
International Equity ETFs
Bond ETFs
Commodity ETF
Dividend ETF
Property ETF
Currency ETFs
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Types of ETFs listed on the JSE
See List of ETFs
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Advantages of ETFs
Diversification
• Exposure to “basket” of shares when investing in one ETF
Low Costs
• “Passive tracking management fees” are lower than “active tracking management fees”
Cash flow distributions (dividends)
Regulation
• JSE and FSB
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Advantages of ETFs
Trading Flexibility
• Can buy ETFs real time, during trading hours (9am to 5pm) at market prices
Liquidity
Securities Transfer Tax (STT) exempt
Hassle Free
• Passive tracking investment that requires little investment research
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Key ETF features to consider
Fees
• Once off trading fee and ongoing management fee (monthly)
Limited share ownership rights
Capital Gains Tax
Exchange Traded Price
• ETF price could vary slightly from the Net Asset Value (NAV) of the underlying fund
Market Risk
• Prices will fluctuate (go up AND down) as the underlying securities’ prices go up and down
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Which ETF will you buy next?
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