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How to buy offshore stocks on the JSE

FNB has launched a single-stock exchange-traded note on the local bourse.
Image: Moneyweb

A while ago, I wrote ‘How to fix the JSE’ where I highlighted what problems the JSE is facing and I offered a range of solutions.

One of these solutions was to offer the South African equivalent of an ‘American Depository Receipt’ (ADR) and list single stocks of major offshore groups on the JSE (in other words, a Joburg Depository Receipt or a ‘JDR’).

While this is not quite what has happened (it still might happen, legislative willing!), FNB has quietly launched a single-stock exchange-traded note (ETN) on the JSE.

You can find the entire list and their respective pricing supplements here under the ‘Exchange-traded notes’ title.

Let me explain these notes simply:

  • ETNs are notes guaranteed by the issuer’s balance sheet, in this case FNB (i.e. top-quality domestic credit risk).
  • These ETNs each track a single identified stock (see list below).
  • Unlike exchange-traded funds (ETFs), ETNs do not hold the underlying stock, hence this claim back to the issuer’s balance sheet creates counterparty in addition to all the normal risks of the stock being tracked.
  • For some reason, FNB has structured two notes for each single stock. The one ETN (ending with a ‘C’ in its code) has no currency hedging in place and costs 1% per annum. The other ETN (ending with a ‘Q’) has hedged the rand against future movements and costs 0.0% pa (I will explain how this is expensive later).
  • These notes are market-made on the JSE and, thus, you can trade into them from any JSE brokerage account, irrespective of whether you are an FNB customer or not.
  • Finally, all notes have an expiry date. These notes all last for five years, with five-year renewable clauses for a further 10 years (maximum life is thus 15 years). When they expire, the notes will pay out the cash value of whatever the underlying stock is (though, note the counterparty risk highlighted above in the unlikely scenario that FNB defaults).

The current list of individual stocks that FNB has issued these single-stock ETNs for are:

  • Alphabet Inc, Class A
  • com Inc
  • Apple Inc
  • The Coca Cola Co
  • Facebook Inc, Class A
  • McDonalds Corp
  • Microsoft Corporation
  • Netflix Inc
  • Tesla Inc
  • Activision Blizzard Inc
  • Adobe Inc
  • Berkshire Hathaway Inc, Class B
  • Ford Motor Company
  • Goldman Sachs Group Inc
  • JP Morgan Chase and Co
  • PayPal Holdings Inc
  • Visa Inc, Class A

Just a note about how the currency hedged ‘Q’ notes that cost 0.0% per annum to hold are in fact expensive:

When you hedge a low interest currency into a high interest currency, you earn the interest rate differential. The US 10-year bond yield of 1.5% is materially lower than our domestic 10-year bond yield of 8.6%. Simplistically, you can borrow USDs at 1.5% and park those USDs into a 8.6% yielding ZAR investment, earning a ‘free’ 7.1% return (ignoring transaction costs and other realities).

FNB is effectively pocketing this interest rate differential through hedging the ‘Q’ notes. Thus, FNB need not charge a management fee here as the net interest differential on this hedge is likely larger than the ‘C’ notes 1% pa management fee!

Finally, while these ETNs are nice and innovative, they are not quite the ‘JDRs’ I envisioned. ETNs have plenty of flaws that JDRs would not have. That said, well done to the FNB team for launching these and I look forward to many more stocks being covered (both by them and competing offerings!).

Keith McLachlan – investment officer at Integral Asset Management.


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Which moron would buy an ETN? You will never own any part of the company and you will NEVER earn any dividends.

Please don’t waste your time on this, all sharks.


I have been sceptical since I heard about this.

As long as I am not in control of the underlying… i would think twice…

from prior experience….I would not TRUST FNB for 1 second

Keith will shill anything.

Near expiry date they can always manipulate the market and make the stock index fall and pay you less than what you invested. Stay far away from etn only benefits the bank.

yeah, imagine being so naive to think that a tiny bank in a back water country can manipulate a stock to screw over a little retail investor. They probably have hundreds of investors with expiring investments every day. Going to be busy.

Grow up. Your pocket change savings are simply not worth it.

Haha – who in his right mind wants to exchange a high yielding currency (ZAR) for a low yielding currency….also beware of these so-called ”ADR” type investments.

Methinks the Randgold-gate where Investec-gate ended up with stolen R&E shares – R&E share certificates changed to ADR (hiding the true identity of legitimate owners of the shares)-0 should be a major caution here!

Looks like a nice clean way go hold stocks in quality companies like Netflix, Tesla. Microsoft, Amazon, Berkshire, Apple, JP Morgan etc.

How do FNB protect themselves against any of these stocks going through the roof? Do they hold the underlying shares anyway, even though they’re not directly linked to the Notes they issue?

Why would anyone buy these to get exposure to these stocks. Just sign up for an EasyEquities account, transfer funds into the USD account and buy those stocks directly. Don’t have enough moola, ( 1 x Amazon share at $3300 or almost R50 000) no worries, you can buy fractions of shares….

because exchange controls: you can only use 1m zar per year without the lengthy application at sars to top up – also Easy Equities sucks – doubles are terrible and fills patchy – no thanks

Seems to me these ETNs offer options than an EasyEquities account cannot. Here, in addition to betting on the underlying equity – say Amazon – you can also bet on the Rand at the same time. If you think the Rand is going to strengthen, buy Amazon in weak rands and get paid out later in strong rands – the ‘Q’ class notes. If you think the opposite – the Rand will weaken – buy the ‘C’ note that will use the prevailing exchange rate on maturity. I think all notes started life at R10.00 per note. Looking at prices now (I arbitrarily picked Buffet’s Berkshire) the ‘C’ notes jumped 2.57% to R12.36 today as the Rand weakened. They’re still behind the Q notes for Berkshire – because the Rand, even at R14.11 – is stronger than it has been for a while. So if you believe in Berkshire / Tesla / Netflix, but you also think the Rand will keep strengthening, I don’t know of other instruments that can give you that combination…

spoken like a sub-R1M investor.

FNB sees dollar signs! They want to cash in on the feeding frenzy in the global stock markets. Just another confirmation of the current level of greed. Just imagine what will happen to stock markets when reality finally sets in and then exit door becomes too small for speculators to exit!

Why not buy a USD ETF from Easy Equities?

Exchange controls for more than a million.

End of comments.



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