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Local ETF investors spoilt for choice

As issuers continue to grow the range of international funds.

Over the last 15 months South African investors have seen a significant increase in the number of exchange-traded funds (ETFs) listed on the JSE. A total of 15 new products listed last year, while already another seven have come to market in the first 11 weeks of 2018, and two more have made initial public offerings.

All but three of these 24 new funds offer international exposure. This has primarily been due to the South African Reserve Bank relaxing exchange controls.

Read: SA’s ETF listing boom set to continue

Local investors therefore now have an extensive, and growing range of international ETFs from which to choose. It’s worth unpacking what the funds listed this year are offering:

Read: Are more ETFs a good thing?

STANLIB S&P 500 Index Feeder ETF

STANLIB’s S&P 500 ETF is the fourth fund to list on the JSE tracking this index. It is a feeder fund, which means that STANLIB does not actually track the index itself but invests into another fund that does.

The ETF invests into the iShares Core S&P 500 UCITS ETF, which is exactly the same fund into which the Satrix S&P 500 Feeder ETF also invests. These products are therefore identical, apart from the cost.

The table below compares the costs of all of the S&P 500 offerings on the JSE:

JSE-listed ETFs that track the S&P 500
Fund Annual fee Targeted Total Expense Ratio (TER)
STANLIB S&P 500 Index Feeder ETF 0.20% 0.27%
Sygnia Itrix S&P 500 ETF 0.10% 0.20%
Satrix S&P 500 Feeder ETF 0.14% 0.25%
CoreShares S&P 500 ETF 0.45% 0.44%*

*The CoreShares TER is the fund’s actual current TER, but it is currently subsidised and will increase in future.

Bear in mind that while the cost is obviously a significant factor, it is not the only criterion on which these funds should be judged. It is also important to consider how closely they track the underlying index, as this could potentially be more meaningful than the cost difference. In addition, the Satrix and STANLIB funds automatically reinvest dividends and therefore do not pay any distributions, while the Sygnia Itrix and CoreShares funds both pay out every six months.

STANLIB MSCI World Index Feeder ETF

Again, this fund is an identical strategy to the Satrix MSCI World Equity Feeder ETF that launched last year. It feeds into the iShares Core MSCI World UCITS ETF and also automatically reinvests dividends.

Nerina Visser, ETF strategist and advisor at etfSA, explains that the reason that two issuers would launch exactly the same product is primarily to have them available for their own internal solutions.

“STANLIB, for example, would be servicing Liberty consultants in terms of providing structured solutions or balanced funds that have international exposure, and they would prefer to have their own internal fund rather than an external one,” she explains.

The table below compares the ETFs on the JSE that offer exposure to the MSCI World Index:

JSE-listed ETFs that track the MSCI World Index
Fund Annual fee Targeted Total Expense Ratio (TER)
STANLIB MSCI World Index Feeder ETF 0.20% 0.40%
Sygnia Itrix MSCI World Index ETF 0.60%* 0.68%
Satrix MSCI World Equity Feeder ETF 0.13% 0.35%

*The Sygnia Itrix product offers different fee levels depending on the platform used and the amount invested. The fee shown is the highest possible annual fee payable.

STANLIB S&P 500 Info Tech Index Feeder ETF

This offering offers specific exposure to technology stocks in the US market. The fund feeds into the iShares S&P 500 Information Technology UCITS ETF, which tracks the S&P 500 Info Tech Index.

The stocks in this index are all those in the S&P 500 that are classified as part of the IT sector. It is fairly concentrated, as it is currently made up of just 69 stocks. The largest constituents are Apple, Microsoft and Facebook, with weightings of 15.30%, 12.09% and 7.34% respectively.

CoreShares S&P Global Dividend Aristocrats ETF

The S&P Dow Jones Indices dividend aristocrats strategy has been extremely popular and successful around the world. To be included in this index, companies must have consistently maintained or grown their dividends over a number of years.

This ETF therefore invests in high quality, reliable dividend paying stocks that can be expected to produce a growing income. The ETF covers more than 275 companies across 24 countries.

STANLIB Global REIT Index Feeder ETF

This is the third local fund to be launched to track a global property index. However, while both the CoreShares S&P Global Property ETF and the Sygnia Itrix Global Property ETF track the S&P Global Property 40 Index, this new fund will track the FTSE EPRA/NAREIT Global Reit Index.

The significant difference is that the index tracked by STANLIB is significantly more diversified. It has 477 constituents as opposed to the 41 in the alternative. It is also slightly more exposed to the US market.

Ashburton Government Bond ETF

This was the first locally-listed ETF offering exposure to global bonds. The Ashburton Government Bond ETF tracks the Citi World Government Bond Index (WGBI), which only includes investment grade government bonds.

STANLIB Global Government Bond Index Feeder ETF

The first international bond fund was followed immediately by the second, which listed only a day later. The STANLIB fund feeds into the iShares Global Govt Bond UCITS ETF, which tracks the FTSE G7 Government Bond Index. This is a much narrower index than the WGBI, and includes only bonds issued by the G7 states – Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.

In addition to these funds that have already launched, two more will soon be listed on the JSE.

Satrix Nasdaq 100 ETF

This will be the first local ETF to track the tech-heavy Nasdaq Index in the US. The largest companies in the index currently are Apple, Amazon, Microsoft, Facebook and Alphabet.

AMI Real Estate ex-SA ETF

Launched by specialist African manager, Cloud Atlas, this fund will track a proprietary index that will give investors exposure to the real estate market in the rest of Africa. Its main exposures will be to Egypt, Morocco, Botswana and Nigeria.

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Purely looking at TER when looking at the cost of an ETF is significantly misleading. One needs to view these on an EAC basis. Include monthly/annual charge of brokerage account; trading costs (Brokerage, STT, bid-ask spread) on initial and every subsequent investment and this picture will change significantly. Purely looking at this on a TER basis is misleading to retail investors who would look at the TER of an ETF and think that it is comparable to the TER of a Unit Trust.

Appreciate the article. Might be a good time to invest outside SA?

OK Patrick so you have earned your salary by writing an article. Well done!!!
How useful is this too me? Well “tits on a bull springs to mind.”

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