One of the peculiarities of South Africa’s financial markets is that there are only around 370 listed companies in the country, but close to 1 600 locally registered unit trusts. The investor choice in the unit trust market is therefore exponentially larger.
Yet it is currently far easier to trade shares than it is to buy or sell units in a unit trust. The adoption of technology by online brokers means that individual investors can buy and sell a wide selection of shares at the click of their mouse. While it is possible to do this on some unit trust portals offered by local asset managers, the selection of funds they offer is always limited.
Emerging stock exchange ZAR X announced this week that it intends to change this. Using blockchain technology, it plans to launch a platform that will allow members of the public to directly buy and sell a wide range of funds.
“We just felt that there is an opportunity here for us to add an additional distribution mechanism to the unit trust market that has never existed before,” says Etienne Nel, CEO of ZAR X. “We saw the chance to add a layer of information and transparency for the investor, and give them ease of transactability.”
Compare and invest
The platform, which will be available on the ZAR X mobile app, will work in much the same way that online share trading does. Investors will be able to view the characteristics of a range of unit trusts, and buy and sell holdings at the touch of a button.
“We looked at the industry and realised that there was a need for a centralised point where someone could go and compare different funds,” Nel says.
“Right now that doesn’t exist,” he adds. “You can’t go a certain point and draw relevant details, choose between different managers, and then at that point actually transact.”
Information about all the unit trusts on the platform will be available on ZAR X’s website. This will allow investors to search by criteria such as the fund manager or fund category, and find details such as fact sheets, fees and historical returns.
“All of that will be published live in real time, so it will make it really easy to compare funds,” Nel says. “You will be able to see all of that in one place, together with historical pricing and graphing facilities.”
‘Free to trade and free to hold’
Although ZAR X has not yet finalised how many funds will be available on the platform, Nel says they are in negotiation with a diverse selection of asset managers to ensure that there will be a good selection when it goes live.
“It will be a broad representation of what’s available,” he says. “We are not excluding anybody. The point of the exercise is to be inclusionary rather than exclusionary.”
ZAR X will also run the platform purely on a pay-as-you-go principle. This could make it extremely attractive to buy-and-hold investors as they will not have to pay ongoing platform charges.
“It will be free to get and free to hold,” Nel explains. “So the app costs nothing to download, and there are no monthly charges. There is only a transaction fee when you trade.”
That will be set at 0.35% of the transaction amount, with no minimum charge.
“We believe in driving financial inclusion, and as a result we can accommodate very small trade sizes,” Nel explains. “There is no real minimum trade size.”
This is another notable differentiator, as every unit trust has a minimum investment amount that it will accept. The ZAR X offering will break down this barrier and essentially open up the market to anyone with any amount to invest.
By making use of blockchain technology, ZAR X is also adopting technology that carries the promise of increasing transparency and reducing costs.
“It makes the entire process significantly more streamlined, because the minute someone registers on the platform their profile gets added to our blockchain, and as soon as a trade is matched and settled the chain updates in real time,” Nel explains. “There is no human intervention, making it very efficient and cost effective.”
ZAR X plans to get the platform up and running before the end of the year.