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ZAR X to launch innovative unit trust platform

The offering will charge no ongoing fees.

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.

Accessibility

“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.

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“Exponential” is the new buzzword. Exponential has a specific mathematical meaning, but it is now used to denote anything large, and thereby make the writer sound mathematically literate. The number of unit trusts outnumbers that of listed stocks by a factor of 5. Simple. Nothing exponential about it.

Advisors aren’t there because they are mathematically literate.

They are there to wow prospective clients into buying their thieving products.

After all, FAs and their ilk are no more than commission sales people. they don’t have to be numerate. At least, nothing beyond telling if one number is larger or smaller than another.

The author of this article doesn’t have a good command of mathematics but rather the use of hyperbole . Ironically Patrick’s articles have “exponentially” gone down in quality in the last year.

Those with slightly longer memories will recall Equinox. It was excellent. Sadly, for its customers at least, it was taken over by PSG & systematically destroyed. Hopefully ZAR X can emulate, or better, the Equinox offering.

Great that things get cheaper and easily available.

It is a vast number of funds to screen to find which 10% will beat a particular index though.

In the States migration seems to be towards ETF’s though. In August the US ETF industry broke through the $4 trillion mark. Europe closing in on the $1 trillion mark. Many just simple index tracking ETF’s.

We have these available locally but the uptake seems pedestrian at best.

Is SA a little behind the curve? This could be because of our dependence on Asset Managers selling us their unit trusts?

In other words South Africans might be a little illiterate financially.

….so true on local uptake of etf …but perhaps it’s the low variety of the big international etf houses such as Vanguard, Blackrock, Fidelity or Spyder

I decided international platforms like DeGiro.ie give these choices for South Africans wanting a larger variety

Unit trusts invest in a lot more instruments than the 370 odd listed companies in SA. Bonds ,cash,derivates ,offshore ,metals ,etc.
The 1600 unit trusts are probably being double-counted anyway to some extent – different fee classes of the same fund.
The thing to understand here – is 0.35% upfront cost worth it when you can likely access the fund on another established platform for no upfront fee?
If they can move the industry toward NOT filling in a form each time you transact they deserve success.

Its about time! The average S.A investor has been dictated to by the big industry players in pricing, fund choice and/or sales driven targets to achieve their own corporate agendas. Its about time the man in the street can get real value in pricing, choice etc
Thank you ZAR X, we will see how people vote with their feet…

Great initiative that will undoubtedly get push-back from LISP’s and other Fund linked platforms.

ZAR X is bringing its T+0 exchange technology and pricing to the CIS industry and removing costly intermediaries which is long overdue. Looks like ZAR X will be fund manager agnostic although I would suggest some sort of fund DD in a similar manner in which listings are screened as there are way too many funds.

The great thing here is that I can access a fund directly through their Mobi App which includes a digital FICA solution. No paperwork. All I pay is a once off fee of 35 bps on execution. with no other hidden broker fees, monthly administration fees or platform costs. The Collaborative Exchange produced an interesting report on platforms which included their fees.

It will be interesting to see how this develops vs ETF’s. ETF’s were devised to trade like a security (with its low execution costs) to avoid the fee intensive CIS industry. To do so an ETF had to subject itself to the historic T+3 settlement cycle of exchanges and appoint a market maker to quote a bid/offer (which in most cases adds little value). The biggest weakness of an ETF is the tracking error. So if I can buy a unit trust through an exchange at NAV at T+0 with guaranteed liquidity (trade against the fund ) in the same manner as my shares why do I need an ETF? Assuming of course that a unit trust holder is not a speculative investor.

Because the UT fees are still more expensive than ETF’s.

An ETF can only be bought through a stockbroker. You have to add in those execution fees which can range from 0.2% to 1.5%. Assuming of course that the man in the street can actually open a stockbroking account as most will not even look at you unless you have at least R50k. At this level the fees and costs will eat your profits. Hence the growth of the UT industry where can I can invest as little as R200 pm. And hence the slow uptake in ETF’s.

To add to it – investors can invest directly with unit trust managers at 0% upfront fees and without a financial advisor – therefore if you do not require advice, then the cheapest route is to invest direct and not via and platform or exchange.

As share trader I view the ZAR X fee as an execution cost. UT’s are typically long term investments held for 3 years on average (so my mates in your industry tell me. So if an investor holds their units via a platform for 3 years they will end up paying on average nearly 1.5%. The UT industry is notorious for the hidden costs. So whilst a Fund may have a direct offering it will be at a higher fee class. There is also the question of efficiencies. Platform turnaround times on cash payouts and switches are dismal compared to the exchange market. Platforms did a lot of interest skimming in this period. So one needs to look at the whole cost or “best execution”.

Sounds good. But more transparency and simplicity re the total costs are first needed from the industry!

This sounds great, but why not use an established Linked investment platform (LISP) such as Glacier by Sanlam. They also offer a very wide range of local and offshore unit trusts, with an online platform that allows investors to switch between funds with ease. No transaction fees but a competitive annual admin fee. ZAR-X sounds worth looking at but who are they backed by?

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