[TOP STORY] Our industry can be proud of their performance, specifically tracking and trading efficiency

Nerina Visser of etfSA on the Fifth South African Listed Tracker Funds Awards: its winners, variety, popularity and progress.

SIMON BROWN: I’m chatting now with Nerina Visser from etfSA. Nerina, I really appreciate the early morning. Wednesday evening was the Fifth South African Listed Tracker Funds Awards, the (Saltas). I’ve got to say it was my first outing since the 2020 Saltas, because of course there’s been a pandemic in between. One of the big changes perhaps for this year’s event was that you’ve introduced the ETNs, exchange-traded notes. In fact, they won a couple of awards as well.

NERINA VISSER: Yes, indeed. Good morning, Simon and good morning to your listeners as well. Yes, it was wonderful having the event in person, but I think we’ve also learned that we can do this as a hybrid. So we did broadcast it also and we had some people from around the world, which was really wonderful – including one of the winners who actually resides in London. So you’re absolutely right. Exchange-traded notes was newly introduced. Including all of the exchange-traded notes alongside the ETFs in the relevant categories in which they would qualify, we did create one brand new category also, which was for an actively-managed exchange-traded note.

Of course, in South African regulations at the moment we don’t have the ability yet to offer ETFs that are actively managed. They are currently index-tracking, giving you exposure to a physical asset such as a commodity.

But the actively managed funds, which are offered as exchange-traded notes, there are quite a large number of them. But of course the awards only kick in after three years, when you’ve got a three-year track record. Currently the ones that qualified are all issued by UBS, the Union Bank of Switzerland. That’s the credit issuer, so that’s the bank that sort of underwrites or gives you the note itself. But then of course, because they are actively managed, there is an active equity or an active fund manager behind it that offers you much like you would with a unit trust, except that this is now in an exchange-traded form.

SIMON BROWN: And trades in the market. That winner was Λnβro Capital (Investments) for the Unicorn Fund (AnBro BCI Unicorn Global Growth Fund).

NERINA VISSER: That’s right.

SIMON BROWN: We’ve chatted with (Chief Investment Officer) Craig [Antonie] a number of times on the show. He has great insights.

Twenty-six awards in all were issued. What stood out for you, what did you look at and sort of think, hmm, that was impressive?

NERINA VISSER: Some people might look at the number of awards that a particular house or a particular ETF wins. I’m a lot more impressed with the breadth of the winners, not only from the range of issuers that won awards, but also the range of ETFs and ETNs that actually win awards, because for me that’s a sign of a healthy industry.

We want variety. We know we want diversification – and I think our ETF industry definitely gives that to us.

Seven of our issuers won awards on Wednesday night.

The biggest winner was the biggest issuer, which is Satrix. They won nine awards, 1nvest won five awards, and then we have Absa and CoreShares with four awards each. Sygnia won two. FNB, formerly Ashburton, won one, and then UBS for that Λnβro Capital exchange-traded note. They won one award.

Then, looking at the range of the underlying, oh my goodness, it varied anything from a US dollar ETN to this actively managed unicorn, to the oldest one in the market, the Satrix 40 ETF. Then I think [it was] wonderful to see the acceptance and the range of winners also from the non-equity categories, maybe the ones that people don’t necessarily think of when they think [of] an ETF, so I think like government bonds and property, and of course the range of commodities and currencies that we have.

So for me, it was all about the variety. I really enjoy that.

SIMON BROWN: That’s a great point. On the evening I was sitting there and, as you say, it was bits of everything. I mean, the Preftrax pops up – Rhodium (1nvest Rhodium ETF), of course, rhodium owns that space for now. One day perhaps they won’t. But right now absolutely, and Johann Erasmus (executive director of 1nvest), is Mr Rhodium.

What also struck me were some of those tracking errors. I think it’s one of those probably nerdy things that people like me and you and a few others really get excited about, but it’s the error between the ETF and the actual underlying; some of those tracking errors were 0.03%, which is almost a rounding error. That is as close to nothing as you’re going to get.

NERINA VISSER: Exactly. When you think listed tracker awards, surely that is the most important thing that we should be evaluating when we look at the efficiency of a particular exchange-traded product. So yes, performance is the easy one to measure. It’s one that people seem to look at a lot, but I’m particularly keen on the tracking awards because it’s, as you say, really a single number that encapsulates all the aspects that might cause, or might result in the performance of the fund being different [from] that of the performance of the index.

In some cases people might think that, oh, surely index tracking is easy. How often do we hear ‘It’s the robot that does it’, or ‘It’s the computer that does it’? No, it’s actually not quite that simple.

If you think of managing cash flows, whether that is creation or redemption of units, whether that is the underlying dividends that are being paid by these funds, whether it is dealing with multiple markets, your underlying might be a global fund. So you’re dealing with different time zones, with different markets. You are dealing with currencies. [With] all of these things, the prices are determined at different times during the day, and now you’re trying to conform to an index which is sort of closed at a particular time of day as well, a currency which closes…. The list just goes on.

But I think it is incredible to see the extent, as you say. I mean three basis points – it really is pretty much a rounding error.

I think our industry really can be proud in terms of the performance that they delivered, specifically from that perspective – tracking efficiency, trading efficiency, how well and how often it trades on the market, how much capital is being raised – long after we worry about what performance was generated by these different products.

SIMON BROWN: Yeah. The performance is not incidental. That’s obviously why we are investing. But the other parts truthfully are sort of needed to underpin that performance.

The last question – of course there is a people’s choice. For five years in a row now, Satrix 40 has won. Don’t get me wrong, I love the ETF, I was one of the first buyers back in 2000 when it issued, but do they perhaps retire at some point and give somebody else a chance?

NERINA VISSER: [Laughing] That’s a difficult one to answer, Simon. But yes, it does talk to, I think, partly brand familiarity. So it is the one that probably most people would know of. Even if they don’t know the ETF industry all that well, a lot of people know of the Satrix 40.

It’s interesting then to see, of course also, we’ve got other Top 40 ETFs as well in the market and a couple of them won awards.

So the Satrix 40 is not necessarily always the best in terms of these different performance metrics. But it certainly is the most well known, it is the most popular.

It is interesting also, I think, to see that out of the top 10 of the award winners in the people’s choice awards, seven of those were Satrix ETFs. But we had strong performance coming through from the 1nvest Top 40 ETF, which came in second place. Then the Sygnia 4th Industrial Revolution in third place; that particular one was second last year.

So the competition really is hotting up and, once again, I think my personal favourite in terms of this was the large number of different exchange-traded products that received votes.

We tallied it up out of the thousands of votes that we got: three out of every four ETFs listed on the JSE received at least one vote in this People’s Choice Award. That’s phenomenal.

And it talks to not just the popularity, but I think also the awareness that people even know about these things and that they like them and use them. That’s really, for me again, a sign of a strong and thriving industry.

SIMON BROWN: That’s a great point because I mean, the 1nvest S&P 500 Information Tech ETF came fifth, and it’s my favourite tech ETF on the market. It came top in its category, and it was great to see it there. It shows that there’s great knowledge from the investors in the ETF space, and that’s massively important.

Nerina Visser, etfSA, I always appreciate the early mornings.

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