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The lure of the ETF

‘I think it’s very healthy for one to take ownership of one’s own financial position,’ states Gareth Stobie from CoreShares.

KEARABILWE NONYANA: You are listening to MoneywebNOW, and I’m Kea, standing in for Simon Brown. Chatting to us now is Gareth Stobie from CoreShares. Top of the morning, Gareth, and thank you for your early morning. 

GARETH STOBIE: Good morning. 

KEARABILWE NONYANA: Since the beginning of the pandemic, globally we’re seeing a sense of democratisation of investment in financial markets. This has led to individuals taking their investment decisions into their own hands. Have you seen a dramatic shift in the profile of the investor, and are more investors accessing your products directly through stockbrokers or ETF platforms, or are they still accessing the product through IFAs?

GARETH STOBIE: Well, at CoreShares we encourage both access points to our product set. So I think it’s very healthy for one to take ownership of one’s own financial position. By all means, if they feel comfortable to make their own asset allocation call and say, “Okay, right, then invest this much in equities and this much in property,” for instance, then ETFs provide a great access point to markets because you are immediately diversified. They are low-cost, transparent, and so forth. 

But we do also see a role for advisors to play. If you just look at the last 18 months, they’ve been an emotional roller coaster and it’s been very difficult for clients to always stay the course in that sort of environment. If one disinvests at the wrong time it can be very prejudicial to one’s financial plan. That’s precisely when financial advisors can play a very important role in terms of holding clients’ hands and making sure that they stick to the plan. 

But in both cases, whether it’s someone who’s feeling self-directed, well-read – there’s loads of stuff on the internet these days – and feels empowered to make a decision, then yes, definitely ETFs have been a good place to start. But equally, advisors can use those same building blocks to build a solution for clients. 

KEARABILWE NONYANA: Are you seeing the age profile change? Are you seeing more young investors accessing your product?

GARETH STOBIE: Well, it’s sometimes difficult for us to see directly because clients obviously access our products via the JSE. So they will be making use of other online platforms or other stockbroking platforms, the likes of EasyEquities. And certainly there we’ve seen a huge jump in the number of accounts being opened and interest in financial markets. That’s wonderful to see. I often think of myself in my early twenties when I started investing in the stock market; it’s quite a daunting place. 

I remember joining a little investment club and we sort of cobbled together the three shares that we thought had the greatest promise. I remember one of those shares did well, the other two sort of muddled along. I think where ETFs are so great for that type of investor is that, by making a simple investment into, say, a Top 50 ETF or an S&P 500 ETF, you’re immediately diversified across a whole range of sectors and a whole range of stocks. So, again, from an access point of view, it’s a really good way to start. And with global markets generally having had a pretty good run of things of late, that’s obviously brought a lot of new interest into investing in stocks.

KEARABILWE NONYANA: Gareth, in the CoreShares Total World ETF has been a revolutionary addition to the array of ETFs clients can access. The mix of both emerging and developed markets is one that has yet to be seen. Do you believe that the ETF is a heavyweight to developed markets which are at record highs, and sectors that generally have very high valuations?

GARETH STOBIE: Well, yes. It’s a market-cap-weighted product. As a consequence of that you will have a heavier weighting to stocks that have a fair degree of momentum around them and have large market share and market-cap emphasis on market share, because these are companies that have in most cases earned their right to be large weightings within a cap-weighted index. 

So we believe in just simply holding market-cap-weighted indices. There will be times when clients might feel they want to take the tactical bet around that. Maybe they feel like technology stocks are a bit too expensive and they want to have sort of more quality or defensive-type stocks. Interestingly, we’ve got a product that caters for that as well, our Global Dividends Strategy, which actually invests in sort of boring, steady-Eddy-type stocks, and it’s very much underweight technology stocks. 

But for those who are looking for just a very simple core, well-diversified global building block, this is the product that we have brought to market and at a very low cost. 

KEARABILWE NONYANA: Lastly, as a quick one, just talking about the sector, the JSE announced that it has denied the listing of the first crypto ETF. Do you think the regulatory environment will be an impediment to get alternative ETFs into the industry – and by ‘alternative’ I’m meaning the levered ETFs, alternative assets, and not just the vanilla benchmark index ETFs?

GARETH STOBIE: No, I don’t think they are an impediment to that type of asset class. If a client wants to buy cryptocurrencies, I think there are a number of exchanges available; perhaps not the formal JSE, but there are other exchanges available to that sort of client. 

I think where most global regulators are in terms of this is that they’re very sort of cautiously looking at that market to ensure that if they allow a regulatory framework that allows access to those sorts of products, what does it mean for the average Joe Soap? As a regulator, they’ve got a lot of responsibility on their shoulders to make sure that when they allow new products to come to market they bring suitably regulated price, that there’s liquidity around them, that there’s transparency and good governance, and all these things. 

Sometimes it might feel frustrating from the outside that regulators move slowly on these things, but if regulators were to allow something to list that then suddenly blew up I think people would also be pretty cross with them. So, as I say, they’ve got a weighty responsibility and I’m sure they would love to innovate as much as the rest of the market, but have taken a cautious approach so far.

KEARABILWE NONYANA: That’s Gareth Stobie, managing director at CoreShares.

Listen to Tuesday’s full MoneywebNOW podcast here.


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