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Sygnia plans to shake up the ETF world

Following the acquisition of the db x-trackers book.

Last week Sygnia announced that it had reached an agreement to acquire the db x-trackers exchange-traded funds (ETFs) from Deutsche Bank. The listed asset manager said that the deal was worth R320 million.

The news raised a number of eyebrows in the industry because while Sygnia has been a vocal proponent of index tracking, it has been critical of South Africa’s ETF industry. The company has consistently argued that ETFs do not offer a cost effective way to access the market.

However, Sygnia’s CEO, Magda Wierzycka, says that this deal is not an indication that she’s changed her mind.

“What I’ve been very critical of in the South African context is the cost of access,” Wierzycka says. “ETF management fees themselves are quite reasonable, but for an investor to invest in one you are looking at trading costs, stockbroking commission, bid-offer spreads, and the cost of investment plans, which all add another layer of cost. When you start adding all of these together, the fee is commensurate with an actively-managed unit trust.”

She says that Sygnia’s aim will be to reduce and even eliminate these fees for accessing ETFs, and offer them in as raw a form as possible.

“The annual fees on investment plans currently range from 0.7% to 1.0% per annum,” Wierzycka says. “We want to place these ETFs on our platform as close to no cost as possible. The stockbroking through Sygnia Securities will also be minimal – below 10 basis points.”

While this argument is persuasive, Sygnia will have to compete with platforms that already offer extremely low cost access to ETFs. Absa Stockbrokers, Easy Equities and SatrixNOW already offer discounted brokerage on ETFs and no annual fees.

In this market, Sygnia will have to find a way to differentiate itself.

Wierzycka believes that there is also scope to bring down the trading costs of ETFs through engaging with the JSE. In addition, Sygnia plans to speak to international market makers that could narrow the bid-offer spreads.

With competition coming to the stock exchange industry in South Africa, Wierzycka suggests that there may also be the opportunity to look at alternative listings.

“It will boil down to fees,” she says. “If other exchanges can offer these products and are willing to list them at lower cost then either the JSE will have to come to the party or we will look at the alternatives.”

An immediate challenge that Sygnia will face, however, is that the db x-trackers products are currently the most expensive ETFs on the JSE. Although their fees do work on a sliding scale, their initial total expense ratios (TERs) of 0.85% are nearly double those of the only other foreign ETFs listed on the local market managed by CoreShares.

These will almost certainly have to come down if Sygnia wants to continue to claim that low costs are at the core of its value proposition. It will also have to ensure that any new products it introduces will carry much lower fees.

“We would like to launch international bond and international listed property ETFs, as well as one that tracks our 4th Industrial Revolution Global Equity Fund,” Wierzycka says. “Then potentially we will start looking at the domestic market and might also launch some smart beta funds, for instance the Sygnia Skeleton funds wrapped in ETF structure.”

Wierzycka adds that once the deal is finalised, the company will be re-branding the current suite of db x-trackers ETFs to Sygnia Itrix, and will use that name going forward.

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Looks like someone read the comments in the previous article…

Anyhow, this is a good move. Cheaper international ETFs are needed (exposure beyond 2 funds from CoreShares).

What about the poor tracking error of these ETF’s?

Sygnia’s strategy is not to offer the lowest fees but rather to give the impression it offers the lowest fees at 0.4% by heavily promoting this. As Moneyweb state, several ETFS provide free admin yet Sygnia says ETF admin costs 0.7 to 1%!. This is done to discredit competitors, including those with lower fees, and promote Sygnia, even if it’s not true. DB ETFS TER of 0.85% are nearly double CoreShares so unless Sygnia halves it’s ETF fees it will have among the most expensive ETFS around. The Sygnia Skeleton 70 is marketed as a low cost index fund yet invests in its own hedge fund and has a TER of over 1% versus it’s disclosed fee of 0.4%. If Sygnia really believes in low fees and transparency then please disclose all Sygnia’s different funds with asset assets under management and the TER. That would make interesting reading and show Sygnia’s true colours.

perhaps let’s wait and see if the dbx tracker’s fees drop and then make a call?

Jomba, the tracking may be poor but do not underestimate long term growth and the value of something that is cost effective.

When people engage something with the view to make it more cost effective it generally becomes better managed, it is not something that happens once – it is a on going process.

“We want to place these ETF’s on our platform for as close to no cost as possible”

In the most ‘cost-effective’ way possible would’ve been a more credible statement methinks…
Besides, without any form of deceit and hiding costs behind B.S, how close can you realistically go, when you’re running a business that’s in it to make a profit at the end of the day ?

Its as you say. If its run for profit how cost effective can it be… it represents bit of a c**p chute.

Magda has a knack for making competitors look bad. Her latest target is allan gray, in the name of net1 social governance- her real intention is to steal market share from allan gray in unit trusts. I don’t want to invest in more dbx trackers with her cunning.

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