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The S&P 500 comes to SA

New CoreShares ETF gives exposure to the iconic US index.

CAPE TOWN – Index-tracking product provider CoreShares has announced the launch of two new exchange-traded funds (ETFs) in the South African market. The CoreShares S&P 500 ETF and CoreShares S&P Global Property ETF will be available to local investors from early November.

Both products track indices that are not currently tracked by any other local funds. They therefore offer additional options to investors looking to make rand-based investments that track offshore markets.

It is particularly notable that CoreShares is the first to offer South African investors direct exposure to the S&P 500, which is the most referenced index in the world.

“The S&P 500 represents the very origins of index investing,” says CoreShares MD Gareth Stobie. “The very first index products ever put together were Vanguard’s S&P 500 funds.”

According to S&P Dow Jones Indices, over $7.8 trillion is benchmarked to the S&P 500, and more than $2.2 trillion is held in 73 different products tracking it.

While South African investors can already access the US market through the db x-trackers MSCI USA ETF, the S&P 500 does offer a slightly different exposure.

The MSCI USA index is slightly broader, with 620 constituents. Its largest sector exposures are to information technology (21.14%), financials (16.2%) and healthcare (14.64%).

The S&P 500 currently has 505 constituents, with its biggest exposures being information technology (21.4%), healthcare (14.7%) and financials (12.8%).

Global property

The second new fund, the CoreShares S&P Global Property ETF, will be the first local product to track an international listed real estate index. The fund references the S&P Global Property 40, which is made up of 40 large cap property stocks listed across the world.

The exposure is concentrated in developed markets, with half of the index constituents and around 57% of the index market cap based in the US. The rest of the constituents are listed in Japan, Hong Kong, Australia, Germany, France, the UK and China. 

“We think offshore property is a great building block in a portfolio,” says Stobie. “And this index provides very good currency and share diversification.” 

CoreShares has indicated that both products will have a targeted total expense ratio (TER) of between 0.55% and 0.65%. The headline fee for the CoreShares S&P 500 ETF will be 0.45% and for the CoreShares Global Property ETF 0.5%.

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“…a targeted TER of between 0.55% and 0.65%” Expensive much for a passive instrument tracking the most heavily traded index? An alternative option would be to transfer ZAR offshore and invest in the iShares S&P 500 Index (ETF) (NYSE: IVV) which is now charging 0.04%pa. One would have to weigh up the annual +50bps saving versus the FX and trading brokerage costs for a similar exposure.

I did some back of the envelope calculation and it take ~6.9 months to break even if you transfer ZAR offshore and invest into IVV (taking into account FX & trading costs). From month 7 going forward, its better to use iShare S&P 500 IVV.

Hi Patrick

What is “headline fee”? How does this relate to TER?

Regards
//

Great move – good to see competition in this space. Deutsche have been making a killing with their ETFs and I’ve always felt they are over charging. Need more like this.

The fee structure is too high. Vanguard VOO & BlackRock’s Ishare IVV can give you similar S&P 500 exposure for a total fee of 0.08%. For long term investor a difference in fee of 0.37% per annum is a lot

Hi ‘Think_B4U_Reply’

‘Headline Fee’ relates to our basic Management Fee before other sundry costs such as custodian & audit fees. The latter is included in the TER (paid by the fund) but not in the management fee.

Looking forward to bringing these products to market.
Additional queries: info@coreshares.co.za

Thank
Gareth (CoreShares)

Any chance you guys could bring global midcap or global smallcap ETFs to the South African market?

Hi Gareth
How about including a multi asset class Reg 28 compl funds like the IS aggressive and conservative funds on the I-Transact platform.
Well done on these two new funds.

Hi All

The cost of managing a local currency (ZAR) ETF that references foreign assets (or indexes) and currency is generally higher.

This is due to, amongst other factors, higher costs as relates to: custody, settlements of both the underlying equity and currency and other implementation costs.

Consider for example the opposite scenario wherein the iShares MSCI South Africa ETF, which trades on the NYSE, at a TER of 0.62% and has 400m USD under management.

In terms of the ‘ease of use’ and the tradability on the JSE we believe we have priced the products competitively.

Kind Regards

Gareth (CoreShares)

This is great. The JSE doesn’t have much exposure to the technology sector so not only can everyday South African’s get international diversification, we can also get sector diversification.

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