What Is ETF?
An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges.
ETFs own financial assets such as stocks, bonds, currencies, futures contracts, and/or commodities such as gold bars. The list of assets that each ETF owns, as well as their weightings, is posted on the website of the issuer daily, or quarterly in the case of active non-transparent ETFs. Many ETFs provide some level of diversification compared to owning an individual stock.
An ETF divides ownership of itself into shares that are held by shareholders. Depending on the country, the legal structure of an ETF can be a corporation, trust, open-end management investment company, or unit investment trusts. The shareholders indirectly own the assets of the fund, and are entitled to a share of the profits, such as interest or dividends, and they would be entitled to any residual value if the fund undergoes liquidation. They also receive annual reports. An ETF generally operates with an arbitrage mechanism designed to keep it trading close to its net asset value, although deviations can occur.
How Does ETF Work?
ETFs or “exchange-traded funds” are exactly as the name implies: funds that trade on exchanges, generally tracking a specific index. When you invest in an ETF, you get a bundle of assets you can buy and sell during market hours potentially lowering your risk and exposure, while helping to diversify your portfolio.
Top ETF In South Africa?
ETFs expose investors to a diverse collection of assets (basket of securities) without necessarily having them buy each individual asset. For instance, an ETF could hold currency, stock, bonds, and commodities. An example of a South African ETF is STX40 which tracks the performance of the FTSE/JSE Top 40 Index.
South Africa has seen an increase in the uptake of ETFs in the recent past. This trend continues to grow due to their (ETF) ease of trading, low cost, and access to a diverse asset class.
Satrix 40 ETF
The Satrix 40 ETF, JSE code STX40, tracks FTSE/JSE top 40 index. The FTSE/JSE top 40 index features the top-performing companies on Johannesburg Stock Exchange (JSE) rated based on their investable market cap. This ETF purposes to replicate the FTSE/JSE top 40 index accurately by featuring all the assets in the specific index weighting.
Sygnia Itrix MSCI World ETF
Sygnia Itrix MSCI World ETF tracks MSCI World Index as closely as it possibly can. MSCI World Index is a weighted index featuring companies from developed countries (23 to be specific) across the world.
This ETF is a passively managed, high-risk index tracking asset aimed at replicating the yield performance and price of the MSCI World Index. It achieves this by having a portfolio with securities similar to the basket of securities making up the index as well as in the weightings of the index.
Sygnia Itrix MSCI World ETF is a high risk asset. It is structured to measure the performance of world-developed market equity which represents companies whose total market cap is estimated to be US30 trillion. It is ideal for an investor who is:
- Tolerant to high volatility
- Looking for higher returns
- Seeking long-term investment opportunities
- Looking for a cost-effective investment to maximize potential returns
Based on its structure, you should not have Sygnia Itrix MSCI World ETF as your only equity investment. Instead, it should be a part of your diversified investment plan.
Satrix Indi 25 ETF, JSE code STXIND, is ideal for an investor who is looking to invest in an ETF with high industrial sector exposure. This ETF tracks FTSE/JSE Capped Industrial 25 Index that features the biggest industrial companies on JSE (rated by investable market capitalization).
NewFunds S&P GIVI ETF tracks S&P GIVI South Africa Index – a composite index measuring South African companies listed on JSE and featured on S&P Global Broad Market Index.
ABSA NewGold ETF
ABSA NewGold ETF is a product that allows South Africans to invest in gold. It holds actual gold in safe storage and tracks the price of spot gold. It offers security at prices equivalent to 1/100th an ounce of gold. Both retail and commercial traders can safely invest in ABSA NewGold ETF and consequently in physical gold.
It provides an alternative for investors to hedge against geopolitics and inflation. The product is also Shariah-compliant.
Satrix MSCI World ESG ETF
Satrix MSCI World ESG ETF, JSC code STXESG, tracks the MSCI World ESG Enhanced Focus CTB Index. The index is structured to enhance exposure to ESG – environmental, social, and governance – metrics. It features companies that meet given ESG criteria. This ETF is ideal for investors who would like to invest in companies that have a positive effect on society across the globe.
NewFunds SWIX ETF
NewFunds SWIX ETF tracks the FTSE/JSE SWIX All Share Index – a market cap-weighted index featuring companies appearing on JSE. This ETF tracks the performance of SAs equity market.
ABSA NewPlat ETF
ABSA NewPlat ETF gives investors access to the platinum market. It is a simple and cost-effective way for investors to put money in actual platinum. Essentially, this ETF keeps tabs on the platinum spot price.
Investors can buy the listed instrument where the security price is equal to about 1/100th ounce of actual platinum. The ETF is backed by a holding of actual platinum in the NewPlat Custodian.
Ashburton Africa Equity ETF
Ashburton Africa Equity ETF keeps tabs on the S&P Pan Africa High Dividend Low Volatility Index. This index is a division of the S&P Pan Africa Index featuring companies from all over Africa with low volatility and has historically paid high dividends.
Satrix Rafi 40 ETF
The Satrix Rafi 40 ETF follows the performance of the FTSE/JSE RAFI 40 Index. The FTSE/JSE RAFI 40 Index is a weighted index featuring the 40 biggest companies appearing on JSE. The index is weighted based on a company’s dividends, cash flow, and sales and not its market capitalization.