Alpha, beta, equity, commodities, volatility… what does it all mean? Trading on the stock exchange can be intimidating for first time investors.
Exchange Traded Funds (ETFs) have changed the game in this regard and have made investing on the JSE more accessible to many. This year the JSE celebrates 20 years of listing ETFs for investors on the exchange.
This investment option continues to offer attractive and diverse opportunities for both existing and first-time investors.
The JSE is striving to cultivate a savings culture among all South Africans by demystifying the stock exchange and demonstrating that you don’t need thousands of Rands to start investing.
For those who want to grow their wealth and get first-hand access to the world of investing through the stock exchange, ETFs are the solution to beginning an investment journey and unlocking potential wealth on the stock market.
An ETF is a listed fund that tracks the performance of a basket of assets such as shares, bonds, property and commodities. It gives you, the investor, exposure to a wide variety basket of assets in local and global markets, all through a single investment.
“If you are new to the world of investing or are looking to diversify your investment options, ETFs are a fantastic investment vehicle. They are simple to understand, flexible and affordable.
Each fund varies in terms of the type of objective and asset class exposure it offers to investors.
It is, therefore, possible to create a balanced portfolio, using only a mixture of equity, property, gold, and fixed income ETFs,” explains Adèle Hattingh, Manager of Business Development and Exchange Traded Products (ETP) Primary Markets, at the JSE.
Over the past 20 years, ETFs have seen immense growth, growing at an average of 20% year-on-year.
As a result of their popularity, close to R600m in ETF value is traded on the JSE daily and investors now have a diverse range of 78 ETFs to choose from.
“It is this ingenuity and growth that has paved the way for the JSE to become the first South African stock exchange to list two global ESG focused ETFs: The Satrix MSCI EM ESG Enhanced ETF and the Satrix MSCI World ESG Enhanced ETF.
These ETFs will allow you the option of aligning your money with your desire to invest responsibly and that reflect sound social, governance and environmental principles.
Many investors are choosing to invest in “doing good”, therefore, we are excited to be able to offer them the option to invest in these global ESG focused ETFs,” says Hattingh.
Here is what to consider when investing in ETFs:
Invest with the end goal in mind
“Long-term investing has become more attractive because Collective Investment Scheme (CIS) ETFs have the added benefit of being tax-free, when using a Tax-Free Savings Account (TFSA).
The introduction of TFSAs by the National Treasury in March 2015 and the associated tax benefits of the account has contributed to creating greater awareness of and interest in ETFs,” says Hattingh.
Being a savvy investor means you may be putting money away for your child’s education, a down payment for a home or your golden years – ETFs’ simplicity and accessibility can help investors to achieve specific financial goals.
The simplicity and convenience of ETFs has made them more accessible to the retail investor. You can contact a stockbroker, a financial service provider or approach an ETF provider directly.
What adds to the simplicity of an ETF is that you can buy and sell them daily on the stock exchange as you would a share, which is an advantage in a volatile market.
ETFs are known for offering investors a diversified set of assets such as stocks at a low cost, allowing investors access to many areas of the local or global market.
Markets will fluctuate and ETFs are not immune to this. However, the diversification benefit helps to temper significant market swings within your portfolio.
Evolution of ETFs
When launched in 2000, the JSE’s ETF industry focused on traditional local and global vanilla equity ETFs and precious metals such as gold. ETF investment strategies have since shifted from traditional broad-based equity market indices to other asset class indices as well.
Today, ETFs range from broad market equity exposure, local and global debt, property, precious metals, Africa equity ETFs and Smart Beta ETFs.
To date, the JSE offers 27 SA equity ETFs, 20 international equity ETFs, 2 Africa (ex-SA) equity ETFs, 8 commodity based ETFs, 12 local and global bond ETFs, 1 money market ETF, 2 multi-asset class ETFs and 6 local and global property ETFs.
“Anyone looking to start investing can contact an authorised JSE Equity member or open an investment plan with an ETF provider. This way, they can easily buy ETFs using a monthly debit order or a single lump sum investment,” concludes Hattingh.