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The South African and Global Landscape of Exchange Traded Funds (ETFs)

The South African and Global Landscape of Exchange Traded Funds (ETFs). 27 February 2010. What is an Exchange Traded Fund (ETF)?. An ETF is an investment product listed and traded on the JSE usually registered as a Collective Investment Scheme with the FSB

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The South African and Global Landscape of Exchange Traded Funds (ETFs)

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  1. The South African and Global Landscape of Exchange Traded Funds (ETFs) 27 February 2010

  2. What is an Exchange Traded Fund (ETF)? • An ETF is • an investment productlisted and traded on the JSE • usually registered as a Collective Investment Scheme with the FSB • tracks the performance of certain underlying assets • for example: • a basket of shares, • a basket of bonds, • a commodity

  3. What is an Exchange Traded Fund (ETF)? • These “baskets” of shares or bonds are known as indices, for example: • FTSE/JSE Top40; Financial 15; Industrial 25; Resources 20; South African Property Index • eRAFI™ Financial 15; Industrial 25; Resources 20 • GOVI; Government Inflation-Linked Bond Index • FTSE 100, DJ Eurostoxx 50; MSCI Japan; MSCI World; MSCI USA • Commodity, for example: • Gold and oil

  4. What is an Exchange Traded Fund (ETF)? • An ETF can then be bought and sold just like an ordinary share • The price of an ETF is determined by the demand and supply for the ETF • HOWEVER • Market Makers continuously provide liquidity for buyers and sellers • THUS • ETF prices closely tracks Net Asset Value (NAV)

  5. What is an Exchange Traded Fund (ETF)? • Example of how ETFs track an index (Satrix 40 ETF vs. FTSE/JSE Top 40)

  6. Global Growth in ETFs • As at year end 2009 • 1,947 ETFs world wide • Assets of US$1 trillion (+-R7.5 trillion) • 110 ETF providers on 40 exchanges around the world • 423 new ETFs launched while 80 ETFs were closed • Plans to launch 818 new ETFs

  7. Global Growth in ETFs

  8. Global Growth in ETFs

  9. ETFs in South Africa • Total value traded as at year end 2009, over R60 billion (buy and sell sides) • Assets Under Management (AUM) now over R20 billion

  10. ETFs in South Africa • First South African ETF listed on the JSE in 2000 • 24 ETFs currently listed the JSE with total of 6 ETF providers

  11. Types of ETFs listed on the JSE • See List of ETFs

  12. Advantages of ETFs • Diversification • Exposure to “basket” of shares when investing in one ETF • Low Costs • “Passive tracking management fees” are lower than “active tracking management fees” • Cash flow distributions (dividends) • Regulation • JSE and FSB

  13. Advantages of ETFs • Trading Flexibility • Can buy ETFs real time, during trading hours (9am to 5pm) at market prices • Liquidity • Securities Transfer Tax (STT) exempt • Hassle Free • Passive tracking investment that requires little investment research

  14. Key ETF features to consider • Fees • Once off trading fee and ongoing management fee (monthly) • Limited share ownership rights • Capital Gains Tax • Exchange Traded Price • ETF price could vary slightly from the Net Asset Value (NAV) of the underlying fund • Market Risk • Prices will fluctuate (go up AND down) as the underlying securities’ prices go up and down

  15. Which ETF will you buy next?

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