Siobhan Cassidy | 11 December 2023
Siobhan Cassidy is a financial journalist who has worked at various newspapers in South Africa and the UK. She has also worked in a communications and marketing role in the investment management industry in Cape Town.
South Africans have only known exchange traded funds (ETFs) to be low-cost index-tracking funds. If you want an actively managed fund, you use a unit trust fund. But now actively managed ETFs (AMETFs) are available on the JSE. Why should we not regard them as just another option in a cluttered investment landscape?
Amendments to JSE regulations allowing the listing of AMETFs took effect in October 2022 and the first one started trading in June 2023. Since then, another three AMETFs have been listed.
Adèle Hattingh, business development & exchange traded products manager at the JSE, said a 5th listing was imminent, with others expected on the back of “promising interest shown by various market participants”.
Until this change, the JSE allowed trade in only those ETFs that tracked underlying indices, or physical commodities. Read more: What is passive investing?
AMETFs have seen strong growth globally – 30% over the first seven months, taking total assets globally to US$628 billion at the end of July 2023.
An ETF packages shares and other assets into a fund, like a basket of goods. The fund is then sold on to other investors in small shares, or units. Most ETFs including AMETFs, are, like unit trusts, also collective investment schemes (CIS). This gives investors another layer of regulatory protection.
ETF shares are repriced through the day and bought and sold on a stock exchange, unlike unit trusts which are priced and bought and sold once a day from the unit trust company.
At the end of November 2023, the total market cap for the four local AMETFs was R1.65 billion.
Kim Gibb, chief executive officer of Prescient Management Company, said AMETFs have “massive potential” for the investment industry but the “considerable move” into AMETF's seen globally had not yet materialised in South Africa.
Unlike in other parts of the world, there is no tax advantage over a standard unit trust fund for South African investors, Gibb says. An advantage for a fund manager, however, is that you can take 100% offshore in an AMETF and this solves an exchange control issue by offering access to offshore funds in rands.
Kyle Hulett, co-head of Investments at Sygnia, said the arrival of AMETFs “presents significant advantages for investors, opening up access to new themes and markets through the JSE”.
And, according to Gareth Stobie, director for strategy and corporate development at ETF platform, etfSA, AMETFs introduce new investment exposures that weren’t easily accessible through indexing, providing ETF investors with “new unique exposure”.
It is easy to invest in equities via index-tracking funds, but other asset classes, such as particular areas of the fixed income market, are much harder to track because the issuances are illiquid or unlisted, Stobie says.
Stobie says AMETFs can also provide ETF investors using online share trading platforms with exposure to active management skills. “While we advocate for passive management, we do acknowledge that in certain instances active management plays a strong role, such as small caps, fixed income and some other asset classes.” Read more: What is the active versus passive debate?
Kelin Pottier, Solutions Strategist at 10X Investments, which listed the first AMETF on the JSE and has since listed a second one, says AMETFs “shared the benefits of traditional ETFs, such as intra-day liquidity, price and fund transparency as well as providing retail investors access to cheaper institutional fees (since ETFs only have one fee class)”.
Hattingh says the JSE requires that AMETFs and passively managed ETFs appoint a liquidity provider that ensures every day, intraday liquidity making it possible to buy and sell them at any time when the market is 
open. Unit trusts are priced and bought or sold only once a day.
Gibb says the price of AMETFs is available in real time to those who want to trade. The fund managers can see the flows coming in and out as investors are transacting through the day.
She said these listed products would be “especially attractive to younger, more tech savvy investors”. They would be a good introduction to the JSE for novice investors, “someone who wants to buy a listed product but doesn’t really know where to start, or what shares to buy, can buy a basket of shares already in a fund”.
Are you likely to see your favourite manager list an AMETF? Sygnia’s Kyle Hulett said PWC has said that “20% of active global asset managers are going to convert their unit trusts/mutual funds into actively managed ETFs over the next 12 to 24 months, and 60% are considering doing so”.
Gibb expects some of the unit trust money to move, but these funds will also potentially give access to other investors.
She says for investors who have unit trusts and are happy, the only real difference AMETFs offers is the ease of buying and selling. They may potentially appeal to wealth managers who have private stock portfolios but have never offered a unit trust, she says.
Pottier says it isn’t a case of AMETFs versus other products, but rather “an expansion of choice or ways to access investment strategies more conveniently”. He says AMETFs provide access to strategies like professionally managed income solutions in listed form, which investors can hold in a stockbroking account.
He says there is likely to be more professionally managed multi-asset AMETFs, which will be a big help for investors who previously had to try to manage their own asset allocation using the available ETFs.
Hattingh says another potential benefit is that overseas issuers may opt to dual list AMETFs that trade on other markets, or list them via a feeder fund structure on the JSE.
Hullet said the widespread adoption of ETFs in South Africa was being hampered by investment platforms failing to list ETFs.
“Many platform providers in the country still don't offer access to ETFs, limiting investors to unit trusts. This inconsistency poses a challenge for discretionary fund managers who manage portfolios across multiple platforms.”
Stobie says by not including ETFs on investment platforms “you are excluding much of the financial advisor market and, therefore, still really speaking to quite a small audience of buyers”.
Gibb says there is a lot of interest in AMETFs and the number of AMETFs listed is likely to grow in 2024. But, for the man on the street, the big uptake will materialise when AMETFs are easily available on share trading platforms.”
We are not quite there yet, it seems, but moving along steadily with the JSE expected to list its fifth AMETF in early December 2023.
