A study by Charles Schwab & Co found that exchange traded funds (ETFs) are the investment vehicle of choice for 91% of millennial investors. But it’s not just the young who find the simplicity and affordability of ETFs very attractive – older generations have embraced them too. This year is the 25th anniversary of the introduction of the first ETF – the Satrix Top 40 – to SA investors, and the milestones keep coming: In 2024, there were 100 ETFs listed on the JSE (there are 120 and counting now) and recently the JSE broke through the R200 billion market cap mark for ETFs.
‘Since the first ETF listing, notable developments have occurred across the local ETF landscape,’ says Adèle Hattingh, Manager: Business Development and Exchange Traded Products at the JSE. ‘In 2004, the JSE saw the first commodity ETF, a physical gold exposure ETF, list on the exchange. Shortly thereafter a series of foreign equity exposure ETFs became available to the market. This was then followed by ETFs offering smart-beta strategies, the first Shari’ah Top 40 ETF, government-inflation linked ETFs, along with the introduction of the first multi-asset class strategy ETFs. The range of commodity ETFs expanded to include platinum, palladium and rhodium.
‘In short, ETFs are a powerful tool for investors to access the market in an affordable, accessible and easy manner. It’s so exciting to see the different types of strategies and exposures that investors can now have at their fingertips – but even more exciting is that as the world evolves and new industries develop, for example semi-conductors or AI technology, ETFs can offer exposure to all these sectors through listed companies it might track.’
Hattingh attributes the popularity of ETFs in SA over the past 25 years to several factors. ‘ETFs are listed investment products that trade just like a normal share – therefore, it serves as a single investment product with many investments rolled into it. Investors can therefore utilise their trading account to easily access ETFs and other listed instruments, throughout the trading day. They can also view the prevailing trading price of the ETF on an intraday basis. It, therefore, offers not only convenience to the investor but transparency regarding what someone is investing in. They also have sight of the price of the instrument throughout the day.
‘As younger generations have become more aware of investing and being able to access investment channels that are just as easy and affordable to access, plus the need to take ownership of their own financial futures, it has driven the interest in ETFs. Having so many ETFs with various asset class exposures and strategies available further enhances their attractiveness. This ultimately helps to manage the investment risk for the investor by bringing diversification to any investor’s portfolio. ETFs avoid forcing the investor to “stock pick” and also to be so reliant on the performance of one company – which is particularly attractive to any investor that might not have large sums of money to invest and so decides on a “rolled-into-one” investment product.’
She says ETFs enable investors to commit smaller amounts according to their means. Most ETFs are also tax-free savings account compliant, therefore investors reap additional tax benefits when investing in these ETFs.
Hattingh says regulatory changes have had one of the biggest impacts on ETF growth in South Africa. ‘A significant growth catalyst for the ETF industry came about in 2017 when the SARB [South African Reserve Bank] allowed locally registered CIS [collective investment scheme] management companies to inward list foreign-referenced asset CIS ETFs, therefore not restricting these ETFs in terms of their offshore limits. A significant number of offshore equity and debt exposure ETFs listed on the exchange, as a result.
‘For over 20 years, local ETF issuers were only able to offer index-tracking strategies in an ETF form. However, the introduction of actively managed ETFs on the JSE made it possible to offer different strategies in the ETF wrapper.’
Hattingh anticipates that future regulatory progresses will help spur ETF growth. ‘There have been significant developments in the digital asset and crypto currency space – which have overlapped into the ETF industry – particularly in the US and Europe. We’re curious to see where this might lead in our local market.’
