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Exchange Traded Funds

Exchange Traded Funds (ETFs) are defined as passive investment funds that track the performance ofan index by investing directly in the underlying blue chip constituent shares. ETFs, are therefore, allowing investors to buy and sell an entire basket ofstocks with a single trade. There are nine ETFs listed on the JSE Ltd to date, and can therefore be traded on the exchange like single shares.

There are two categories in the exchange traded funds, namely – domestic and international exchange traded funds. In essence, the difference is in that the domestic ETFs track the performance of local indices whilst the international ETFs track the performance of foreign major indices listed on the JSE Ltd. An example of domestic ETF’s is Satrix40 – a security that enables an investor to purchase a single JSE listed security, which gives the same return as would be received if the investor directly purchased shares in each company in the JSE’s ALSI 40 index. An example of the international exchange traded fund listed on the JSE is Itrix.  Itrix currently comprises of Itrix DJ Euro Stoxx 50 and Itrix FTSE100 (which track the Dow Jones EURO STOXX 50 and the FTSE 100 indices respectively).

Generally, the exchange traded funds are substantially low in costs for investors than traditional managed investment funds because no active management is required. They are the easiest and most cost efficient way to gain both domestic and international equities market exposure. There is no expiry nor maturity date on the ETFs, however, they have the same taxation profile as any other share in terms of selling.

To trade in these funds, investors may approach any broking firms of their choice for assistance (please see a list of discount broking firms included in article entitled - How to buy and sell shares on the JSE above). Both Itrix DJ EURO STOXX 50 and Itrix FTSE 100 required lump sum to invest. The Satrix products (i.e. satrix 40, satrix fini and satrix indi, Satrix Resi and Satrix Swix) may be acquired from a stock broking firm for a lump sum. The administrator of Satrix securities (currently Automated Outsourcing Services Limited (ASOL)) may assist with lump sum investments, minimum R1000, investments as well as debit order investment, minimum R300 per month. The ASOL may be contacted direct at the following number 0861 100 670.

The exact composition of an exchange traded funds are published on applicable website – (Satrix securites, would be published on http://www.satrix.co.za and Itrix is on http://www.itrix.co.za. This allows investors to view which shares are included in the index and the individual weightings at any given time. An international exchange traded funds do not constitute a portion of South African individuals’ foreign exchange allowance which means that local individual residents may invest as much as they want in Itrix.

All forms of investments do have risks, and the exchange traded funds are no exception. An investment in a company listed on the JSE involves some risk because share prices can, and often do, move up and down. Investing in one share can be very risky. The exchange traded funds reduces the risk of investing in equities as the risk is spread a number of largest and most liquid companies listed on the JSE.

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