Beginning of the end for unit trusts in South Africa – Michael Jordaan

Bank Zero chairman Michael Jordaan said the Johannesburg Stock Exchange’s (JSE’s) decision to allow active funds to list signals the beginning of the end of unit trusts in South Africa.

On 18 May 2023, the JSE announced the listing of the first Actively Managed Exchange Traded Fund (AMETF) – a collective investment scheme (CIS) listed and traded on the market.

Previously, the only ETFs allowed domestically were those that passively tracked underlying indices or physical commodities.

The first AMETF listing was made possible by amendments to the JSE’s listings requirements in October 2022.

Investment managers are now able to list ETFs with active investment strategies and will no longer be restricted to purely tracking a benchmark.

The new listing requirements include that the underlying assets or securities of the AMETF must comply with FSCA requirements and must also be deemed “sufficiently liquid for robust pricing”.

The JSE’s first AMETF listing was 10X Investments’ CoreShares Income Actively Managed Exchange Traded Fund.

The 10X CoreShares Income AMETF aims to deliver a high income level and long-term stability on capital invested.

It achieves it through investing in a combination of asset classes, including bonds, money markets, debt, and credit.

Anton Eser, chief investment officer at 10X, said the CoreShares Income AMETF would strategically invest in a diversified portfolio of income opportunities.

Commenting on this development, Jordaan said it is great that the JSE now allows active funds to list on the exchange.

He highlighted that the actively managed ETFs cost less to buy and sell than unit trusts, which are very popular in South Africa.

A unit trust is a collective investment scheme which pools investors’ money into a single fund constituted under a trust deed. It is managed by a fund manager.

The fees on unit trust funds are not regulated and can vary greatly. Investors may face initial setup fees, financial advisor fees, management fees, and performance fees.

Some funds also charge exit fees if you sell your investment within a specified period which is based on how much capital you have invested.

ETFs, in comparison, have significantly lower fees and make it easy for investors to enter and exit the fund.

Jordaan said the benefits of actively managed ETFs over traditional unit trusts are bad news for the latter.

“It’s the beginning of the end of unit trusts and their expensive, closed platforms,” Jordaan said.

“Anything that helps retail investors to save is obviously good. Of course, they still need to select the right ETF, but that’s no different to choosing the right unit trust.”

“Only now it is easier and less expensive to buy or sell the fund.”