10X Investments recently listed its CoreShares Income Actively Managed Exchange Traded Fund on the JSE, which has the potential to change the South African investment landscape.
This comes in light of the JSE’s decision to allow actively managed exchange traded funds (AMETFs) to be listed on the exchange.
Previously, the only ETFs allowed domestically were those that passively tracked underlying indices or physical commodities.
The 10X CoreShares Income AMETF was listed on the JSE on 18 May 2023, promising to deliver high income and long-term stability on capital invested.
Bank Zero chairman Michael Jordaan said the JSE’s decision to allow active funds to list signals the beginning of the end of unit trusts in South Africa.
Jordaan said the benefits of AMETFs over traditional unit trusts are bad news for the latter because of their expensive, closed platforms.
He explained that it is now easier and less expensive for retail investors to buy and sell actively managed funds, which is a positive development.
To explain why Jordaan sees the listing of AMETFs as significant, Daily Investor delved deeper into unit trusts and AMETFs.
Unit trusts are not listed on an exchange and therefore don’t have live pricing data available – they usually conduct a price update once a day.
Trading in unit trusts has a waiting period before the transaction is confirmed, which is typically about 48 hours.
They usually follow an active management strategy which means the asset manager will conduct market research to identify opportunities that can generate above-market returns.
Actively managed portfolios require more management input and consequently ask for higher fees.
If managers are able to consistently outperform the market to the extent of eliminating the greater fees it would be beneficial to pay these higher fees.
ETFs have live pricing data available so that investors can see the performance of their funds while the market is open.
Any transactions in ETFs can be done immediately, and there is no waiting period for trades to be made.
ETFs generally follow a passive strategy. This means they do not aim to outperform the market but rather to deliver the returns of the market.
ETFs will generally try to mimic the holdings of a specific index instead of doing market research and delivering individual stock picks.
This less intensive management structure causes ETFs to ask for lower fees than unit trusts, making it an attractive option.
The JSE changed its listing requirements to include AMETFs bringing together the advantages of both strategies.
Investors are no longer limited to getting only market-related returns when investing in ETFs and don’t need to pay unit trust-like fees when investing in a strategy that can outperform the market.
The 10X Coreshares Income Actively Managed Exchange Traded Fund was the first AMETF to be listed on the JSE. The fund can also be accessed as a unit trust.
Both investment routes have the same underlying investment but differ in the structure of the unit trust and ETF.
- The ETF option charges an ongoing management fee of 0.44% per annum.
- The unit trust charges an ongoing management fee of 0.64% per annum.
Investors who buy the 10X Coreshares ETF through the JSE will, therefore, benefit from lower fees than their unit trust counterparts.
As it is the same investment fund with different fee structures, it is easy to see why the ETF will be the preferred option if an investor has a choice.
It explains why Jordaan said the listing of active ETFs on the JSE is the beginning of the end for unit trusts.