ETFs set to become R470 trillion industry by 2030

Exchange-traded funds (ETFs) are becoming increasingly popular among investors and are set to become a $25 trillion (R468 trillion) industry by 2030.

Satrix CIO Kingsley Williams told Classic Business that ETFs are also a popular investment vehicle in South Africa.

ETFs are similar to unit trusts, where money from many investors is pooled. However, instead of being under the control of a fund manager, it tracks a particular index.

“There are quite a few reasons for this phenomenal take-up of what has really been quite a revolutionary innovation in the investment world,” he said.

“Having full transparency daily of what an investment instrument or investment fund has inside of it – it’s been quite a revolutionary development and technological innovation within the financial services space.” 

Williams explained that index tracking – the foundation around which ETFs have been developed and offered – gives investors certainty about the investment strategy a particular ETF is adopting.

This is because ETFs typically track indices constructed around clearly defined rules and systematic processes for capturing a particular strategy.

“Often, it’s termed ‘passive investing’, which I think most investors would infer that they’re getting market-cap-weighted exposure to a particular asset class or market segments,” Williams said. 

“But indices can be a whole lot more than just that. You can construct indices using any number of elaborate rules to deliver a particular investment outcome through time.”

This, therefore, also allows the investment strategy of a particular ETF to eliminate emotions when rebalancing an ETF.

“And I think the power of that certainty and investment strategy is that investors know that they are always going to get that because the index rebalances in an unemotional way on a systematic predefined schedule,” he said.

“So it gives you high consistency of exposure to that particular strategy through time.”

South African ETFs comprise a small proportion of the global ETF industry but are becoming increasingly popular in the country.

Satrix is the country’s largest index-tracking investment products and ETF provider, with over R150 billion in assets under management.

Sygnia – the country’s second-largest ETF provider – reported recently that Sygnia Itrix assets under management amounted to R37.2 billion in 2023.