New company enters JSE AMETF arena

Financial services group 27four debuted its first actively managed ETF (AMETF) on the JSE today – the first of four the company plans to roll out.

The 27four Large Cap Equity AMETF was listed on the JSE today, marking the beginning of the company’s strategic rollout of four AMETFs designed to provide retail and institutional investors with enhanced exposure to the country’s largest and most liquid companies.

The 27four Large Cap Equity AMETF is designed to achieve long-term, sustainable capital growth by investing in some of the largest and most stable companies listed on the JSE. 

By managing risk effectively, it aims to minimise the impact of market volatility while seeking to maximise returns. 

This strategy involves a careful selection of investments that closely follow the fund’s benchmarks but allows for slight adjustments in sector allocation and investment style to capitalise on market efficiencies.

The 27four Large Cap Equity AMETF primarily invests in financially robust ordinary shares. 

It also has the flexibility to include high-quality preference shares, debenture stocks, bonds, and both secured and unsecured notes – all purchased at fair market values. 

While the fund’s focus is predominantly on South African markets, it is also permitted to diversify by investing in select international markets, enhancing its potential for growth and risk management.

“Innovative offerings like the 27four Large Cap Equity AMETF are crucial for enriching our investment landscape and advancing the growth of South Africa’s local markets,” said Adèle Hattingh, Business Development & Exchange Traded Products Manager at the JSE. 

“Such ETFs provide investors with new opportunities to gain exposure to major companies, further enhancing the resiliency of our financial ecosystem and improving market access.” 

27four is scheduled to introduce three additional AMETFs that leverage quantitative, data-driven strategies. 

These funds will use advanced techniques, such as style rotation and machine learning, to adapt dynamically to changing market conditions and enhance investment returns.

Today’s listing brings the number of ETFs available on the JSE to 102, with a market capitalisation exceeding R165 billion.

AMETFs on the JSE

In September 2022, the Financial Sector Conduct Authority (FSCA) approved amendments to the JSE listing requirements to enable the listing of AMETFs.

AMETFs are funds traded on the market where the manager uses an actively managed strategy to produce a return for investors.

They differ from passive, index-tracking ETFs in the following ways –

• Passive ETFs typically track an index, like the JSE Top 40, and the underlying portfolio is updated regularly to reflect changes in the index.
• Active ETFs are where an investment manager actively manages a portfolio with intraday trading and similar activities.

In April 2022, the JSE announced its intention to amend the JSE listing requirements to enable the listing of AMETFs.

Valdene Reddy, director of capital markets at the JSE, said it was an important change for institutional and retail investors to develop beneficial investment strategies.

“There is rising appetite locally for listed actively managed ETFs. It is in line with international trends where demand for active ETFs is growing,” she said.

Reddy said the amendment of AMETF listing regulations is expected to increase the offering and number of ETF listings on the JSE.

“Most importantly, passive and active ETFs offer investors an opportunity to diversify their portfolios cost-effectively.”

“With AMETFs, we are able to manage risk effectively and enhance returns, bringing high-quality investment opportunities to a broader audience,” said Daniel Page, head of beta solutions at 27four.

10x Investments’ head of client solutions, Chris Rule, said the JSE’s move to allow listings of AMETFs keeps the bourse at the forefront of financial market innovation and, more importantly, is a positive development for South African investors.

“The real significance of this move is that issuers like CoreShares by 10X can now list multi-asset strategies in ETF format.”

“This means that local institutional and retail investors will be able to use these funds in the pursuit of specific outcomes – just like they would with more traditional multi-asset strategies.”

The introduction of actively managed ETFs is a natural progression of this burgeoning segment of the investment market, which has ballooned in size over the past decade.

ETFs have traditionally been seen as passive investment vehicles that track indices such as the S&P 500 and the MSCI World Index.

But thanks to the new legislation, ETFs will no longer be confined to index tracking, and actively managed ETFs can now become flexible investment products which were previously off-limits.

According to Chris Rule, “ETFs, which are essentially tradeable collective investment schemes, offer low-cost access to a broad range of underlying assets.”

This means investors who prefer owning transparent, easily tradeable assets can now access funds that were once only available in the traditional unlisted unit trust format.