One thing investors should add to their 2025 portfolio
Actively managed exchange-traded funds (AMETFs) are gaining popularity and offer cost-efficiency, accessibility, flexibility, and regulatory protection, making them a promising addition to investment portfolios for 2025.
This is according to Niki Giles, Head of Strategy at Prescient Fund Services, who said that AMETFs are making waves globally in the investment world.
“In the US alone, the assets under management (AUM) for active ETFs currently stand at an impressive $773 billion – up by more than 90% since the end of 2018,” she said.
“This surge in popularity is reflected in the number of new launches. As of 31 August 2024, 309 of the 415 newly launched ETFs were actively managed.”
“Europe has seen its own boost, with actively managed ETFs reaching a total AUM of $49.29 billion by the end of the third quarter this year.”
She added that a landmark was reached when a JP Morgan fund became the first European active ETF to top $10 billion in AUM.
However, this shift isn’t only limited to international markets.
The JSE introduced new regulations in October 2022 that opened the doors for AMETFs.
“Previously, only index-tracking or passive ETFs were allowed on the JSE. The first AMETF was listed in May 2023, marking a significant step in South Africa’s ETF market,” she said.
“Today, the number of AMETFs on the JSE is steadily growing, reflecting a broader global trend.”
The potential of AMETFs is undeniable. However, Giles added that certain barriers to growth remain.
“The adoption of AMETFs hinges on availability. Until there is a critical mass of AMETFs that offer sufficient diversification across asset classes, the uptake will likely remain slow.”
“However, once enough AMETFs are listed, it could spark greater investor interest and spur innovation in accessing the JSE.”
Lack of choice is another growth barrier, Giles explained. “Currently, the number of AMETFs available is limited, particularly across different asset classes.”
“As a result, many investors continue to rely on traditional CIS platforms to diversify their investments. Until more AMETFs are launched, the scope for diversification in this space will remain narrow.”
Despite these challenges, the introduction of AMETFs on the JSE has the potential to reshape the landscape of investment in South Africa.
“With global and local markets moving towards more dynamic, accessible, and cost-effective investment vehicles, it seems likely that AMETFs will continue to grow in popularity.”
“For investors, this presents new opportunities to blend active management with the liquidity and convenience of ETFs – making these products well worth the attention they’re receiving.”
Giles provided a list of reasons AMEFTs should be part of your 2025 portfolio.
Cost efficiency
ETFs, in general, are perceived as cheaper investment vehicles compared to their unlisted collective investment scheme (CIS) counterparts.
This is largely because ETFs have historically been passively managed, resulting in lower management fees. While actively managed ETFs may have slightly higher costs than passive ETFs, they could provide a more cost-effective alternative to traditional unit trusts.
The lack of classes for listed AMETFs democratises the cost of investing for retail investors, providing a single standardised cost structure that is accessible to all investors.
Accessibility
One of the standout benefits of AMETFs is accessibility. As exchange-traded products, they can be bought and sold as easily as any other listed security.
This ease of access contrasts sharply with traditional unit trusts, which require investors to go through management company platforms or intermediaries like LISP platforms to trade.
Once an AMETF is listed, anyone with access to an online trading platform can purchase it, no matter where they are in the world.
As Roland Rousseau analogises, “Listing an ETF is like selling your product on Amazon—compared to a mutual fund, which can only be found in a physical store.”
Flexibility and liquidity
Unlike unit trusts, which can only be bought or sold at the fund’s Net Asset Value (NAV) at the end of the trading day, AMETFs offer real-time flexibility.
Investors can trade them throughout the trading day at market prices, providing an added level of liquidity.
Regulatory protection
All AMETFs are collective investment schemes and are regulated by South Africa’s Financial Sector Conduct Authority (FSCA) under the Collective Investment Schemes Control Act.
This means that investors enjoy the same regulatory protections as they would when investing in unlisted unit trusts.
No minimum investment
One significant advantage of AMETFs is that they don’t have a minimum investment amount requirement, unlike many unit trust platforms that often require a sizable initial outlay.
This makes AMETFs accessible for smaller investors, allowing them to purchase whole units and build wealth incrementally.
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