State of South Africa’s R129 billion ETF market

Mike Brown

The market capitalisation of all South African Exchange Traded Products (ETP) at the end of 2022 was R129 billion, down 5% year-on-year.

Exchange Traded Products include exchange-traded funds (ETFs), exchange-traded notes (ETNs), and actively managed certificates (AMCs).

Mike Brown, managing director of ETFSA, said the 5% annual decline in the South African ETP industry was expected.

“The decline in the size of the exchange traded product industry last year was the first such drop in the total value of the securities listed by ETP issuers since 2018,” he said.

The significant decline in the equity markets, particularly globally, was the key factor in the shrinking of the size of the South African ETP industry.

“For instance, the US S&P index fell by 20% in 2022, and large declines were recorded in many other equity markets worldwide,” he said.

Bond market prices also fell as interest rates rose in response to the unexpected surge in international inflation rates.

The South African equity market bucked the trend by recovering by over 15% from lows recorded in September 2021 and ending the year at close to record highs.

“The ETP industry’s resilience against this unfavourable background in the financial markets was notable,” Brown said.

South African exchange-traded product (ETP) industry market cap at year-end (R million)

Growth in South African ETPs

The number of Exchange Traded Products listed on the JSE rose from 168 at the end of 2021 to 183 at the end of 2022.

Part of the growth in the number of ETP products available to local investors was the introduction by the JSE of two new categories for Exchange Traded Products in October 2022.

  • Actively Managed Exchange Traded Funds (AMETFs) – these allowed issuers and portfolio managers to use actively managed strategies to provide a return for the investor instead of passively tracking an index or other type of asset.
  • Actively Managed Certificates (AMCs) – these are non-interest paying debt instruments – similar to ETNs – where the investor accesses the performance of a basket of securities that are actively managed according to a specific mandate.

AMCs have already gained some traction, and there are 22 such products listed on the JSE, despite this category of the JSE listing requirements only being introduced in October 2022.

The conversion of 14 actively managed ETNs to AMCs by Union Bank of Switzerland, helped get the AMC category off to a flying start.

In addition, UBS has listed 5 new AMCs, all operated by independent asset managers.

Standard Bank has also recently listed 3 AMCs, all with different portfolio managers.

“Further expansion of the number and variety of Exchange listed products can be expected in future,” Brown said.