Investing

The new kids on South Africa’s investment block

Actively managed exchange-traded funds (AMETFs) have seen strong growth over the past 18 months in South Africa and are becoming an increasingly important part of investors’ portfolios. 

The first AMETF was listed on the JSE in May 2023 after the company amended its listing requirements to allow these instruments onto its bourse. 

Previously, the only ETFs allowed domestically were those that passively tracked underlying indices or physical commodities.

Investment managers can now list ETFs with active investment strategies and will no longer be restricted to purely tracking a benchmark.

This has led to 26 AMETFs being listed on the JSE, with these funds now having around R10 billion in assets under management. 

AMETFs are traded on a stock exchange in the same way as traditional exchange-traded funds (ETFs) and are regulated as a collective investment scheme. 

Actuary Mark Randall, a member of the Investments Committee of the Actuarial Society of South Africa (ASSA), said that while traditional ETFs  aim to mirror the performance of an index, the goal of an AMETF is to beat the index. 

The AMETF asset manager strives to achieve this by cherry-picking shares as a portfolio manager would do in a unit trust. 

“An AMETF is an innovative wrapper that combines the investment flexibility offered by CIS portfolios with the efficiency and transparency of listed securities,” Randall said.  

“It is simultaneously a CIS and an Exchange Traded Fund, harnessing aspects of both to showcase manager expertise in a transparent and efficient structure.”

“This results in an investment on a stock exchange with a professional asset manager and a licensed provider–the trusted bedrock of the South African CIS industry today.” 

Randall explained that this means that investors can buy and sell shares in the AMETF throughout the day via a share trading platform.

In comparison, units in a unit trust portfolio can only be bought or sold via a unit trust company or a linked investment services provider (Lisp). 

United trusts are priced at the portfolio’s Net Asset Value (NAV), which is determined at the end of each trading day.

“The appeal of AMETFs lies in the ease of access, the cost efficiency of a listed instrument, client liability management via STRATE and the absence of minimum investment amount requirements.” 

Any investor who currently trades on the JSE equity market can also access AMETFs, via their share trading platform. 

AMETFs are positioned as complimenting the traditional way of investing in South Africa – in a unit trust managed by a professional investor on a licenced platform. 

However, they also present a significant threat to this model as they offer effectively the same product but at cheaper prices and more transparently. 

“Some investors may prefer this way of accessing discretionary funds over traditional platforms for reasons including intraday price formation, platform independence, administrative efficiencies and service consolidation,” Randall said. 

He said advisers may also choose to include these instruments in their model portfolios, effectively breaking the hold Lisps have on the market. 

Including actively managed funds alongside single equities and passive products across asset classes can provide a diversified portfolio of listed instruments on a single platform. 

AMETFs with no performance fees could also qualify as a tax-free savings account investment.

Randall also explained that these kinds of funds enable easy access to offshore investment as they are traded in rands on the exchange but can be invested in global assets. 

A significant number of the 26 AMETFs currently listed on the JSE are classified as Global Portfolios that invest at least 80% of their assets outside South Africa.

This provides cheaper and easier access to offshore investments than traditional platforms which may require investors to convert their rands into hard foreign currency beforehand.

In general, AMETFs promise to be far cheaper for investors than traditional unit trusts, as the associated fees charged by investment managers to access the fund are lower. 

Randall explained that investors can expect AMETF fund management costs to be higher than those charged by traditional ETFs, which are cheaper because they are passively managed. 

An AMETF is likely to have a similar fund cost structure to a unit trust, and both have to publish the Total Expense Ratio (TER) and Net Asset Value (NAV) of the fund each day. 

The difference in costs relates to access fees, which consist of brokerage and other trading costs for AMETFs and potential platform or provider fees for a unit trust.

Newsletter

Top JSE indices

1D
1M
6M
1Y
5Y
MAX
 
 
 
 
 
 
 
 
 
 
 
 

Comments