The number of exchange-traded products (ETPs) that are listed on the JSE is growing, particularly now that actively managed portfolios are also accommodated, and industry players are predicting further expansion in the number and variety of products available in South Africa.
The number of ETPs listed on the JSE rose from 168 at the end of 2021 to 183 at the end of 2022, according to etfsa.co.za statistics. Part of the growth was the introduction by the JSE of two new categories in October last year.
These include actively managed exchange traded funds (AMETFs) and actively managed certificates (AMCs).
The former 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. The latter are non-interest paying debt instruments - similar to exchange-traded notes (ETNs), where the investor accesses the performance of a basket of securities that are actively managed according to a specific mandate.
According to etfsa.co.za, AMCs have already gained some traction and there are already 22 such product listings.
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 had listed five new AMCs, all operated by independent asset managers. Standard Bank had also recently listed three AMCs, all with different portfolio managers.
The total market capitalisation of all ETPS (which include exchange-traded funds, ETNs and AMCs), at the end of 2022 fell by some 5% on the value of the ETP industry, at the end of 2021.
According to Mike Brown, managing director, etfSA.co.za, the decline in the size of the exchange traded product industry last year was the first such drop since 2018.
“The significant decline in the equity markets, particularly globally, was the key factor in the shrinking of the size of the local industry. For instance, the US S&P index fell by 20% in 2022, and large declines were recorded in many other equity markets worldwide. Bond market prices also fell as interest rates rose in response to the unexpected surge in international inflation rates, mainly due to the supply disruptions brought about by the unexpected Russian invasion of Ukraine.
“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,” he said.
“The ETP industry’s resilience against this unfavourable background in the financial markets was notable, however,” Brown added.
According to the etfSA.co.za ETP and index tracking unit trust monthly performance survey for December, South African general equity and bond ETFs outperformed foreign referenced ETPs, for the past 3 years.
However, over the longer-term, underpinned by an average depreciation of the rand against the US dollar of 7.8% per annum over the past decade, foreign ETPs had delivered the better total returns for local investors.
Brown said the sole focus on local listed assets, had resulted in long periods of relative underperformance.
“The ETP and index tracking unit trust survey over the past 10 years presents a strong case for diversification, not only between local and offshore assets, but also for the use of other asset classes, like bonds, listed property and commodities,” he said.
The survey measures total investment returns for all 183 JSE listed ETFs, ETNs and AMCs, and 31 index tracking unit trusts for periods of three months to ten years.
In addition to the increase of the number of ETPs listings, there was also an uptick in the net capital raised by the issuers, either through new listings, or from further issues of existing products.
All ETPs are open-ended, which enables securities to be listed or delisted on the JSE, in order to cater for market demands for the products.
“This open-ended nature of exchange traded products ensures that the ETFs, ETNs and AMCs trade at their net asset value and not at discounts or premiums due to excess market demand for the product,” said Brown.
Some ETP issuing houses, namely Satrix, Sygnia Itrix and CoreShares, consistently raised new capital mainly by additional issues of ETPs already listed on the JSE, to meet market demand for their particular products.
The issue of AMCs later in the year by Union Bank and Standard Bank, also brought new capital into the market. These positive capital gains were largely offset by delisting of ETPs by the issuers of commodity backed ETPs, namely Absa Capital, under the NewGold brand and by Standard Bank, under the 1nvest brand.
Also, Investec Capital delisted its two ETNs covering the JSE Top 40 and SWIX Top 40 indices, as these notes reached their maturity date.
“Most equity tracking ETFs, listed foreign referenced and locally referenced indices, continued to attract new investor interest and led to additional securities being listed. It remains to be seen if the delistings of commodity ETPs will continue in 2023, or if this was more of a one-off event,” Brown said.
BUSINESS REPORT