Low costs, better returns: why SA investors are piling into ETFs
'Pro-consumer' exchange-traded funds are rising in popularity around the world
Exchange-traded funds (ETFs) are one of the most popular ways of gaining exposure to listed companies. They are also listed on stock exchanges such as South Africa’s JSE. The key to ETFs is that they are passive funds. In other words, the asset manager selects an index such as the S&P South Africa Top 50 (an index calculated by S&P Dow Jones Indices that comprises the top 50 largest shares listed on the JSE) and buys the shares in that index into the ETF in accordance with the index. Indices are all rules-based, which means the construction of the portfolio is transparent and investors know at all times what is in their ETF. This helps align the expectations of investors and the ETF provider. The ETF is then listed on the exchange and investors can buy or sell it like a share. While the ETF will be rebalanced periodically to ensure it remains aligned to the index it tracks, it is not an actively managed fund and there is no team of stock pickers evaluating companies to include in ...
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