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SIMON BROWN: I’m chatting now with Mike Brown, managing director at etfSA. Mike, I admire the early morning time.
You place out a report yesterday on the exchange-traded product trade for 2021. Property underneath administration have been up 22.5%, now topping R136 billion. Maybe the large standout for me have been two factors.
The primary is very large progress in exchange-traded notes, that are barely completely different from ETFs. We’ve seen FNB issuing lots however we have now gone from 2019, two years in the past, to R82 billion on the finish of 2021.
MIKE BROWN: Good morning, Simon. Final 12 months was a superb 12 months for the ETP [exchange-traded product] trade for the product trade, as you say. There was a progress of almost R25 billion out there cap of the trade or a rise of twenty-two%, and the variety of ETFs in subject went from 137 in 2020 to 168 on the finish of 2021. Now there are solely about 300 firms listed on the JSE, and sadly there are 168 ETFs and ETNs.
One of many points you do level out, although, is that there was a giant enhance within the variety of exchange-traded notes issued on the JSE through the course of final 12 months. An exchange-traded notice is a listed safety, similar to an exchange-traded fund, however the distinction is with an exchange-traded fund the issuer of the safety has to carry the underlying portfolio of shares. So, in case you are issuing an ETF on the Prime 40, you must personal all of the Prime 40 shares and precisely the constituent weightings that make up the index so your portfolio that you simply maintain precisely replicates the index, and due to this fact the value of the ETF trades on the value of the index.
With exchange-traded notes, you aren’t compelled to carry the total portfolio, so you’ll be able to duplicate or replicate an index utilizing quantitative methods or no matter you have got. You could say, ‘Properly, I can duplicate the Prime 40 Index by solely proudly owning 20 shares, fairly than all 40 shares, as a result of I can do some fancy footwork and arithmetic and my 20-share portfolio successfully replicates the index’.
However then whoever points that ETN has to ensure that they gives you the efficiency of the index – not solely the index, however the revenue from that index – in order that they provide the whole return. The massive distinction with an ETN is that whoever points an ETN has to ensure that the return of that ETN provides you precisely the return of the index, and due to this fact you must take the creditworthiness of the issuer of the ETN into consideration.
SIMON BROWN: Within the case of South Africa, we have now a few large banks. We’ve received the Union Financial institution of Switzerland, UBS; it’s not a zero danger, however I might name it a really small danger.
The opposite level that basically struck residence within the report you despatched out – you checklist the completely different managers and their holdings, three of them – Satrix, Sygnia and Absa collectively have 75% of the market, which is large slice, however [they are] additionally extremely aggressive. They’ve respectively 27.5%, 25.5%, and 22.5%. We’ve really received a really aggressive ETP area, which is nice for traders.
MIKE BROWN: Sure, it’s. It’s over R100 billion of the R137 billion that’s issued by simply three firms – as you say, Absa Capital, Sygnia, Itrix and Satrix. It’s very aggressive between these prime three. The opposite eight issuers of ETFs and ETNs are a lot smaller. So we’ve received an trade dominated by three issuers, by three gamers, and that’s not a nasty factor as a result of you’ll be able to have various competitors between three large firms, and that’s what’s occurring.
In the course of the course of 2021 up till the top of 2020 Absa has at all times been the most important issuer of ETFs in South Africa, primarily due to their problems with NewGold, NewPlatinum and NewPalladium, the commodity ETFs. In the course of the course of 2021 each Satrix and Sygnia overtook Absa and their focus is on foreign-referenced ETFs. If you wish to purchase an S&P right here, an American ETF, if you wish to purchase a world ETF, if you wish to purchase an ETF itemizing, attempt these firms. That’s the place Satrix and Sygnia are available in. It’s nice that they’ve managed to overhaul Absa and so they have a much wider band and vary of ETFs to supply to the general public.
SIMON BROWN: Total a powerful trade, a great-looking trade. We’ll go away it there. Mike Brown, managing director of etfSA, I admire your early morning time.
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