Professional and institutional investors wishing to gain exposure to different sectors and asset classes such as equities, commodities or government bonds are being encouraged by the JSE to use exchange-traded funds (ETFs).
In a July 9 media release, the stock exchange said ETFs offer investors a diversified set of securities, including stocks and commodities, allowing them access to many areas of the local and global market.
ETFs today range from broad market equity exposure, local and global debt, property, precious metals, Africa equity ETFs and Smart Beta ETFs.
Currently the JSE trades on average about R600-million in ETF value daily, reflecting an industry with a market capitalisation of close to R100-billion from eight different ETF issuers.
“In today’s significantly volatile environments, trading instruments such as ETFs offer attractive and diverse opportunities for investors. ETFs trade just like ordinary shares, therefore are also able to aid in liquidity management, ideal for market professionals,” says business development and exchange traded products (ETP) primary markets manager Adele Hattingh.
She adds that it is “therefore possible to ‘park’ excess cash in ETFs”, until another investment decision is made. In addition, investors may also choose to use ETFs to hedge market risk or choose to short ETFs, which serve as a cost-effective alternative to derivatives,” she explains, adding that from a cash flow distribution perspective, though ETFs may not give you direct ownership of the underlying securities, ETF owners are still eligible to receive dividends and interest income if the underlying securities pay dividends.
Currently, the JSE offers close to 30 South African equity ETFs, 17 international equity ETFs, two African ETFs, eight commodity-based ETFs, 11 local and global bond ETFs, one money market ETF, two multi-asset class ETFs and six local and global property ETFs.
The total assets under management for ETFs and ETPs globally is expected to exceed $7-trillion by 2021.
According to Hattingh, the new normal in the Covid-19 environment in which the world finds itself, accompanied by extreme global market volatility, has offered an opportune stress test for market and ETF liquidity.
She says that during significant downward swings and market turbulence, investors have still been able to enter and exit their ETF positions.
“The ETF environment is well-regulated and offers investors reassurance that markets will function optimally, and that buyers and sellers will receive what is due to them.”