Adviser-friendly solution as Absa launches linked ETFs

ABSA Investment Management Services (AIMS) has announced the expansion of its linked investment range to include exchange traded funds (ETFs), the index-tracking instruments that have enjoyed worldwide growth in recent years, but remain a relative novelty locally.

Integration into a one-stop solution across a single, convenient and transparent LISP platform will ensure adviser participation in a growth market at an acceptable level of remuneration, said Sylvester Kgatla, head of product development at Absa Investments.

“We believe it will often be in the consumer’s interest to incorporate ETF exposure into a wider solution,” he added. “We see built-in ETF exposure via a linked investment as both adviser- and consumer-friendly.

“Many consumers are still not familiar with ETFs. Therefore, knowledgeable advisers can add significant value.

“Further reassurance is provided by the ETF credentials of Absa Capital, a financial solution-provider that helped to pioneer the local development of ETFs and created these new offerings for AIMS.”

AIMS’ ETF options include a range of Shari’ah-compliant products through the Absa Islamic Investment platform, believed to be the first time that indexed Islamic ethical investment has been made available in the local market.

Another South African first entails the use of eRAFI valuation matrics to create indexed funds that monitor sales, cash flow, book price, dividends and other indicators as well as market capitalisation. This creates extremely close correlation with a targeted index and further improves the decision-making of investment professionals when determining portfolio weightings.

Sylvest Kgatla added: “Worldwide growth of ETFs and gradual local market penetration suggest that passive investment will become increasingly popular. A track record for competitive returns at relatively low cost will drive demand.

“Internationally, ETFs are mainly marketed by advisers, though consumers can go directly to ETF-providers. However, LISP integration on the Absa pattern will encourage consumers to consult their advisers.

“Entry point into passive, index-tracker investment for many South Africans will be via pre-packaged ETFs on a linked investment platform. Involvement of advice professionals will contribute to the demystification of indexation while moving this option into the investment mainstream.”

AIMS’ ETFs can be built into an investment account or endowment product, a retirement annuity, preservation fund or a living annuity.

The offerings are:

NewFunds Shari’ah Top 40 Index ETF (reflecting the performance of Shari’ah-compliant companies from the JSE Top 40);

NewFunds eRAFI™ Overall SA Index ETF (reflecting the Plexus Absa CapitaleRAFI™ Overall SA Index);

NewFunds eRAFI™ Financial 15 ETF (tracking financial service companies on their underlying value indicators);

NewFunds eRAFI™ Resource 20 ETF (tracking resource companies on their underlying value indicators); and

NewFunds eRAFI™ Industrial 25 ETF (tracking industrial sector companies on their underlying value indicators).