“Foreign” Equity ETFs & ETNs

With the recent rand depreciation stirring interest in offshore products by South African investors, the attributes of locally listed Exchange Traded Products (ETPs), as a means of investing in foreign markets, need to be considered.

ETPs have certain advantages over many other products providing access to offshore investments and markets.

• They are listed on the JSE and trade in rands, but they provide direct exposure to the performance of many major international equity indices or to globally traded assets, such as commodities.

• As inward listed investments, on the JSE, local individual and corporate investors can invest unlimited amounts into such foreign ETPs, without requiring foreign exchange approval or utilising their forex allowances. For institutional investors, prudential limits to offshore investments still apply.

• ETFs and ETNs track indices of the total performance of an equity market or asset and have various mechanisms to ensure that they do not trade at a premium or discount to the current fair value of these indices. The typical premium paid for offshore investments is therefore avoided.

• JSE listed ETPs providing access to foreign markets, are relatively cheap. The investor: avoids having to pay the wide spread charged by foreign exchange dealers to take funds offshore; does not have to pay both local and foreign asset management fees; is not required to pay for asset swap capacity; and is not required to go through the red tape and expense of getting SARS clearance and forex approval to take money offshore. These services are all included in the overall TER of the ETPs. This means a comparative cost advantage for such ETFs/ETNs, compared with many competitive products.

• Foreign ETPs trade on the JSE, therefore are easily accessible. They can be bought or sold at any time, so investors can take advantage of intraday price movements. Liquidity is always provided by market makers in these stocks.

The following ETFs/ETNs providing direct access to offshore markets and assets are currently listed on the JSE.

The ETFs above pay dividend distributions twice annually. The ETNs are total return funds and distributions are automatically reinvested in the portfolio.

In addition, there are also ETNs providing access to physical and futures markets in most commodities as well as the new currency ETNs, all now available on the JSE. These provide an alternative opportunity to gain access to such markets in a transparent, liquid and easily accessible form.

These ETPs are ideal rand hedge products and the wide number of assets and market they now cover makes them a viable option for many investment portfolios. These products can be purchased or sold through any JSE member stockbroker or through specialised investment platforms such as the etfSA Investor Scheme^TM.