Investment in Passive Investment Products Now Close to R150 Billion

As at the end of December 2012, the total market capitalisation (assets under management) of ETFs listed on foreign markets that track South African equities, plus locally listed or registered index tracking ETPs and unit trusts, amounted to R148,0 billio

This passive investment exposure is made up as follows.

Foreign Investors

There are 6 South African dedicated equity ETFs listed on international stockmarkets, together with some 80 Broad Emerging Market Equity ETF funds, which typically have at least 7% of their portfolios allocated to South African equities, to replicate the emerging market index weightings.

This investment by foreign investors in South African equities, through offshore ETFs, totalled some R93,6 billion at end of 2012.

Local Investors

As at 31^st December, there were 61 ETPs listed on the JSE with a R47,8 billion total market capitalisation. In addition, 15 index tracking unit trusts had R6,6 billion in assets under management.

Table 1

The market for passively managed products can be assessed in the following two categories:

• Assets Under Management (AUM) for Index Tracking Exchange Traded Products (ETFs/ETNs).
• AUM for index-tracking Unit Trusts

As at 31^st December 2013, there were 61 ETPs issued on the JSE, with total assets under management of R47700 million.

This part of the passive market has grown rapidly over the past 5 years from 10 ETFs in 2007, with R12,6 billion AUM, to 61 ETP funds and R47,8 billion AUM at the end of 2012.

Table 2

At present, 15 index tracking unit trusts are registered in South Africa, which have passive mandates. Most track the Top 40 or All Share Index, but there are also unit trust products, tracking property, dividend plus and the RAFI 40 indices. As at June 2012, the total assets under management for the passive index tracking funds was R6630 million (R6,6 billion) (see attached Appendix A).

An approximation of the extent of foreign investment in South Africa’s equity markets, can be established by looking at the Funds invested in ETFs, which either:

• Directly track a South African index, typically the MSCI South Africa 50 or the FTSE/JSE Top 40; or
• Broad emerging market index ETFs, which track, for instance, the MSCI Emerging Market Index. This index allocates approximately 7% of its total portfolio weighting to South African equities.

There are 6 ETFs dedicated to investing in South African indices listed and traded on stockmarkets in Europe and the USA. Only one of these is listed in the USA. The total assets under management, as at December 2012, were US$868,4 million, approximately R7815,6 million at current exchange rates.

This category of ETFs, which invests across some 21 Emerging Nations, including South Africa, is one of the most popular ETF sectors, accounting for some 14% in AUM of all equity ETFs around the world.

Details of the broader ETFs for all emerging markets are shown in Appendix B (for Europe and United States). Some 30 Broad Emerging Markets ETFs, with US$21596,6 million AUM are listed in Europe and around 50 Broad Emerging Market Equity ETFs are listed in the USA, with US$114592,7 million AUM. In rand terms, at the current exchange rate of R9 to the US dollar, the total assets under management in such funds is R1225703,7 million or R1,225 billion.

These emerging market ETFs typically track the MSCI Emerging Markets index, but as can be seen from Appendix B, other indices or sub-indices are also utilised. The MSCI Emerging Market Index allocates 7% of its portfolio weighting to South African equities. Using this benchmark, the allocation to South Africa would be about R85,8 billion.

Combined, these two ETF categories account for around R93,6 billion investment in South African equities, significantly larger than the assets invested in ETFs listed on the JSE.