JSE views ETFs as a haven for institutional investors

Professional and institutional investors wishing to gain exposure to different sectors, asset classes such as equities, commodities or government bonds are encouraged to use Exchange Traded Funds (ETFs) via Africa’s largest stock exchange, the JSE.

ETFs offer investors a diversified set of securities, including stocks and commodities, allowing investors access to many areas of the local and global market. The JSE’s ETF range had humble beginnings when launched nearly 20 years ago. The focus was on traditional local and global vanilla equity ETFs and precious metals such as gold.

Over the years ETF investment strategies have shifted from traditional broad-based equity market indices to a variety of other asset classes as well. Today ETFs 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 approximately R600m in ETF value daily, reflecting an industry with a market capitalisation of close to R100bn from 8 different ETF issuers.

“In today’s significantly volatile environments, trading instruments such as ETFs offer attractive and diverse opportunities for investors t. ETFs trade just like ordinary shares, therefore also able to aid in liquidity management, ideal for market professionals. It is therefore possible to ‘park’ excess cash in ETFs, until another investment decision is made. In addition, investors may choose to use ETFs to hedge market risk or choose to short ETFs, which serve as a cost-effective alternative to derivatives,” says Adele Hattingh, Manager of Business Development and Exchange Traded Products (ETP) Primary Markets.

“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,” adds Hattingh.

Currently, the JSE offers close to 30 SA equity ETFs, 17 international equity ETFs, 2 Africa (ex-SA) equity ETFs, 8 commodity based ETFs, 11 local and global bond ETFs, 1 money market ETF, 2 multi-asset class ETFs and 6 local and global property ETFs. The total assets under management for ETFs and Exchange Traded Products (ETPs) globally is expected to exceed $7trillion by 2021.

“The new normal of the COVID-19 environment that the world find itself, accompanied by extreme global market volatility, has offered an opportune stress test for market and ETF liquidity. During significant downward swings and market turbulence, investors have still been able to enter and exit their ETF positions,” says Hattingh.

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.

The JSE is committed to providing investors with simple, liquid, low-cost solutions, and the ability to make their investment journey their own.