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Exchange traded products in 2013 – performance issues

17 January 2014 Mike Brown, etfSA.co.za
Mike Brown, Managing Director, etfSA.co.za

Mike Brown, Managing Director, etfSA.co.za

The past year, ended 31st December 2013, turned out to be better than expected for financial markets. Calculated on a total return basis, i.e. with all dividends reinvested, the best performing indices available in ETF products, in 2013 were:

Background



Top Performing ETPs in 2013

Not surprisingly, the top performing listed ETPs on the JSE, in 2013, were the DBX Tracker funds, covering developed global equity markets.

The best performing local index tracker in 2013 was the Satrix INDI 25 (for the second year running). As the graph below shows, the spread of the top performing ten ETPs is quite wide. In all, 32 out of the 80 index tracking ETPs and Unit Trusts available in South Africa were able to outperform the 20,67% total return of the FTSE/JSE All Share index in 2013. Who says you can’t get alpha returns by using index tracking passive investments?



How Do ETPs Fare in Comparison with Actively Managed Unit Trusts?

The underlying table taken from the Quarterly Unit Trust Survey, produced by Profile Data, illustrates that the Satrix INDI 25 ETF is the champion of the South African retail Collective Investment Scheme Industry for longer-term periods. It beats all other products available to the South African public over the 5 year, 7 year and 10 year periods. Over the 3 year period, the Satrix INDI 25 ETF, with a 29,40% total return, would still feature in the top ten funds. In this 3 year period, the DBX Tracker MSCI USA ETF, was the second best performing fund in the South African market.



For the same passively managed index tracker, the Satrix INDI 25 ETF, to come out tops against over 1000 Collective Investment Schemes for 3 of the periods measured (5, 7 and 10 years), is remarkable and casts some aspersions on the value added by the actively managed unit trust industry.

How Many Unit Trusts Beat Their All Share Benchmark?

The graph below shows the number of actively managed general equity unit trusts (excluding passive index trackers) that were able to better the total return performance of the FTSE/JSE All Share index over periods ranging from 1 year to 20 years in South Africa.



On balance, about 20% of the actively managed unit trusts beat their benchmark (the All Share index) over the time periods surveyed. This is net of total expense ratio costs, but does not include the costs of distribution, platform fees, financial advice, commissions, etc, which would reduce the outperformance ratio considerably.

Given this performance, and taking into account that there is limited consistency amongst active managers in terms of beating the index over all periods, a strong case can be made for including passive index tracker products in portfolios, particularly for long-term investment.

The full index tracking Performance Survey, covering all 63 ETPs and 17 index tracking unit trusts, can be sourced here: http://www.etfsa.co.za/docs/perfsurvey/perfsurvey_dec2013.pdf
 




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