ETFs a viable way to start building a share portfolio

Carin Meyer, CEO of FNB Investing.

Building a share portfolio is not an overnight accomplishment; it’s doable, however, starting small coupled with a long-term investment horizon is essential.

Carin Meyer, CEO of FNB Investing, says “starting a share portfolio is not as expensive an exercise as it’s usually thought to be, the most important part is doing some research and finding out what products are available. Exchange Traded Funds (ETFs) are a good way to step into the stock market; these types of funds are the most cost effective way of investing in shares. Through ETFs a prospective investor can assemble a balanced portfolio of shares without having to pick shares themselves, it’s all bundled. An ETF is the same as other shares in the stock market, the major difference being that an ETF invests in different companies, instead of just a single entity”

“FNB offers an ETF investment account that for only R300 a month, an investor can invest in the top 100 companies on the JSE through a single trade. This, of course, requires a long term horizon – real value can only be derived in shares when invested over the long-term”.

Investing in ETFs enables investors to spread risk because the platform provides access to companies in various sectors such as financial services, consumer goods and manufacturing among others.

There are various ETFs in market and making a selection depends on one’s appetite for risk. The Top 40 ETFs are feasible in that they track the performance of the 40 largest companies on the JSE. The RMB MidCap ETF is the only one of its kind; it invests in the 41st to the 100th largest companies on the JSE.

“Companies that are included in the fund may vary depending on the structure of the fund, some ETFs consist of the 40 top listed companies on the JSE; others invest in companies that are typically known for paying out significant dividends while certain funds invest in companies in the industrial sector of the market and some even invest in bonds making it an easy way to invest in this asset class,” adds Meyer.

It’s important to note that unlike a Unit Trust, an ETF is not actively managed by the fund manager. An active managed strategy means that the fund manager is continuously buying and selling the holdings in the fund in an effort to maximise gains.

Active fund managers come at a price and them outperforming the market is not guaranteed. The impact of such unnecessary costs has a severe impact on the performance of your investment. ETFs are passively managed which means that the companies in which the fund is going to invest is determined upfront with very little if any changes over time. This means that it comes at a lower cost to you leaving more money to grow with the market.