Passive investments gather momentum as Sim.Smartcore and Satrix deal takes off

Sanlam Investment Management (SIM) expects passive investments, such as exchange traded funds (ETFs), to grow significantly, buoyed in part by government’s recent support for them.

National Treasury’s retirement reform paper has described passive funds as being ‘under-utilised’ and called for them to play a more substantial role in retirement fund investing in South Africa. “Passive investment management, which is significantly cheaper and not demonstrably inferior to active management over the long term, is under-utilised in South Africa,” the department has said in its summary on retirement fund costs.

The timing of the report dovetailed with SIM’s strategic decision in May to buy the remaining 50% shareholding in Satrix, SA’s largest provider of equity ETFs, a deal that was formally approved by the Competition Commission recently. The low-cost and transparent nature of passive investments, such as index trackers and ETFs, has made them very attractive.

According to SIM, there is no doubt that cost is a major differentiator for ETFs and index funds, particularly for investors who prefer knowing what they are going to get – market-related performance – and how much they are going to pay for it.

SIM has one of the strongest passive investment offerings in South Africa, called sim.smartcore. The merger of sim.smartcore and Satrix could prove to be a formidable combination. “Satrix has up to now only offered ETFs , while we sim. smartcore has a significant institutional and unit trust footprint. Now, with the merger, we can offer all three product vehicles,” says head of sim.smartcore, Helena Conradie.

SIM helped to set up Satrix in 2000 as the first ETF provider in the country. Satrix now has about R12-billion under management. sim.smartcore was also set up in 2000, with R800-million in enhanced index money. Today, its assets under management have risen to R30-billion.

SIM believes passive investments can complement active fund investments and that there’s more than enough space for both of them.

“In the retirement industry, the concept of a core-satellite portfolio is well-known. This is a portfolio in which passively managed funds comprise the majority of the portfolio, bringing down the amount paid for investment management, and actively managed satellites (active funds) provide the performance spice around the edges,” says Conradie.

Up until now Satrix has only been offering equity funds, but with Satrix and sim.smartcore now working collaboratively as a team, it’ll span all asset classes. “We will be able to offer a wider range of funds in three different vehicles - unit trusts, segregated funds from institutional investors and ETFs. Our products will stay true to the Satrix philosophy of being transparent and cost-effective,” says Conradie.

Sanlam now owns the whole cycle, from product development, asset management, administration, management, as well as distribution.

“It is a huge opportunity for us, because we’re combining active and passive management and offering a wide range of products,” says Conradie.

The benefits of both passive and active investing are among issues that will be raised at the African Cup of Investment Managers in Cape Town on September 6 and 7. Around 400 people are expected to attend the conference, which will boast top speakers in the field.