CONSTRUCTING SUCCESSFUL ETFS BUILDING AFRICAN FINANCIAL MARKETS. Nerina Visser September 2014

Transcription

1 CONSTRUCTING SUCCESSFUL ETFS BUILDING AFRICAN FINANCIAL MARKETS Nerina Visser September 2014

2 AGENDA What are ETFs and why are they attractive? Different kinds of ETFs What is needed to set them up? A step by step guide Market conditions and considerations, the ideal target market and how to market ETFs Examples of ETFs in Africa. How do they work? How do you make them easy to trade? Sharing our experience Questions and discussion Confidential 2

4 EXCHANGE TRADED FUND (ETF) DEFINED Listed (necessarily) index-tracking (usually) collective investment scheme (sometimes) Listed: Securities listed and traded like normal shares on the stock exchange But give access to a portfolio of investments rather than a single security Ensures real time prices during the trading day Allows for buying and selling at market prices Index-tracking: Fund replicates the make up of the reference index The ETF portfolio matches exactly the components and weightings of an index or asset Allows the investor to gain exposure to the diversified basket of securities with a single trade, or get access to investments that would otherwise not be possible (e.g. physical commodities) Collective Investment Scheme (CIS) / Mutual Fund (MF): Provides an investment vehicle through a known regulatory framework The unit price represents the value of the underlying basket, per unit The unit price changes intraday in line with the changes in the value of the underlying portfolio Confidential 4

5 WHAT CONSTITUTES A CIS ETF? Investment Product Exchange Traded Fund (ETF) participatory units listed on the stock exchange, offered through a market maker Stock broking account Product Wrapper Collective Investment Scheme (CIS) / Mutual Fund (MF) Stock exchange (ETF regulator) ETF Issuer Asset manager (incl. fund administration) Fin. Market regulator (CIS / MF regulator) Trustee / Custodian Index Provider Index Calculation Agent Confidential 5

6 WHAT CONSTITUTES A NON-CIS ETF? Investment Product Exchange Traded Fund (ETF) participatory units listed on the stock exchange, offered through a market maker Stock broking account Product Wrapper Insolvency remote SPV (special purpose vehicle) Stock exchange (ETF regulator) ETF Issuer Asset manager (incl. fund administration) Fin. Market regulator (CIS / MF regulator) Trustee / Custodian Index Provider Index Calculation Agent Confidential 6

7 ETFS COMPARED TO UNLISTED CISS / MFS (UNIT TRUSTS / MUTUAL FUNDS) When an ETF is a listed unit trust, the listing offers Live and fair value pricing (guaranteed liquidity) Electronic transfer, registration, custody on a single central register in individual investor s name Additional investor protection and regulation of the stock exchange ETFs are NOT: Futures, options or derivatives Created through 100% synthetic replication Geared, levered instruments (depends on regulations, but not recommended at the outset) Beta (passive) compared to Alpha (active) ETFs are best used to access beta returns at low cost Gives the desired exposure with a very high level of certainty (Non-index tracking) CISs can offer alpha returns, usually at a higher cost Both exposure and (relative) performance is less predictable Note: Don t confuse certainty with low risk! Confidential 7

8 HOW DO YOU KNOW WHAT PERFORMANCE TO EXPECT FROM AN ETF INVESTMENT? An investment in a physically-replicated index-tracking ETF gives you the assurance that you will receive the same return as the underlying asset, which usually means an index such as the Top40 or S&P500, after costs Although you do not know in advance what absolute return you will receive, you do know that you will receive the same return as the index This means that an ETF has very low relative risk when compared to the benchmark index However, one could still have absolute risk in your investment If the index declines by 10%, your ETF investment will also decline by 10% Your ETF investment will have the same return and risk characteristics as the index it tracks Make sure you know what that is! Confidential 8

9 WHAT ABOUT GLOBAL DEPOSITORY RECEIPTS (GDRS)? Consider these as single stock ETFs Much simpler to understand and administer Sponsored GDRs? With the approval / cooperation of the company Not all that different from a full listing Unsponsored GDRs! Does not require the involvement of the reference company Ideal for companies operating in the domestic market but listed in another Mining companies Subsidiaries / Branch offices of large multinationals Could eventually be converted to a sponsored GDR and ultimately even a full listing Can be included in local exchange indices and ultimately local ETFs Confidential 9

10 WHAT DO ETFS AND GDRS BRING TO THE TABLE? Providing, Promoting and Importing Liquidity Is local market sufficiently liquid? Yes No Investigate viability of listing local product Import liquidity e.g. stocks and ETFs * Encourage the use of market makers Promote liquidity* in market to boost awareness and participation Confidential 10

12 WHAT IS NEEDED TO SET THEM UP? How to create an ETF South African procedure What you need: CIS Manco with an ETF Programme Memorandum What type of ETF do you want to create? Identify the target market and the product type Identify the reference index Identify all the stakeholders / role players / parties involved Application processes: JSE initial process: Equity Market Business Development to discuss product structure options Submit High Level proposed product document for in-principle approval FSB formal application for approval JSE final process / formal application: Appoint sponsor, index calculating agent, etc. Listings Department gives formal approval Listing process: IPO or seed capital? Confidential 12

13 WHAT IS NEEDED TO SET THEM UP? Critical Success Factors Involvement and buy-in of all role-players / stakeholders Regulators (incl. government), Stock exchange, Asset owners, Investors, Financial services industry Regulations Listing requirements for the participatory units (of either ETFs or DRs) Underlying investment vehicle (e.g. CISCA, UCITS, etc.) Underlying / reference asset Foreign vs. local? Vanilla vs. complex? Vanilla: Delta 1; At least 90% physically backed; Infrequent creation / redemption; Market maker to ensure trade at NAV Complex: Geared / leverage / inverse; Synthetic replication; Creation / redemption on-the-fly ; Trading at discount / premium to NAV Confidential 13

14 WHAT IS NEEDED TO SET THEM UP? Role-players & stakeholder to list an ETF Confidential 14

15 WHAT IS NEEDED TO SET THEM UP? Investment proposal for seed capital investor Seed capital investment of $100m* for 5* years Capital is used to create a pool of ETF units, listed on the stock exchange Market maker uses this pool, belonging to the seed investor, to create a liquid secondary market in the ETFs subject to an agreed trading double source of market maker remuneration The seed investor portfolio holdings vary between 90%* and 100% equity (ETFs) and the balance in cash for every $10m* cash in the portfolio, new ETF units are created The ETF is offered at a total expense ratio (TER) of 1%* (only cost for seed investor) The seed investor is not exposed to the trading double in the secondary market Confidential 15 * All these numbers are just illustrative amounts

16 WHAT IS NEEDED TO SET THEM UP? Unsponsored Depository Receipts (UDRs) Details to consider around the mechanics of introducing, listing and trading of UDRs: Custody / safe keeping of underlying shares Ensure that corporate news of issuers are promptly and effectively relayed to market How will corporate actions / distributions be handled? How will the custodian / issuer interact with your market and settlement agency? What differences / similarities will there be with you current listing requirements? The role of a market maker Choice of companies / stocks to introduce as DRs Alignment of agendas stock exchange, local market participants, custodian bank Opportunity to broaden sector exposure and diversification Beware fads, recent good performers Confidential 16

17 WHAT IS NEEDED TO SET THEM UP? Considerations on where to focus your efforts Regulations & stakeholder buy-in (incl. financial support / commitment?) State of the market: Does the current support a home-grown or an imported model? Run the chicken-and-egg model in parallel i.e. use an imported imperfect solution as a quick fix to assist the market in familiarising themselves with the concepts, whilst developing your home-grown offering Sustainable plan of action: Define a medium term plan of what you want to achieve over the next five years Ensure that any intermediate steps are supportive of the ultimate goal, even if in contradiction in the short term Where is the best bang-for-your-buck Acknowledge your market s strengths and weaknesses, optimise your opportunities and minimise the threats Confidential 17

19 MARKET CONDITIONS AND CONSIDERATIONS What do you need? Local asset status? Demand for equities / asset class? Institutional or retail target market? What works, and what doesn t? Dual listing of foreign ETF Regional ETF primary or secondary listing Primary listing of local market ETF Confidential 19

20 MARKET CONDITIONS AND CONSIDERATIONS dual / secondary listing of foreign ETF Listing considerations: Is there a demand for the product in your local market? Can you find an ETF issuer to come and list a product on your market? Is the regulatory structure of the ETF consistent with your local regulations? Trading and settlement considerations: What are the implications of timing mismatches? Trading hours Settlement cycle Who carries the price and currency risk between trade and settlement if ETF units have to be transferred from one market register to another? Investment considerations: What about mandate overlap? Confidential 20

21 MARKET CONDITIONS AND CONSIDERATIONS primary or secondary listing of regional ETF E.g. BettaBeta ETF on BSE Enable investors to have exposure to the blue chip South African market directly on the BSE Unlimited liquidity liquidity is imported from the JSE through the BettaBeta open-ended structure Has appeal to both institutional and retail investors in Botswana and helps develop interest and trading on the BSE: Provides exposure to stocks, sectors and industries not available on the SEM Provides exposure to the growth of African Frontier markets via a first world financial instrument and exchange Ensures increased diversification, incl. currency diversification Helps reduce volatility Achieves competitive returns for the overall investment portfolio Confidential 21

22 MARKET CONDITIONS AND CONSIDERATIONS primary listing of local market ETF Only feasible if the underlying market is liquid and diverse enough What do you want to achieve with a local ETF, and who is the target market? Is there sufficient expertise in the local market for the different role players? Regulatory requirements ETF issuer Index-tracking / passive asset manager Sales / advisors / consultants Analysts and portfolio management using ETFs Is there a suitable index that can serve as the basis of the ETF? Who calculates the index? The exchange? Or an independent index provider? Is the index just a performance benchmark, or does it also reflect a prudent allocation guideline? Is there sufficient flexibility in pricing models to offer a lower cost alternative? Confidential 22

23 ADVANTAGES OF ETFS to the investor Regulation First level of regulation is that of the stock exchange Additional regulation may apply, depending on the investment vehicle (e.g. Collective Investment Scheme, Special Purpose Vehicle, Depository Receipt, etc.) Complete Transparency Listed on the stock exchange, pricing is done on the market and is known to every investor Underlying portfolio is always known Settlement, trading, registration, transfer done through local CSD Instant Liquidity & Tradability ETFs/GDRs trade like regular shares and can be bought or sold at any time on the stock exchange Open-ended structure caters for large trades Market maker ensures there is always a buyer / seller in the market at the live fair value (NAV) Investor is guaranteed to be able to buy or sell at the market price on demand! Confidential 23

24 ADVANTAGES OF ETFS to the investor (cont d) Passive Investments Index-tracking ETF replicates the make up of an index Index measures the average performance (beta) of a market, industry, sector, country etc. The ETF gives the investor the same performance as the reference index nothing more, but also nothing less (except for costs)! Diversification Diversified portfolio Provides full exposure to index shares / assets Reduces risk / volatility Ensures benchmark performance Very Cost Efficient Average costs Total Expense Ratio (TER) one-third of actively managed unit trusts ETFs usually include trading costs in the TER whereas many actively managed funds choose not to Confidential 24

25 ADVANTAGES OF ETFS to the stock exchange Offering Expanded range of investment opportunities offered Represent a good starting point for a derivatives market Liquidity Market maker ensures liquidity in the ETF / GDR represents both buying and selling Creation and redemption of ETF units require trade in the underlying securities local ETFs therefore increase liquidity in the overall market Settlement, trading, registration, transfer done through local CSD Revenue New sources of revenue, e.g. listing fees Payment for CSD services, including payment of distributions Development of local financial services industry stock broking, market making, etc. Confidential 25

26 PRICING OF ETFS primary market Primary market operations: creation and redemption of units Cost of creation / redemption may be paid by the investor requiring the process Trading costs of underlying basket of shares Regulatory fees incl. applicable taxes (e.g. Securities Transfer Tax) Accrued distributable amount Who is the typical investor requiring creation / redemption? ETF provider / issuer! Market maker holds a stockpile of units to fulfil his obligations Creation / redemption costs are absorbed by the issuer, not by the existing investors Suits the business model of an investment bank rather than an asset manager How about the government pension fund as the seed capital investor Confidential 26

27 PRICING OF ETFS secondary market Secondary market operations: trading in existing participatory units Trading in existing units has NO cost impact on the underlying fund value Trading costs only for the listed participatory units Regulatory fees and taxes only exchange trading costs Trades at the NAV which includes the accrued distributable amount net of fees Additional implications for foreign ETFs Currency Settlement differences Trading hours Also mandate overlap; lack of familiarity Confidential 27

28 PRICING OF ETFS corporate actions Corporate actions include dividends, distributions and interest payments paid by the underlying companies, but also more complex events such as unbundlings, rights issues, etc. Cash receipts from corporate actions are used to pay allowable expenses (e.g. trustee & custodian fees, asset management fees, regulatory and exchange fees, bank charges, rebalancing trading costs (also of complex corporate actions), audit fees etc.) Remaining cash represents net distributable amount payable to investors (periodic paid out) Costs in the ETF result in just a reduction in yield rather than selling units to pay for costs Calculation and interpretation of Total Expense Ratio (TER): TER is the ratio of all expenses incurred by the fund (defined above) divided by the average AUM The TER does not represent a cash flow expense to the investor, but rather a drag on the performance relative to that of the index it is already reflected in the daily price / NAV of the ETF ETFs cannot sustain high TERs as this creates visible divergence from the Net Asset Value and tracking error relative to the index Remember to consider tax implications Confidential 28

30 ETFS IN AFRICA What is currently available? ETFs listed on African stock exchanges: South Africa 72 Exchange Traded Products NewGold ETF is listed Botswana, Nigeria, Mauritius and Ghana BettaBeta ETF is listed in Botswana Equity ETFs lots in the pipeline: Egypt, Nigeria, Kenya & Mauritius ETFs listed outside of Africa, giving exposure to Africa Three single country ETFs available: SA, Egypt, Nigeria Greater range of African ETFs available, but beware Africa means different things to different people Confidential 30

31 SELECTED AFRICAN ETFS / ETNS Comparative regional exposure SPDR S&P Middle East & Africa ETF PowerShares MENA Frontier Countries ETF Market Vectors Africa Index ETF Standard Bank Africa Equity ETN Confidential 31 Source: Product Providers circa 2012

32 SELECTED AFRICAN ETFS / ETNS Comparative sector exposure SPDR S&P Middle East & Africa ETF PowerShares MENA Frontier Countries ETF Market Vectors Africa Index ETF Standard Bank Africa Equity ETN Confidential 32 Source: Product Providers circa 2012

33 NEDBANK SUB-SAHARAN AFRICA 50 INDEX (SSAXSA50) Combining diversification with investability It all starts with an index Two primary goals: Broad-based exposure to the largest, most liquid companies Capture new emerging markets and companies in the early stages of development Coverage of 13 stock exchanges in Sub-Saharan Africa, excluding the JSE ( Middle Africa) Selection of 50 of the largest, most liquid stocks in this investment universe Well diversified but not skewed to predominant markets (e.g. Nigeria and Kenya, Consumer Goods and Financials) Investability criteria (performance should be replicable within reasonable limits) Minimum market cap and liquidity criteria for supplementary stocks Limits on exposure to individual stocks, specific markets and sectors Confidential 33

34 NEDBANK SUB-SAHARAN AFRICA VS. S&P AFRICA FRONTIER INDEX Geographic exposure Nedbank Africa (SSAXSA50) S&P Africa Frontier (STEIAFDP) Based on index market cap in US$m; Source: S&P, Nedbank Capital, Jun-14 Confidential 34

35 NEDBANK SUB-SAHARAN AFRICA VS. S&P AFRICA FRONTIER INDEX Sector exposure Nedbank Africa (SSAXSA50) S&P Africa Frontier (STEIAFDP) Based on index market cap in US$m; Source: S&P, Nedbank Capital, as at Jun-14 Confidential 35

36 NEDBANK AFRICAN MINING INDEX (NAMI) Invest in African Mining via 1st world financial markets What listings are we missing on African stock exchanges? Measures the performance of Energy, Metals and Mining Producers operating primarily on the African continent, irrespective of the country of primary stock exchange listing The index series accommodates six different commodity classes Diversified Metals and Mining Gold Mining Platinum Group Metals Base Metals Energy and Coal Other Mining and Minerals The index series differentiates between Major and Junior producers Confidential 36

37 NEDBANK AFRICAN MINING INDEX (NAMI) All Commodities All Producers Exchange Exposure - Free float Market Cap - Tradability Commodity exposure Junior Producers Exchange Exposure - Free float Market Cap - Tradability Commodity exposure Confidential 37 As at Dec-12

39 TRADING & SETTLEMENT PROCESS 1 ETF issuer can create or redeem additional ETF units at any time to match market demand and supply Secondary listing from big, liquid market provides benefits for local investors Liquidity is imported from the home market as units can be created and redeemed on demand ETF liquidity can not be judged like regular shares Primary market making is done in home market providing total liquidity at all times Use local stockbrokers as the local market maker providing local support Local CDS handles all settlement and custodianship Distributions are declared in local currency and paid by the CDS Consider favourable trading costs (brokerage rates, etc.) to encourage trading activity Confidential 39

40 TRADING & SETTLEMENT PROCESS 2 Market maker Purpose always a willing buyer and seller at the fair value (NAV of the ETF) ETF issuer is the primary market maker, transacting through local executing stock brokers Creation and redemption of units can only be undertaken by the ETF issuer Daily trading Primary market maker offers a double in local currency terms, throughout trading day What is an acceptable standard volume? What is an acceptable bid-offer spread around the NAV (net asset value)? Demand or supply in excess of standard volume is facilitated with ETF issuer through a local participating broker Trade in the secondary market can occur between any two participating brokers without having to involve the ETF issuer Confidential 40

41 AGENDA What are ETFs and why are they attractive? Different kinds of ETFs What is needed to set them up? A step by step guide Market conditions and considerations, the ideal target market and how to market ETFs Examples of ETFs in Africa. How do they work How do you make them easy to trade? Sharing our experience Questions and discussion Confidential 41

42 OUR EXPERIENCE TO DATE not a mirror image Dual listing of the BettaBeta Equally Weighted Top40 ETF on the Botswana Stock Exchange in May-2011 The liquidity issue Our pre-listing experience The market making process Our post-listing experience: Settlements, dividends and costs Confidential 42

43 OUR EXPERIENCE TO DATE Providing, Promoting and Importing Liquidity Is local market sufficiently liquid? Investigate viability of listing local product Yes No Import liquidity e.g. stocks and ETFs Route BSE took with BettaBeta ETF * Encourage the use of market makers Promote liquidity* in market to boost awareness and participation Confidential 43

44 LIQUIDITY: PROVIDING, PROMOTING AND IMPORTING Liquidity of paramount importance to both underlying stocks, indices and resulting ETFs In the case of limited local liquidity, listing a local ETF is quite risky Importing liquidity: Foreign listed stocks and investment products; foreign-referenced indices Essentially what has been done with the BettaBeta ETF in Botswana Market participation and market makers provide liquidity: Liquidity is provided and promoted in the local market through actual trading, and through ease of access to information (pre- and post-trade) Confidential 44

45 OUR PRE-LISTING EXPERIENCE: BSE The BettaBeta ETF is an investment instrument listed on the BSE as a ready-made ETF It s role is to import liquidity from the JSE to the BSE Assessing the market Dearth of investment opportunities in Botswana Required institutional investment used to be 30% local assets vs. 70% foreign assets recently changed to 40:60 Adhering to regulatory requirements NBFIRA (Non-Bank Financial Institutions Regulatory Authority) paramount in attaining local asset status to fulfil assessed market opportunity BSE responsible for listing and on going trading & settlement of the investment instrument A Botswana stockbroker acts as local agent for market making, interacting with the SA market maker Confidential 45

46 THE ROLE OF THE MARKET MAKER (MM) local versus cross-border What function does market maker perform? Guaranteed counterparty, liquidity and stability Request creation and redemption on demand from ETF issuer Redemption Secondary market trading BSE MM JSE MM Secondary market trading Creation Confidential 46

47 OUR POST-LISTING EXPERIENCE settlement mismatches Differences in settlement conventions should be given special attention: T + 5 on JSE versus T + 3 on BSE T = 0: Decision to sell units T = 0: Instruction to sell units received Although settlement at T+3, funds needed in account before that time for client thus further disconnect BSE MM JSE MM Misalignment of settlement dates mean costs incurred on loan and currency protection T = 3: Settlement from sale of units made T = 5: Settlement from sale of underlying shares received Confidential 47

48 OUR POST-LISTING EXPERIENCE costs How do we ensure that all investors are treated fairly Higher cost base associated with the BSE listing who picks up the tab? Differences in disclosure requirements and duplication result in additional cost considerations, e.g. distribution announcements and other news flow Fact sheets, investment and valuation reports etc. have to be duplicated for different markets Consider the implication of dual taxation treaties Confidential 48

49 INTERACTIVE DISCUSSION What unique costs are associated with your market? Who should pay for each of these costs? Local stock exchange ETF providers Investors How much are you as an exchange prepared to pay / contribute towards improving the liquidity in your local market? Brainstorm discussion: Consider the feasibility of an inter-market exchange and settlement system to facilitate cross border flow of investment instruments (e.g. ETFs, GDRs) and other listed securities, to be established and managed by CoSSE / ASEA Confidential 49

50 Questions? Thank You For more information, please refer to our website: For regular educational insights and news, follow us on Confidential 50

51 DISCLAIMER 2014 Beta Solutions (Proprietary) Limited This document has been approved by Beta Solutions (Proprietary) Limited ( Beta Solutions ). It should not be considered as an offer or solicitation of an offer to sell, buy or subscribe for any securities or any derivative instrument or any other rights pertaining thereto ( financial instruments ). Some of the information contained herein has been obtained from public sources (including but not limited to data vendors such as I-Net and Bloomberg and the internet) and persons who Beta Solutions believes to be reliable. This document is not guaranteed for accuracy, completeness or otherwise. It may not be considered as advice, a recommendation or an offer to enter into or conclude any transactions. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Beta Solutions recommends that independent tax, accounting, legal and financial advice be sought should any party seek to place any reliance on the information contained herein or for purposes of determining the suitability of the products for the investor as mentioned in this document. Beta Solutions and its officers, directors, agents, advisors and employees, including persons involved in the preparation or issuance of this document, may from time to time act as manager or co-manager of a public offering or otherwise deal in, hold or act as market-makers or advisors or brokers in relation to the financial instruments which are the subject of this document or any related derivatives. Unless expressly stipulated as such, Beta Solutions makes no representation or warranty in this document. Neither Beta Solutions nor any of its officers, directors, agents, advisors or employee accepts any liability whatsoever, howsoever arising, for any direct or consequential loss arising from any use of this document or its contents. The information contained in this document may not be construed as legal, accounting, regulatory or tax advice and is given without any liability whatsoever. Past performance is no guarantee of future returns. Any modelling or back-testing data contained in this document should not be construed as a statement or projection as to future performance. This document is being made available in the Republic of South Africa to persons. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of Beta Solutions. Nedbank Capital is a division of Nedbank Limited Reg No 1951/000009/06, an authorised financial services provider (licence number 9363), 135 Rivonia Road, Sandown, Sandton, 2196, South Africa. We subscribe to the Code of Banking Practice of The Banking Association South Africa and, for unresolved disputes, support resolution through the Ombudsman for Banking Services. We are a registered credit provider in terms of the National Credit Act (NCR Reg No NCRCP16). Confidential 51

52 ETFS FAQS Frequently Asked Questions (FAQs) What are ETFs? An Exchange Traded Fund (ETF) is an investment vehicle which provides an investor with direct access to a basket of shares traded on stock exchanges such as the Johannesburg Stock Exchange (JSE) with the convenience of trading in a single security. Most ETFs track an index, such as the FTSE/JSE Top 40. ETFs are attractive as investments because of their low costs (Total Expense Ratio TER) and the ability to purchase them like a normal exchange listed security. An ETF combines the diversified portfolio of a unit trust investment with the tradability features of a listed security allowing it to be bought or sold at the end of each trading day at the market ruling price. How can ETFs benefit me? Buying a basket of shares (an ETF) is less risky than buying a single listed company as the diversification and spread of investments reduces the risk exposure. ETFs typically track an index of the most liquid shares on the stock market. Indices are regularly rebalanced by the Johannesburg Stock Exchange (JSE) to ensure that they reflect the most successful securities on the exchange. Are ETFs cost effective? Yes. When you buy an ETF you only pay once for exposure to a basket of shares. If you bought this index basket yourself, via a stock broker, it would be more expensive, and you would pay brokerage and Securities Transfer Tax (STT) for each of the shares purchased. When you buy an ETF, you only pay brokerage once and there is no STT payable for ETF transactions. ETFs generally have lower costs than other investment products because most ETFs are not actively managed and the underlying portfolio of shares is not traded regularly. ETFs typically have lower marketing, distribution and administration expenses. Are ETFs easily tradeable? Yes. ETFs can be bought or sold at any time on the JSE just like any other listed security. The JSE trading system facilitates buying and selling prices at all times and there are market makers to provide liquidity (prices) for large orders. Alternatively, investors can transact ETFs via an investment platform such as etfsa where all orders are pooled and traded once a day. Are ETFs transparent? Yes. Being listed on the JSE means that prices are updated at frequent intervals and are available to investors throughout the trading day, and not just once a day like a unit trusts. The ETF issuer discloses the underlying portfolio of shares in the ETF fund on a daily basis. Do ETFs pay dividends? Yes, ETFs collect the dividends from all the companies in the index tracked and pay these dividends over to investors, normally four times a year at the end of each quarter. The accrued dividends in any ETF portfolio are published daily in the net asset value (NAV) figures by all ETF issuing companies. Do I have ownership of my ETFs? Yes. Every ETF security own by an investor is registered in his name on the JSE/STRATE electronic share register. Are ETFs well regulated? Yes. Nearly all ETFs are registered Collective Investment Schemes and are regulated and controlled by the Financial Services Board (FSB). All ETFs are publicly listed securities and are also regulated by the JSE. Confidential 52