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SIMON BROWN: I’m speaking with Ben Meyer from Prescient Fund Services. Thanks for joining us, Ben. Your first ETF Evolution Report has just come out, coinciding well with the 25th anniversary of South Africa’s initial ETF from Satrix. You were at the JSE during that time and played a part with Satrix when it began, as the JSE was one of its early stakeholders.
BEN MEYER: Thank you for having me, Simon. That’s right; I was part of the team that developed Satrix, representing the JSE in that collaboration. Back then, it was known as Capital Bank JSE and Genset Bank, the original partners in Satrix.
From conversations with investment managers across various regions, it’s evident the ETF market is experiencing significant growth. We’re seeing rapid expansion in Europe, and South Africa is following suit. Yet, it’s clear there’s much to learn about ETFs and their potential.
This is the reason behind the report’s creation—to bolster global investment success. Educating the market about ETFs is central to our mission, as opposed to merely marketing products.
Listen: Reduced ETF fees return R20m to investors
SIMON BROWN: Indeed, the market has broadened. We currently have about 92 ETFs, including 29 actively managed ones. Additionally, there are AMCs [Actively Managed Certificates] available at the JSE. However, when I compare this to the European and US markets, South Africa’s ETF market appears relatively small—approximately R250 billion. Compared to other collective investment schemes and unit trusts, it remains limited.
BEN MEYER: You’re absolutely right, Simon. In Europe, mutual funds typically comprise 50-60% of the assets in ETFs. In South Africa, the unit trust industry is around R1.7 trillion, while ETPs total around R250 million, including AMCs. Without AMCs, ETFs account for about R200 million, with a considerable share in gold and commodity ETFs.
If you concentrate solely on equity ETFs, both local and foreign, the value is about R160 billion. There’s significant growth potential ahead.
Listen: The rise of ETFs and the risks of passive investing
You mentioned actively managed ETFs, which I believe will be crucial for driving market growth—not simply by shifting assets from index tracking to actively managed ETFs, but by raising awareness about the benefits of ETFs.
Remember, 25 years ago, the discussions around indexation and ‘passive investing’ overshadowed everything, with active investors often viewed as the opposition.
SIMON BROWN: Yes.
BEN MEYER: Indeed, the active versus passive debate has diminished in relevance over the last 25 years. There are now numerous indices, and ETFs track various indices and global themes.
This discussion has evolved from merely active versus passive; in Europe, attention is now on the advantages of using ETFs as a wrapper, independent of the investment strategy.
Read: The ETF Revolution (Part 1): How passive investing is reshaping the rules
SIMON BROWN: It truly has shifted. Active ETFs have been around for about three years, with examples like Coronation, which has seven active ETFs.
As you correctly noted, it’s less about the active versus passive debate—ETFs are just a product. Their ‘exchange-traded’ nature presents unique distribution advantages for issuers.
BEN MEYER: Absolutely. The exchange-traded model introduces a different distribution method. While most may not trade intraday, the option to do so provides easier access through various platforms.
In South Africa, platforms like EasyEquities, ETFSA, and Vault offer broad access to investments via mobile devices. Engaging with public markets has become significantly simpler compared to private markets, where onboarding through a Linked Investment Service Provider (LISP) is necessary.
Listen: Blending active, passive, and alternatives for smarter investing
In public markets, having access via an app opens new distribution avenues. Educating the market on this is vital, as we are still in the early phases, both locally and in Europe, regarding access to public-market instruments.
As you’ve mentioned, ETFs are not merely a product—they offer a unique wrapper for investment strategies, providing a different method to connect with the market.
SIMON BROWN: I wholeheartedly agree. One significant impact of ETFs has been on cost. Twenty-five years ago, fees for collective investment schemes and unit trusts were much higher. Nowadays, ETFs can charge as low as 10 basis points, rendering fees almost negligible. While they aren’t irrelevant, this has transformed the pricing landscape—not just within the ETF realm but also within unit trusts and to some extent in hedge funds.
BEN MEYER: You’re spot on. Generally, index-tracking fees are lower compared to actively managed funds due to less overhead associated with professional fees.
Moreover, ETF fees are typically lower because of their public nature, which enhances cost transparency. An important point often missed is that, within the ETF landscape, there’s only one fee class, unlike the unit trust sector that has both institutional and retail classes.
Investment managers utilizing the ETF wrapper for distribution must be mindful of their pricing models, as there’s only one price point available. This usually leads to lower fees compared to traditional unit trusts.
Read:
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It doesn’t matter if you go active or passive
Additionally, it’s crucial to analyze total costs to the investor instead of just the fee itself, as fees can be easily misunderstood. If you access an ETF through a costly platform, this should be part of your overall cost consideration—not just the product fee. Trading costs and spreads in the secondary market also require attention.
Furthermore, potential risks associated with ETFs should be acknowledged.
ETFs, as a wrapper, can facilitate risk mitigation more efficiently than private market products since they trade intraday.
For instance, during the market swings triggered by the Trump tariffs in April, ETF trading allowed for swift transactions, while private market products like unit trusts execute trades only the next day, risking missed price movements. This differentiation highlights the risk aspect.
Globally, there was a marked increase in ETF trading activity during that time for this precise reason.
SIMON BROWN: That’s an essential point. The total cost, particularly the spread, holds significant importance since unit trusts trade at NAV, while ETFs have market makers on both ends.
We’ll conclude here. Thank you, Ben Meyer from Prescient Fund Services, for sharing your insights.
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