JIMMY MOYAHA: We are taking a look now at [index fund manager] 1nvest. They came up last week listing a new ETF that is linked to US treasuries, or short-dated US treasuries to be more specific. I’m chatting now with Johann Erasmus, director at 1nvest, around this new ETF that they’ve listed. From the 1nvest side, they’ve said that it’s aimed at offering investors a more differentiated position.
Good morning, Johann. Thanks very much for taking the time. What is this new ETF and why is it better than the others?
JOHANN ERASMUS: Morning, Jimmy. This is the third ETF in our series of new launches, and this ETF is linked to the US government’s short-dated treasuries. What that means is effectively two things. It provides our clients with a US dollar money-market type of investment. To expand a bit on that and how that is important, the one [thing] is [that] the US government’s credit rating is much higher than [that of] the South African current government, which means you’re effectively investing in instruments that have probably some of the highest credit ratings in the world. So what that means is your cash is very, very safe.
And the other thing … is you’ve got a very good diversification against the rand/dollar for clients who want to diversify their assets. Again, as an example, if the rand loses value to the dollar, this ETF will rise in value, and vice versa.
So it’s a good diversification or very safe diversification tool for our clients who want a bit of alternative exposure in their portfolios locally. And the benefit then is you don’t have to go through your exchange-control approvals and allowances to buy this instrument locally listed on the JSE.
So, again, it’s to save people from doing the administration of getting their exchange-control clearances. And then of course, because it’s listed here you’re not subject to situs tax and all of those benefits.
So it’s really something different for our clients to access foreign markets.
JIMMY MOYAHA: Absolutely. And, with the rand sitting at R17/dollar and above, diversification out of that sort of exposure is definitely something that South Africans need at this stage. I think that what I like most about what you alluded to around the ETF is that, given that it is listed on the JSE, it is rand-denominated – which means that investing in it does not make use of your single discretionary allowance or your foreign-capital allowances, and therefore you’re able to sort of have USD exposure without the exchange-control regulations that you alluded to.
Obviously the timing around this is perfect, given that yesterday [September 13] the JSE announced that it would be listing actively managed ETFs as well, in that collective investment schemes’ management companies such as yourselves have these sort of ETFs and have these sort of products to offer offshore assets to local markets.
You guys listed last week, and the JSE made this announcement yesterday. Could this be the direction of ETFs in South Africa going forward? Should this be the direction of a lot of investments going forward to sort of get South Africa’s markets more in line with global markets – as the JSE has said this is why they’re doing it?
JOHANN ERASMUS: Yes. Jimmy, I think definitely there would be some demand for actively managed ETFs. We saw a couple of months ago that the JSE approved actively managed certificates, colloquially known as AMCs. So you’re having this real evolution on the JSE from just pure passive ETFs to smart beta. You’ve now got AMCs. As you said yesterday, they announced actively managed ETFs.
Is it the same? Is it a normal passive ETF? No, not at all. On the one side, again, clients and investors are going to need to educate themselves quite well on what the differences are and that. But then again there are new opportunities. It’s going to change things a bit, and we’ll see how this market develops.
JIMMY MOYAHA: Absolutely. And on that positive note of new opportunities, I’d like to thank you, Johann, for your time. That was Johann Erasmus, director at one 1nvest, chatting to us about their latest ETF which listed on the JSE on September 8.
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