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SIMON BROWN: I’m chatting with Ben Meyer from Prescient Fund Services. Thanks for joining us, Ben. Your first ETF Evolution Report has just been published, which is timely considering we are nearing the 25th anniversary of South Africa’s first ETF by Satrix. You were at the JSE during that time and played a role in Satrix since the JSE was an early shareholder.
BEN MEYER: Thank you for having me, Simon. You’re right; I was part of the team that structured Satrix, representing the JSE in that joint venture. Initially, it was known as Capital Bank JSE and Genset Bank, the first entities associated with Satrix.
From my conversations with investment managers across various regions, it’s evident that the ETF market is experiencing significant growth. While Europe is expanding rapidly, we’re seeing a similar trajectory in South Africa. However, there is still plenty to learn about ETFs and the opportunities they offer.
This is the reason behind the report—we aim to foster global investing success. Education is at the heart of this mission; we want to inform the market about ETFs rather than simply marketing products.
Listen: Reduced ETF fees return R20m to investors
SIMON BROWN: Indeed, the market has broadened. We now have approximately 92 ETFs, including 29 that are actively managed. Plus, there are AMCs [Actively Managed Certificates] listed at the JSE. However, when I compare this to the European and US markets, South Africa’s ETF market appears relatively modest—about R250 billion. Compared to other collective investment schemes and unit trusts, it remains quite limited.
BEN MEYER: You’re absolutely correct, Simon. In Europe, mutual funds generally represent 50-60% of ETF assets. In South Africa, the unit trust industry is around R1.7 trillion, while ETPs total about R250 million, including AMCs. Excluding AMCs, ETFs represent roughly R200 million, primarily driven by gold and commodity ETFs.
If you focus specifically on equity ETFs, both local and international, the total value is around R160 billion. It’s clear that substantial growth opportunities exist.
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 necessarily by moving assets from index-tracking to actively managed ETFs, but by raising awareness about ETFs.
Recall that 25 years ago, the discussions revolved around indexation and ‘passive investing’, with active investors seen as oppositional.
SIMON BROWN: Yes.
BEN MEYER: Indeed, the active versus passive debate has become somewhat insignificant over the past 25 years. Numerous indices now exist, and ETFs can track various indices and themes globally.
The discussion has evolved beyond just active vs. passive; in Europe, the focus is now on the benefits of ETFs as an investment vehicle, irrespective of the investment strategy.
Read: The ETF Revolution (Part 1): How passive investing is reshaping the rules
SIMON BROWN: That is definitely the case. Active ETFs have emerged for about three years now, with examples such as Coronation, which manages seven active ETFs.
As you mentioned, it’s less about the active vs. passive conversation—ETFs are simply a product. Their ‘exchange-traded’ feature provides issuers with unique distribution advantages.
BEN MEYER: Absolutely. The exchange-traded model offers a different distribution strategy. While many individuals don’t trade intraday, the option to do so increases accessibility through various platforms.
In South Africa, there are several platforms like EasyEquities, ETFSA, and Vault that grant broad access to investments via mobile devices. Accessing public market investments is significantly easier than accessing private markets, which require onboarding through a Linked Investment Service Provider (LISP).
Listen: Blending active, passive, and alternatives for smarter investing
In public markets, having access via an app creates new distribution opportunities. Educating the market on this aspect is essential, as we’re still in the early stages, both locally and in Europe, regarding access to public-market instruments.
As you’ve pointed out, ETFs are not just a product—they represent a distinct wrapper for investment strategies, providing a novel way to reach the market.
SIMON BROWN: I completely agree. One significant impact of ETFs has been on costs. Twenty-five years ago, collective investment schemes and unit trust expenses were considerably higher. Now, ETFs can feature fees as low as 10 basis points, rendering fees nearly negligible. While they’re not irrelevant, this has substantially changed the pricing dynamics—not only in the ETF space but also in unit trusts and even somewhat in hedge funds.
BEN MEYER: You are spot on. Generally, index-tracking fees are lower compared to actively managed funds due to reduced professional fees.
Additionally, ETF fees are typically lower due to their public nature, increasing cost transparency. A crucial aspect that is often overlooked is that in the ETF space, there exists only one fee class, unlike the unit trust sector, which has institutional and retail fee classes.
Investment managers using the ETF wrapper for distribution must carefully consider their pricing strategy since there’s only one price point available. This typically leads to lower fees compared to traditional unit trusts.
Read:
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It doesn’t matter if you go active or passive
Let me elaborate further on fees. It’s vital to analyze total costs to the investor rather than just the fee itself, as fees can often be misleading. If you access an ETF through a costly platform, this must be factored into your overall cost—not solely the product fee. Consider trading costs and the spreads in the secondary market as well.
Moreover, potential risk factors in the ETF arena also deserve attention.
ETFs, as a wrapper, can facilitate risk management more effectively than private market products because they trade intraday.
For example, during the market volatility triggered by the Trump tariffs in April, ETF trading allowed quick entries and exits, while private market products such as unit trusts execute trades the following day, potentially missing significant price movements. This difference highlights the risk dimension.
Globally, not just in South Africa, there was a considerable surge in ETF trading activity during that period for this very reason.
SIMON BROWN: That’s an essential point. The total cost, especially spread, is crucial since unit trusts trade at NAV, while ETFs have market makers on both sides.
We’ll conclude here. Thank you, Ben Meyer from Prescient Fund Services, for sharing your insights.
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