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SIMON BROWN: I’m chatting with Mike Brown, founder of ETFSA. Mike, appreciate the time. Your latest quarterly report on the state of the exchange-traded product [ETP] market is out. That is for end-June. What we are seeing, and this is a continuing trend, is that assets under management in the ETP space – which of course are ETFs [exchange-traded funds], actively managed ETNs [exchange-traded notes] as well as AMCs [actively manged certificates] – are experiencing good growth. And it’s not just the market that’s helping it, but inflows into the sector.
MIKE BROWN: Yes, it’s consistent growth since the end of 2024. There has been a 14% increase in the total size of the industry measured by market capitalisation – it’s now R258 billion. So it’s a bigger and bigger industry, and there are more and more products in our 284 listed exchange-traded products on the JSE.
Some of them are ETFs, some are ETNs. More and more of them are actively managed certificates, or actively managed ETFs.
So, there’s a broad expansion in the industry, which I think is quite favourable. It says that exchange-traded products are typically used by all sorts of investors but notably by retail investors. It’s great that they’ve access to products which are giving them good returns and very low costs and, of course, lots of transparency because they’re on a listed exchange.
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SIMON BROWN: You mentioned that the ETF growth – which of course is where these ETPs started almost 25 years ago – has slowed. But this is really notable in the actively managed certificates and ETFs, and also the exchange-traded notes. It’s that broadening of the options for the investor when we see that growth in the actively managed and in the ETNs.
MIKE BROWN: Yes, the actively managed is an interesting situation, because when the ETFs first started, they just tracked indices. As you say, it’s almost exactly 25 years since Satrix listed their first product in November 2000, so you must have a birthday party in November to celebrate.
But what we’ve seen more recently is active managers – people who go out and try to outperform the market by actively picking individual securities or follow specific themes or types of investment strategies.
That’s increasingly becoming a growth area for exchange-traded products because an active manager [lists] on the stock exchange, and the stock exchange then takes care of all his trading and his secondary trading and his settlements and his custodianship, which requires transparency.
So [active managers] are quite happy to publish what is in their portfolios every day and they’re quite happy to do that because I think they’re seeing that this is a big area of growth for them – being able to make their actively managed portfolios available to investors across the spectrum.
SIMON BROWN: It is that range. Notwithstanding the growth and the new types of ETPs, ETFs are not being left behind. Capital raised in the first six months of the year amounted to just over R14 billion, almost R10 billion into the ETFs. There is still lots of love for passive.
MIKE BROWN: Yes, there’s lots of love for just pure index-tracking. The characteristics of the first six months were that quite a lot of that went into commodities, because that’s unique – that you can buy gold bullion or platinum group metals not through mining companies, but just purely by buying the metal on global markets through ETFs. That’s part of it.
The other thing is that I think a lot of investors still prefer the JSE as the way of investing globally by buying foreign referenced ETFs on the stock exchange rather than taking the money outside of South Africa and having all the problems of exchange rates, conversions and so on and so forth.
So I think the convenience of being able to buy foreign-referenced exchange-traded funds on the JSE is a good area of growth and I think it’ll continue.
SIMON BROWN: Yes. And you mentioned the commodities – both NewGold and the 1nvest Gold ETF, both doing over R2 billion of inflows during the period which just shows the number.
Satrix is still the big one, particularly obviously. Was it last year they took over many of the Absa ETFs? That really has propelled them into first place in terms of market capitalisation, followed closely by Sygnia. And then, of course, … and they’re really coming up with those commodity ones, really boosting them.
But Satrix is, what, at R80 billion, Sygnia at R47 [billion], and Absa just under R47 [billion] – big numbers.
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MIKE BROWN: Yes. Satrix is the passive part of the Sanlam business; that’s really growing. It was just a little bigger than the other issuers. It is now making that gap wider and wider, and I think that’s because Satrix has the right sort of products in these types of market. Whether you want to buy bonds or global equities or local equities or listed property or other types of asset classes, Satrix covers all that, and I think they are getting bigger and bigger. They are about 30% – I think it’s now 32% – of the total ETP industry in South Africa. That’s a lot for one single issuer.
So I think lots of people are going to be trying to take up some of their space, and that’s nice. That’s very competitive. And that’s probably good for the investors because one way of competing is making your product lower cost and more efficient. And that can be only good for the investor.
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SIMON BROWN: I agree with that, 100%. We’ve also seen a whole bunch. We’ve EasyETFs, 27Four, Core Solutions, RealFin and Ask Tech – a bunch of new folks. They’re all coming into the active ETF space. We’re now up to 14 issuers across the ETP market. It’s great to see new entrants coming in at the same time.
MIKE BROWN: Pretty much so. I think there are quite a few other new entrants just lining up, so it’s going to become a bigger and much more competitive industry – and the more the merrier. For me it’s quite hard keeping track of all these statistics.
When I first started it was easy, there were one or two ETFs. Now you are you tracking 286 of them. But it’s an exercise we do and we think it’s important to keep track of what’s happening in the industry, and so we’ll continue to provide our statistical services as long as we think it’s helping.
SIMON BROWN: It is the growth – and the new entrants are a good sign. We’ll leave it there. Mike Brown from ETFSA, I always appreciate the time.
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