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SIMON BROWN: I’m chatting with Niki Giles, head of strategy at Prescient Fund Services.
Niki, appreciate the time. If we look at ETF growth in South Africa, we’re seeing some fairly significant numbers. We are approaching, I think, R300 billion in assets under management. In a recent piece you put out you talk around how a lot of this growth is really coming from the retail investor.
NIKI GILES: Hi, Simon. Yes. Thanks for having me. We have been doing a small amount of research, but we’re also quite active in the market, and what we’re seeing is that there’s definitely been an uptick over the last two years in retail investors accessing ETFs.
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SIMON BROWN: Some of it is, I would imagine, as simple as the likes of EasyEquities, the SatrixNow – which is white-labelling EasyEquities.
But also, tax-free must help, and maybe just general retail investor awareness and sort of becoming smarter around product ranges.
NIKI GILES: Yes, I think definitely the likes of ETFSA, the likes of EasyEquities, SatrixNOW have all helped in this space, making ETFs accessible to the retail investor.
I think that was really the issue – why a lot of investors weren’t going into ETFs. It’s just pure access.
SIMON BROWN: And part of it, I imagine, is advisors who, to my sense, are perhaps a little slower and still very much on the unit trust bandwagon. It’s what they know, I suppose. They’ve got the list platforms, the trading fee structure.
Are advisers coming to the party much yet, or are they, as it seems, more on the unit trust space?
NIKI GILES: Look, I can’t say that the advisors are slow from an uptake perspective. It may be more a structural issue for them, so they don’t necessarily have access for their investors whom they’re advising.
That comes down to changes that need to be made to some of these platforms that they use currently, like your list platforms that you mentioned, because ETFs can’t trade easily on those platforms.
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SIMON BROWN: Absolutely. Part of the beauty of an ETF is that it trades on the exchange. But of course, that’s a hindrance for the advisor.
What we’ve also seen is the rise of active ETFs, which I think are now approaching three years. I think it was late 2023 when they first came to market. We’ve seen a lot coming in that space, particularly in this year so far.
NIKI GILES: Yes, I think that’s where a lot of this retail growth is coming from – and also why there’s so much retail growth. We’re looking at over 50 active ones that have been listed so far since 2023.
A lot of that has happened in this year, as you mentioned. So if you look, every month there’s one, maybe two, new AMETFs [actively managed exchange-traded funds] being listed.
A lot of those are also well-known names now that are coming to market. And so your investor who is used to those names in the unit trust space is now seeing them in the ETF space as well.
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SIMON BROWN: Absolutely. Coronation, Allan Gray – the two big names. Ninety One has some of their income unit trusts, which they’re also doing [as] actively managed ETFs.
I imagine for them, you make the point, it’s about brand. We all know the brand, and then it’s about the distribution. It’s why not put it on to an actively managed ETF?
NIKI GILES: Exactly. So that I think from the asset managers’ perspective it’s why you’re seeing it. It’s just another form of distribution for them. They’re seeing that there are these DIY investors who are going via some of these newer neo-broker platforms, et cetera, on to exchange-traded funds. So this is a way of them accessing those investors.
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SIMON BROWN: I can almost see a time, when a new unit trust is released [to] simultaneously do the active ETF. There is just no reason not to, I think, in many places.
We also get a lot of range. We’ve some CPI-plus, we’ve, of course, AI ones as well. We’ve got the just general multi-asset. In one sense it’s glorious for the investor. I suppose it can also perhaps for a newbie be a little overwhelming, but it is that maturing where we are spoiled for choice.
NIKI GILES: Yes, we are. But you must remember it’s also a very small universe. When you look at the universe of unit trusts that are available, there are hundreds of them – probably over thousands of them – whereas in the ETF world, as I said, from an active one there are only 50.
So yes, it sounds like there’s a lot of choice, but not really that many.
I think we will see more coming with more optionality, more choice, more asset classes being included, and different options for our investors – which is great for the brand of AMETFs.
And I think it’s almost a virtuous circle. The more you see them listing, and the different types you see listing, the more they will create interest for investors and their advisors.
SIMON BROWN: Got you. And ultimately some might think may be that unit trusts are falling behind in a sense. But truthfully, if you’re a fund manager you’re agnostic. You don’t really mind where the person is accessing your product – as you mentioned a moment ago. If you’re Coronation, you want investors using your services. You don’t mind which way they come to you.
NIKI GILES: That’s right. I think you do need to remember – if you are going to list an ETF, or if you’re going to launch a unit trust – you still need to know who your investors are.
So it’s pointless making something available as a unit trust or as an ETF listed vehicle if the investor that you’re targeting is not going to access it via that distribution method.
So you do still need to look at who you are targeting from an investment perspective. But this is allowing a greater universe of investors.
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SIMON BROWN: Prescient, obviously, is the platform behind many of these actively managed ETFs that have come to market. Is there a world perhaps where the sort of actively managed is an easier, perhaps a better structure versus a unit trust, or are they just apples and oranges and there will always be different beasts that serve their purposes?
NIKI GILES: You must remember at the base of them there are unit trusts, both of them. It’s just really an access perspective and then a little bit to do with transparency and maybe how you trade them. So I think they’re apples, actually, just a red one and a green one.
So it’s going to come down to how you want to trade, how you want to access these. Some of them have benefits. As I say, unit trusts are fractional, so they’re very easy to put on a list. ETFs trade on the exchange, but you can trade them intraday.
So they each have their own positives – and negatives as well. And so I think it’s just going to come down to who you are targeting and what makes the most sense.
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SIMON BROWN: Yes, and which works for the investor. I suppose that’s really where we want to be, that that retail investor gets the choices to benefit for them.
We’ll leave it there. Niki Giles, head of strategy, Prescient Fund Services. appreciate the time.