Copyright © 2005 JSE Limited LEONARD JORDAAN ASEA CONFERENCE 12 SEPTEMBER 2005 Exchange Traded Funds.

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Presentation transcript:

Copyright © 2005 JSE Limited LEONARD JORDAAN ASEA CONFERENCE 12 SEPTEMBER 2005 Exchange Traded Funds

Copyright © 2005 JSE Limited 2.2. Exchange Traded Funds (ETFs) Definition: Typically track an index Fund holds a portfolio of the constituent shares of a particular index in their correct weightings Securities are listed on an exchange and trade like normal shares On the JSE, ETFs are listed in the Exchange Traded Funds section of the Specialist Securities Sector of the Main Board.

Copyright © 2005 JSE Limited 3.3. Exchange Traded Funds (ETFs) Advantages of ETFs Cost efficiency Price transparency Diversification Tradability, creating and redeeming Well regulated

Copyright © 2005 JSE Limited 4.4. Cost Efficiency Asset management –Passive fees Scrip Lending –Income generating to off-set expenses Secondary Trading –Takes place on exchange

Copyright © 2005 JSE Limited 5.5. Price Transparency Published daily on ETF web-sites –Basket of shares –NAV per share (includes cash) Price of constituent shares are known Therefore, price of an ETF can be valued using a simple spreadsheet

Copyright © 2005 JSE Limited 6.6. Diversification Diversify a portfolio using ETFs –One general equity ETF –Combination of ETFs Exposure to several stocks for the price of 1 trade ETFs with other asset classes underlying (e.g. bonds) are inevitable

Copyright © 2005 JSE Limited 7.7. Tradability, creating and redeeming Cost efficient Real-time trading Intra-day pricing Ability to ‘short’, create and redeem securities Liquidity

Copyright © 2005 JSE Limited 8.8. Well Regulated Regulated by the JSE Most ETFs are Collective Investment Schemes –Regulated by the Financial Services Board

Copyright © 2005 JSE Limited 9.9. Types of Indices Benchmark Indices Market coverage –Satrix40: FTSE/JSE Top40 index Sector coverage –SatrixIndi: FTSE/ JSE Indi25 index –SatrixFini: FTSE/ JSE Fini15 index Arbitrage via futures market

Copyright © 2005 JSE Limited 10. Types of Indices Customised Indices Customised for specific purpose Must be calculated using accepted methodology –NewRand: Rand hedge index calculated by FTSE Single Asset Index Gives investors access to ‘unlisted’ assets e.g. commodities –NewGold: Investors are exposed to the price of gold bullion

Copyright © 2005 JSE Limited 11. Types of Indices Foreign Indices May be subject to Exchange Control restrictions Give investors access to foreign markets on the local exchange Keeps liquidity on the local bourse Allows foreign diversification through a local broker –ItrixFTSE: FTSE100 (London Stock Exchange) –ItrixEuroStoxx: DJ Eurostoxx50 (European Exchanges)

Copyright © 2005 JSE Limited 12. Key Considerations Where does demand lie? Does the costing make sense? Are the underlying shares liquid enough? Is the index replicable?

Copyright © 2005 JSE Limited 13. Questions