It's time for ETFs to become mainstream

ETFs have been available in SA for over 20 years, but some investors are still hesitant to adopt them.

- Candice Paine

Exchange-traded funds (ETFs) don’t fit comfortably into the alternative investments box because the majority of them invest in stocks or bonds on listed exchanges, which actually makes them pretty mainstream. However, lazy thinking and comfort with large active managers in South Africa has meant they are still mostly used by big institutional investors, hedge funds and sometimes begrudgingly by stockbrokers to increase market exposure in private client stock portfolios.

What is an ETF?

ETFs are collective investment schemes (CIS) which trade on a listed exchange. They usually track well-recognised and understood stock indices to allow investors to replicate this performance. They are extremely low cost, transparent and very liquid. They are well-diversified, offer targeted asset exposure, and particularly in SA are hard to outperform over the longer term (less costs).

An investor can choose which market, sector, or asset class they’d like to invest in because there will be an ETF which does exactly that. If you look further, you can even find ETFs that deliver risk-adjusted portfolios which are also Regulation 28-compliant, meaning they can be used for retirement fund investing.

Investors in ETFs