Twenty-five years ago, in November 2000, the JSE listed its first ETF, the Satrix40*. Index trackers had been around since 1976, when Jack Bogle and Vanguard listed their funds. At the time it created a huge pushback from investors and the media — some calling the concept un-American — and the fund initially struggled to gain traction.
But by the time the JSE listed its first ETF, the market had started to adopt them, and the SPDR S&P 500 ETF had been trading for seven years. The SPDR S&P 500 ETF now has almost $700bn in assets under management, while the Vanguard S&P 500 ETF sits at just over $800bn.
By contrast, the Satrix40 has just more than R20bn — worlds apart. But that listing 25 years ago opened a new door to investors: low-cost passive investing.
Back then the cost debate wasn’t an issue yet. I had a unit trust charging more than 3% in annual fees before my broker got his take. The Satrix40 has a total expense ratio of 0.1%, and fees for collective investments are generally closer to 1% and well below for passive funds. These lower fees save investors a fortune every year.
The other big issue is the passive nature of ETFs. They simply buy the shares included in the index and sit back and wait for the market to do the heavy lifting. S&P indices vs active data shows that only about 15% of active managers can beat the market. This percentage plummets as you stretch the duration of the fund, though, granted, very few funds have a 25-year track record, as they tend to get closed down or merged due to modest performance.
The other big issue is the passive nature of ETFs. They simply buy the shares included in the index and sit back and wait for the market to do the heavy lifting
The Satrix40 listed at 774c and now trades at over R100 with almost R30 of dividends. My favourite stat, however, is that, including dividends and after costs, it has returned an average compound annual growth rate of about 12%. With inflation over the period probably averaging around 5%, that’s a 7% real return even as the local economy has struggled for much of that time.
The Satrix40 forms an important part of my overall portfolio, as it sits at the core of my investments. I also hold diverse global ETFs, trading both on the JSE and the New York Stock Exchange. This core comprises almost half of my investments, and around it I include thematic ETFs such as resources and tech that have had an awesome year. Then I add individual stocks for the extra alpha return that all active investors strive for.
The broad ETFs at the core ensure I get market returns, while the thematic ETFs and individual stocks bring risk, and that risk is more about me. I have the ability to do astoundingly stupid things, even when investing. ETFs protect me from myself.
*The writer holds Satrix40
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