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With interest rates at their lowest level in 40 years and a pessimistic short to medium term forecast, retired citizens are shopping around for better returns to cope with the ravaging effects of rising inflation. Ideally seniors need some growth in their capital base to survive financially.


A return better than inflation is the Holy Grail and stories of how unfortunate pensioners lost everything in risky schemes abound.

 So what to do?

The financial press fills pages with features, stats and options, leaving the average man in the street a bit bewildered to say the least.

PensionPower is focusing on money and consult with the experts to bring you the best possible advice. We are seeking for investments managed by professionals at low cost and the lowest possible risk but with growth potential. Forget the myth of low risk and high returns - it does not exist. Focus your money where it will be relatively safe and in professional hands.

We start the search by looking at ETF’s or Exchange Traded Funds and asked Mike Brown, Chief Executive of etfSA.co.za to tell us more about these popular financial instruments and how they fit into the investment choices of senior citizens.

In other words:
- Can we expect better returns than currently on offer in the money market?
- How can one assess the risk and are ETF’s suitable for senior citizens who have to have a regular income?

 This is what Mike says:

"Exchange Traded Funds (ETFs) are the unit trusts of the 21st Century" according to Suzie Ormon, the famous investment guru of US TV networks. ETFs are securities, listed on the JSE, that give you access to the performance of an entire basket of shares. This basket can be the index of the top 40 shares on the JSE, or a sector of the market, such as industrial shares, mid cap shares, financial shares, etc.

Also, ETFs can give the performance of an asset, such as commodities like gold, silver, oil, wheat, etc or an asset class, such as money market, fixed interest or currencies, etc.

The big benefit is that by buying an ETF security, the investor gets the advantage of owning a whole portfolio of shares that deliver the performance of an asset class or investment type, but with the cost benefits of only having to buy the single ETF security. Also, as JSE listed sectors, ETFs have to disclose their underlying portfolio or assets at all times, so they are completely transparent. They also trade all times on the JSE is open, so offer complete liquidity.

Some of the more popular ETFs that give access to different types of investment exposure are:

Product Product Type Comments
Satrix INDI 25 ETF Tracks the FTSE/JSE Industrial 25 Index Comprises only industrial, manufacturing and retail shares. There are no mining or financial shares which are more volatile.
BettaBeta EWT 40 ETF Top 40 shares on the JSE, with funds equally weighted in all 40 shares Equally weighted methodology makes this the best performing top 40 fund. Top 40 shares account for 85% of all trading on the JSE.
Proptrax SAPY ETF Invests in Top 20 property shares listed on the JSE. Listed property shares have been the best performing sector of the JSE over the past 30 years.
Satrix DIVI Plus ETF Invests in 30 JSE shares which have the best dividend payment prospects. High dividend paying shares are typically rerated by the stockmarket and trade at a premium.
NewGold ETF Invests directly in physical gold bullion. NewGold has been the top performing unit trust/ETF in South Africa for the last 2, 3 and 5 years,
Investec zGOVI ETF Invests in a portfolio of 9 largest SA Government bonds. High interest yield, but share in capital growth in a falling interest rate environment.
RMB Inflation-X ETF Invests in a portfolio of SA Government inflation-linked bonds. As inflation rises, so does the capital value and coupon of the inflation-linked bond.

The performance of these popular ETFs is compared with the returns for money market unit trusts over the past number of periods, to indicate the premium investment returns that can be earned from ETF investments, including interest bearing portfolios.

Total Return Performance*
Fund
6 Months
1 Year
2 Year
(per year)
3 Year
(per year)
5 Year
(per year)
Satrix INDI 25
13,78%
32,86%
23,39%
23,98%
14,17%
BettaBeta EWT 40
8,14%
21,88%
15,12%
-
-
Proptrax SAPY
18,06%
33,42%
19,71%
22,08%
13,41%
Satrix DIVI Plus
20,86%
23,94%
14,14%
16,64%
12,84%
NewGold
15,30%
13,88%
27,55%
25,47%
22,79%
Investec zGOVI
10,24%
14,39%
12,10%
12,99%
-
RMB Inflation-X
11,34%
17,12%
13,00%
11,28%
-
Average Return Money Market Unit Trusts
2,80%
5,48%
5,62%
6,12%
8,04%
Notes
Total return is price change performance with dividends reinvested.
Money markets return is the average of 25 unit trust money market funds reported in the Quarterly Unit Trust Survey.
* Source: ASISA – Quarterly Unit Trust Survey (September 2012).

 Fast Facts on ETFs
 10 things to bear in mind with starting to invest in ETFs

1.
You can invest from R300 per month for debit orders and from R1000 for each lump sum investment through etfSA.co.za Investor Scheme®, making ETFs accessible to all investors - large or small.
2.
ETFs are listed and trade on the JSE like any other shares, but give access to an entire portfolio of listed securities, tracking an index.
3.
Buying a portfolio of shares through an ETF provides diversification (which reduces risk); partial ownership of the best shares on the JSE (which enhances investment performance); and brings affordable exposure to the best companies on the JSE.
4.
ETFs are passive investments, they merely replicate the indices of shares chosen by the stockmarket. They therefore are considerably less risky than actively managed investment funds and suit the first time and conservative investor.
5.
ETFs and ETNs now cover all the major sectors of the JSE equity market; give access to Government bond portfolios; money market funds; foreign investments; currencies and commodities. With ETFs/ETNs now covering all asset classes, it is possible to build multi-manager and asset allocation portfolios simply and cheaply.
6.
ETFs have Total Expense Ratios (TERs) typically one-quarter to one-third of those of actively managed unit trusts. Low costs work in favour of the investor as they do not eat into investment returns.
7.
There are now 58 ETFs/ETNs listed on the JSE, making this investment product by far the most successful area of expansion for the JSE. They no provide a wide choice for the investor.
8.
ETFs are Collective Investment Schemes registered with the FSB as well as being public companies listed on the JSE, so are amongst the best regulated and compliant products available to investors.
9.
ETFs can be transacted through any JSE member stockbroker, or more conveniently through specific "ETF platforms" such as etfSA Investor Scheme®.
10.
ETFs are the fastest growing investment products around the world, making them the "preferred investment product for the 21st century".

 
Time of Your Life!