Estate Living Magazine The Slow Movement - Issue 39 March 2019 | Page 35

P R O P E R T Y
&
ETFs have taken Bogle’s original idea a little further and,
instead of only being able to track a market index, ETFs can
also track an industry, commodity or even another fund – it’s
really a basket of goods, so to speak. ETFs are a relatively new
instrument, with the first being introduced to South Africa in
2000 by Satrix, when they launched their Satrix Top 40. We now
have well over 60 ETFs to choose from.
The easy option
ETFs make investing easy because you can simply invest in
one product that is inherently diversified. You don’t need any
great trading skills or knowledge, and there’s no need for you
to try and predict the next big ‘winner’. Passively managed
ETFs that simply track an index or industry are a little boring, as
there is nothing for you – nor your investment manager, come
to think of it – to do. That’s why the fees are generally far lower
than any actively managed investment, and it’s probably also
why your broker wouldn’t ever recommend it to you. There’s
so little money in it for the intermediary.
As Bogle says in a 2016 Reuters interview, ‘I swear if a broker
calls you up and says “Buy A and sell B,” you’re better off doing
the opposite. A broker has to sell you something, or he doesn’t
eat at the end of the month. In any trade, there is someone who
is right and someone who is wrong. The only one who is always
right is the man in the middle. ’Buying ETFs is simple, and can
be done through an online platform such as Easy Equities.
There’s no need for any expensive trading account or broker.
Economic and political turbulence
Performance Table
31 Jan 2019
Fund *
Benchmark ** CPI Inflation
***
978.93% 168.76%
Unannualised:
Since Inception 930.35%
(Dec 2000)
Annualised:
1 Year -6.0% -6.01% 4.0%
3 Years 5.57% 5.82% 4.98%
5 Years 6.09% 6.47% 5.12%
7 Years 9.62% 10.05% 5.25%
10 Years 12.65% 13.12% 5.28%
Since Inception 13.7% 13.99% 5.59%
Year to Date 2.72% -0.18%
2.69%
Source: Satrix website
Slow and steady to the end
South Africa is experiencing some huge economic challenges, and
it depends whom you speak to whether you’ll hear a story of doom
and gloom or one of hope for the future. I’m part of the latter group
and have a generally optimistic view of the country.
We’re not the only country experiencing economic woes, though –
just look at how Brexit is affecting the UK economy, and think about
the effects of Trump’s wall. History has shown us time and again that
economies change, and that markets rise and fall.
ETFs offer a simple and cost-effective way to invest with moderate
gains. And yes, exposing yourself to less risk in the markets does
mean potentially fewer gains. More importantly, though, it also
means fewer losses. No investment instrument is the be-all and end-
all, and including ETFs in your portfolio is adding to diversification,
which is key to effective long-term investment. Whether you’re an
aggressive investor looking for the next Apple, or someone who
simply likes to play on the stock market, consider the long-term
value of ETFs in your portfolio, especially in a turbulent climate.
Brendan Dale
N
Incidentally, you may find a unit trust that tracks the exact
same basket of shares or indexes that an ETF tracks, and
the growth would therefore be the same. The difference,
however, comes down to the fees being charged. A 1%
difference compounded over a 30-year period could make a
huge difference to your investment, so it’s always important
to compare products. Political turmoil and hotly contested
elections will most certainly affect your investments, and ETFs
are not immune to general market shifts. As we well know, the
South African market is currently in a slump, and this year’s
elections won’t magically change that. If anything, they may
prolong the technical recession.
This is very depressing for our investments, and it’s easy to be
tempted to cash out and look for alternative options. Looking at
the performance of the Satrix Top 40 ETF, the 1.04% growth over
the past three years seems pathetic, and the negative growth from
the past year is even worse! It’s hard to justify keeping your money
invested in something that’s literally shrinking.
ETFs play a highly valuable role in long-term investing, as they
mitigate risk over time. As you know, individual share prices
rise and fall daily due to the broader economic climate as
well as specific company circumstances such as scandals,
releasing of financials, or take-overs. With a basket of shares
you can spread your risk, and absorb the negative effects far
more easily.
I N V E S T M E N T