Two new funds will be listed at the JSE Securities Exchange on October 6.
Two new Exchange Traded Funds (ETFs) based on international indices are to be listed on the JSE Securities Exchange in October, opening up cheaper access to foreign markets for individuals and retirement funds.
Until now, most foreign investments offered by the unit trust industry, and particularly the life assurance industry, have been bedevilled by high costs and persistent under-performance of benchmarks.
Another big plus with the ETFs is that unlike unit trust funds and life assurance investments, which have regularly closed to new investors because of exchange control limitations, the new ETFs will have no similar restrictions for individual investors.
The only exchange control restrictions that will apply for individual investors are:
You will have to make your investments in rands and will be paid in rands;
Unlike with other ETFs, such as the Satrix products where you can ask for the underlying shares rather than cash (if you have more than one million units), you will only be able to take rands.
The new ETFs are a joint venture by Deutsche Bank and the JSE Limited and will trade under the name of Itrix ETFs. The two ETFs to be listed on the JSE’s main board on October 6, are:
The Itrix FTSE 100: The underlying shares are the largest 100 shares listed on the London Stock Exchange. This blue chip index includes shares such as global giants BP, GlaxoSmithKline, Barclays Bank, and Anglo American.
The Itrix Dow Jones Euro Stoxx 50: The ETF contains the 50 most liquid blue chip stocks within the Eurozone, such as ABN Amro, Bayer and Deutsche Bank.
Two additional Itrix ETFs – tracking the performance of major US and Eastern indices – will be listed in the near future.
The Itrix FTSE 100 and Itrix Dow Jones Euro Stoxx 50 funds will be launched to local investors with an initial public offering, opening on September 19 and closing on September 30, 2005.
The minimum investment is R10 000 with the price of an Itrix share being equivalent to the rand value of 1/10 000th of the underlying index levels.
Following the listing, investors will be able to buy and sell Itrix securities on the open market.
Initially, you will only be able to purchase the Itrix products as a lump-sum investment through a stockbroker, but Itrix is considering a share plan to allow you to make regular monthly investments directly, as you can with the Satrix ETFs, saving stockbroker costs.
Roger Koep, the head of investment products for Deutsche Bank SA, says the advantage of buying into the Itrix ETFs in the initial public offering is that costs will be lower than when you purchase through a broker after the listing. After the listing, you will also pay stockbroker fees and JSE transactional costs.
There are no limits to the number of units that can be bought at the initial public offering.
Koep says Itrix ETFs will be the lowest-cost way for you to invest in international markets, with an
all-in-fee of 0.2 to one percent a year of the amount invested, depending on the size of investment.
Active funds charge higher fees, with many unit trusts costing five percent upfront, plus one to two percent a year of your investment.
Koep says you will receive dividends paid by companies in the two indices twice a year, giving you the benefit of the full return of the index, without the risks or costs of actively managed funds.
Definitions
Exchange Traded Funds (ETFs): A stock exchange-listed investment which allows investors to invest comparably small amounts of money in a number of underlying listed shares.
An ETF is a hybrid of a listed investment company and a unit trust/mutual fund. All are pooled investments whereby your investment allows you to hold a fairly wide portfolio of shares through a single investment.
Unlike a unit trust/mutual fund, an ETF is listed on a stock exchange, but unlike a listed investment company, the number of “shares” that an ETF sells are open-ended (they are created and destroyed as investors invest or disinvest).
As both ETFs and unit trusts are open-ended, their value reflects the total value of the underlying shares, while an investment company’s shares may trade at a premium or discount to the underlying value of its share portfolio.
Index investment (or passive investment): An investment which aims to match as closely as possible the performance of an index, such as the All Share index.
Index funds (also known as tracker funds): These funds are intended to follow or replicate a selected index.
The shares bought by the funds are modelled on a particular index.
By Bruce Cameron
Source: Personal Finance
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