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Exchange Traded Funds Presentation 20 April, 2011

Exchange Traded Funds Presentation 20 April, 2011. Disclaimer. In case you prefer to shoot and ask questions later. I am NOT a registered financial advisor. I am not paid any commissions to sell ETFs . I am paid to write an ETF column by Investors Monthly.

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Exchange Traded Funds Presentation 20 April, 2011

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  1. Exchange Traded Funds Presentation 20 April, 2011

  2. Disclaimer In case you prefer to shoot and ask questions later • I am NOT a registered financial advisor. • I am not paid any commissions to sell ETFs. • I am paid to write an ETF column by Investors Monthly. • I am paid to write a quarterly ETF Review for Itransact. • This presentation should NOT be construed as advice or a recommendation of any kind.

  3. Warren Dick Some call me slim.... • Degree in economics and finance from UNISA • 7 years at Investec Private Bank • Financial journalist writing for Investors Monthly • Financial analyst for Investorcentre • Called the financial crisis of ‘07/08 • Blah blah blah

  4. The most important slide you’ll ever see Stock markets generally tend to go up.... Source: Profile media JSE All Share Index 1960 - 2011

  5. Exchange Traded Funds • A basket of shares, bonds or commodities. • Put together in a methodical way. • Listed on an exchange. • Use indices as their building blocks. What are they?

  6. Some famous indices: Pick one you like • All Share index: Tracks the performance of 161 shares on JSE. • Consumer Price index: tracks the change in the prices of a basket of goods. • Dow Jones Industrial Average – NYSE.

  7. Indices are everywhere And ETFs aim to mimic them!

  8. Regulated by: • JSE as a listed entity • FSB as a collective investment scheme ETF Structure ETF Issuer: eg RMB Man company usually a Pty Ltd. Issues: Debentures or participatory interests • Appoints: • Trustees (Bank) to administer company • Asset manager to track the index being followed • Market Maker to provide liquidity Market Maker ensures shares trade at NAV Investorspurchase and sell debentures/PI’s through JSE

  9. How are they constituted? Market Cap Methodology Include shares in the index based on their Market capitalisation= No of shares x share price SIZE

  10. Anglo American Market Capitalisation Closing share price 19 April: R342.70 No of shares: 1,342m Market cap = R342.70 x 1,342m Market cap = R460.2bn

  11. Top 40 index: ranks companies on size

  12. The Top 40 by Industry A little skewed to resources… Source: Satrix, Investorcentre

  13. So then its a process of natural selection? We’ve heard this before! • Companies enter and exit the Top 40 when portfolio is rebalanced • Only the strongest survive • This is a process of ‘natural selection’ • Don’t buy the needle buy the hastack.

  14. And has been replicated on indices around the world: • Locally: industrial companies “Indi”, resource companies “Resi”, financial companies “fini” • Overseas: FTSE 100 (Footsie) S&P 500, Nikkei

  15. Then they got smart… • Instead of picking on size, you pick on value (fundamentals) • Research Affiliates Fundamental Indexation (RAFI) • Enhanced Research Affiliates Fundamental Indexation (eRAFI)

  16. eRAFIvsRAFI

  17. On this team, we fight for that inch. On this team, we tear ourselves, and everyone around us to pieces for that inch. We CLAW with our finger nails for that inch.Cause we know when we add up all those inches that's going to make the f%$*ing difference between WINNING and LOSING between LIVING and DYING.

  18. Performance: Making rands and sense of it… “Investors will do well to avoid the most expensive funds; simply because their actual performances do not justify the higher fees. Investors should rather, all else being equal, invest in low-cost funds and therefore stand a better chance of improving their returns.”

  19. Fees (TER) as at 31 December 2010

  20. But don’t take my word for it The Oracle of Omaha says so…. "Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.“ - Warren Buffett in letter to shareholders, 1996

  21. Your guide to the universe…

  22. As at 31 December 2010

  23. ETPs - a big deal overseas (US$ bn) --------ETFs---------ETPsEquity ETFsFixed Income ETFsCommodity ETFs Source: Bloomberg, Blackrock

  24. But still small locally (R’bn) Source: Bloomberg

  25. Summary: • Market cap indices are based on the size of the companies. • Fundamental indices introduce different ways of picking the shares. • You can get exposure to all asset classes locally. • ETFs are cheaper than unit trust funds

  26. Getting some more of the good stuff Now that you’re sold: ETF column in Investors Monthly (Business Day) Factsheets of product providers. ETF Quarterly Review – sign up for the email. ETFSA website

  27. THANK YOU

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