The Deutsche Bank-sponsored range of Exchange Traded Funds (ETFs), DB X-trackers, has cut its management fees on its JSE- listed ETFs. DB X-trackers comprises of five ETFs, each linked to an offshore index.
ETFs are passive investment structures designed to track the performance of specific indices, delivering market performance at affordable rates as investors don’t have to pay a premium on the promise of excess returns to the market.
ETFS generally have lower charges than actively managed investment products.
Sasfin financial consultant, Gavin Came, said ETFs are a cheaper alternative to investing in unit trusts and an affordable way to get into the market.
Wehmeyer Ferreira from Deutsche Securities said fee reductions were made possible by economies of scale resulting from asset growth.
“By the end of May, our funds achieved over 60% asset growth. Total assets under management (AUM) topped at R3.195 billion and we project strong continued net inflows.
A key element in our market strategy is the affordability of ETF fees versus actively managed alternatives and, as we have reached critical mass allowing economies of scale, we have chosen to reduce our fees,” said Ferreira.
Ferreira said there were several reasons behind local growth:
Greater understanding of the advantages of exposure to passive investments like tracker funds as history shows most actively managed funds fail to beat the market average over the long haul.
Greater cost sensitivity by investors who now realise total returns are greatly reduced once fees are subtracted.
Greater appreciation of the benefits of international diversification as a strategic imperative when portfolios are being constructed.
Rand weakness – underlining the benefit of exposure to offshore markets with stronger foreign currencies.
In a statement, Mike Brown, managing director of Exchange Trades South Africa said rand hedge investments, particularly the DBX Tracker ETFs, which invest directly in global equity markets but trade as "inward investments" in rands on the JSE, offer not only investor protection but also the means to profit from rand depreciation.
Would an ETF investment suit you?
Despite its affordability compared to actively managed funds, Came doesn’t believe an ETF suits all investment portfolios.
An ETF investment could, for example, be beneficial to a young investor who has enough capital to spare, but Came warned that you should not put all your money into one type of investment.
He added that there are up to 150 different types ETF’s available so you should always speak to your financial advisor before you choose one.