One often hears that the investment industry is a man’s world, a perception possibly spurred on by the prevalence of male CEOs and male portfolio managers amongst the world’s large investment banks. However, in the rapidly expanding Exchange Trade Fund “ETF” industry nothing could be further from the truth. In this month’s Financial View we look at ETFs and how when it comes to the ETF Industry, the women are often the headliners.
What is an Exchange Trade Fund “ETF”?
ETFs are the most widely used investment structure globally yet still at infant stage in South Africa so many local investors may not be totally familiar with them. As the name implies ETFs are listed on stock exchanges like other shares. They can be traded exactly like a share is traded with bids (buy side) and offers (sell side) and locally they trade on the JSE.
Where the ETF differs to any individual share is that the ETF will hold a basket of instruments within it. Which instruments the ETF holds is determined by what the ETF is trying to achieve. As an example, the JSE Top 40 is an index, a statistical measure of the 40 largest companies listed on the JSE. An ETF can be designed to track the JSE Top 40 and then that ETF needs to hold all 40 of those large companies, with the holdings in direct relation to each companies’ weighting in the index. MTN, which is the eight largest company in the JSE Top 40 has a weighting of 2.5%. Any ETF tracking the index would thus need to hold 2.5% of the portfolio in MTN. Any investor holding the ETF will effectively have 2.5% of their portfolio exposed to MTN.
The reason that ETFs are so popular globally is that they are a very low-cost offering. The ETFs aren’t incurring costs on research and portfolio management and thus can be priced at a drastically reduced fee when compared to unit trusts.
The Magwitch Offshore division is one of South Africa’s leading experts on the use of ETFs within a global portfolio. The low-cost ETF structures that they deploy have provided investors consistent top quartile returns. They lend their knowledge to this article.
The Women in the ETF Industry
In South Africa our ETF industry has been headlined by a triumvirate of females for the last while. Shareholder activist and Sygnia founder, Magda Wierzycka is well known for her hard-hitting commentary, especially during the period of the “Gupta Leaks”. Outgoing Satrix CEO Helena Conradie has overseen tremendous growth in South Africa’s initial ETF offering business and Nerina Visser is the dominant personality of etfSA, South Africa’s biggest ETF research company. These women have driven the fledgling South African ETF industry to where it is now with several local and offshore ETF listings available on the JSE these days. At the end of the last calendar year there were 137 listed products with total market capitalisation of R111bn.
Lastly one can chat about women in ETFs without mentioning Cathie Wood. Cathie is the rockstar portfolio manager and brains within ARK Investment Management. She founded ARK Investment Management in January 2014. Nine months later, she launched ARK’s first actively managed ETFs.
At the time, many active managers were put off by the transparency of ETFs. Unlike mutual funds, most ETFs must disclose their holdings every day — a repellent for active stock pickers who jealously guard their trading secrets. By opening their books, portfolio managers ran the risk that competitors could piggyback on their best ideas.
Instead of fleeing from transparency, she embraced it. ARK’s investment research was published publicly. She published white papers, hosted podcasts, and became a regular commentator on financial markets. She sent out regular emails about her trades and publicised her stock selections on Twitter.
ARK’s first three years were a struggle. In 2015, ARK’s ETFs took in a paltry $17 million combined. Her fortunes began to turn in 2017 when two of her ETFs were among the top performers for the year. Since then, the firm’s flagship fund ARK Innovation ETF (“ARKK”) has continued to beat the market. The June 2021 factsheet for ARKK indicates that they have delivered a 48.36%pa return over the last 5 years. Returns like these may have helped the boom in active ETFs as other portfolio managers have seen how successful that one can be by embracing the benefits within the ETF structures.
They say that women are more rational than men and maybe this logical way of thinking applies itself best within the ETF industry. We acknowledge all the women that have contributed to the incredible growth within this space. ETF’s are a cost effective method of gaining exposure to markets and an effective method of starting your investment process and should be embraced by all investors male and female.
More information is available about Magwitch Offshore on their website magwitchoffshore.co.za