ETF TV News #76 Gareth Stobie of CoreShares discusses the users and use of ETFs in South Africa

Presented by Syntax Advisers

Deborah Fuhr: Welcome to ETF TV News – a weekly show that provides updates for institutional investors on new listings and other news in the global ETF industry. I’m Deborah Fuhr and joining me today is Gareth Stobie, managing director of Coreshares. Welcome, Gareth.

Gareth Stobie: Thank you for having me, Debbie.

Deborah Fuhr: So why don’t we start with a brief overview of who is CoreShares?

Gareth Stobie: CoreShares is an independent, passive investment manager operating predominantly in the South African markets. We launched the brand about six years ago, targeting clients looking for core exposure within their portfolios at low cost. We currently have nine exchange traded funds trading on the JSE and we focus predominantly on the domestic market.

Deborah Fuhr: You listed CoreShares Total World Stock Feeder Securities ETF. Can you tell me about that ETF and why it’s called a feeder ETF?

Gareth Stobie: The ETF checks the FTSE Global All Cap Index, which is a very comprehensive index of both developed markets and emerging markets. And that’s particularly important for South African investors, because even though we consider ourselves an emerging market economy, our local index often is quite disconnected to what the other emerging markets are doing. So to have both developed markets and emerging markets combined within one index is an appealing proposition for local investors as they look to build solutions that have global exposure.

Bearing in mind the South African component would be well under one percent of total world markets, so in a client solution they would have their SA critical exposure and they would have global exposure, and this is kind of like an all-in type of product. It’s called a Feeder Fund, because the index is made up of 9000 global securities. In order for us to replicate those 9000 shares locally would be very difficult to do, so we very simply feed into one of the very large Vanguard products which trades in the US market, the VT ETF. We found that scale that’s been generated by some big global ETF providers allows us to launch products in the back of what they’re doing without having to recreate the wheel here from a trading perspective.

Deborah Fuhr: How has the use and users of ETF been changing in South Africa?

Gareth Stobie: The three markets in South Africa for ETFs is, first of all, the kind of do-it-yourself investor, the self directed investor. And we are seeing somewhat of a boom of retail investment in the local market, which is very encouraging to see. We’ve seen equities, recently up to one million users on this platform, offering a very broad, easy, first time exposure to the ETF markets. We then have the multi managers and builders of solutions who often look to the local exchange to get the sort of exposure instead of externalizing the money to, say, the US markets. Bringing that sort of exposure more cheaply to the local markets dissuades them from moving their money offshore, and actually our market, from a CUSP perspective, is becoming incredibly competitive now. So you can manage your whole ETF portfolio, simply here in rands, at the JSE and avoid a lot of admin and red tape in terms of externalizing our money. And last but not least, is private wealth which is a very large part of the market. Most of all the family wealth is still sort of in segregated accounts and in stock portfolios, and those clients, whilst they rate themselves as stock pickers in their own right, are using ETFs more and more to provide an anchor to the portfolio or for technical adjustments, whatever the case may be.

Deborah Fuhr: The ETF industry in South Africa is just over 20 years old. What are your plans for the rest of 2021?

Gareth Stobie: Well, I think if you were in a room with all of the issuers in the local market, I think the themes would typically be quite similar to what you see in global markets. So a lot of talk around thematics, whether you can run a product with enough scale to justify quite a narrow theme. So how you marry the business opportunity on the one hand with launching and running a fund, that’s a decent scale, on the other hand. And I think for your global audience, Debbie, an interesting one in terms of the longer term carry trade and how global investors access the carry trade. Because right now, let’s say you are wanting to invest in South African high-yield instruments. Up until this point, your opportunities have been quite narrow around highly liquid government debt, so if we can bring some of that liquidity of our broader bond market onto the ETF screen, that might be a real opportunity for investors, particularly if that can be delivered in an active manner. And I think our market will be following other global markets to allow for transparent or semi-transparent ETFs in the not too distant future.

Deborah Fuhr: That’s great. Thank you so much for joining us.

Gareth Stobie: Thanks very much, Debbie.

Deborah Fuhr: Last week there were 57 new ETF listings from 27 issuers. There’s also 84 new cross-listings last week. If we look year to date, we’ve seen that there were 596 new ETFs that have come to market. Although we’re not yet at the end of May, when we look at prior year to date through May, the highest number of new listings was in 2010 when there were 471 products that came to market. So we’ve seen significantly more new listings. A couple of new issuers have come to market last week, so Putnam launched four actively managed ETFs in the US. We also saw a timed portfolio come to market in Korea, and in Korea, they have announced some regulatory changes where we expect to see more actively managed ETFs come to market. We also saw some transparency on foreign investments from Korean investors come out from the regulator, and the ARK Genomic ETF and the ARK Innovation ETF are among the 50 largest, foreign investment from Korean investors.

Deborah Fuhr: I’d like to thank Syntax Advisors, our sponsor for ETF TV. I’d like to thank Gareth Stobie, managing director of CoreShares for joining us. And of course, you for watching. For further episodes, go to ETFTV.NET. Thank you and see you next week.

ETF TV news does not provide investment advice nor recommend products.

Published on June 1, 2021