After the Bell: The JSE’s quiet revolution — when exchange-traded funds outnumber stocks

16 Apr 2025

Global ETF assets under management have grown from just under $1-trillion (R19-trillion) in 2009 to well over $12-trillion (R226-trillion) by 2024. They are cheap, liquid, flexible, tax efficient and allow quick diversification.

If you go on to a trading commentary blog like WallStreetBets on Reddit, you discover very quickly that it’s extremely de rigueur to brag about how much money you lost and how quickly you lost it. To me, it is funny and charming, and so refreshing, to hear from people who have lost money rather than the rather tiresome bragging about making money, as delightful as it is when that happens to you.

The fact is that anyone who has invested in stock markets consistently over the past decade has made money, and often lots of it. It’s actually not difficult to make money by investing if you follow some very simple rules, and if the markets are generally rising, which they have been despite the wobbles of the past week. The MSCI World Index, for example, has returned 7.5% per year over the past 10 years, and had an annualised return (the average annual return over 10 years, accounting for compounding) of 10.7% over a decade.

One of the things you notice about the big wins and losses recorded by the WallStreetBets crowd is often they reference $SPY. The SPDR S&P 500 ETF Trust ($SPY) is the Beyoncé of exchange-traded funds (ETFs): it’s iconic, universally recognised and dominates the stage. The reason is that it was launched long ago in 1993, it’s the most traded exchange-traded fund in the world, often clocking in more than $40-billion (R754-billion) per day in volume, and it has extremely tight bid-ask spreads.

The tight spreads make it ideal for institutional traders and hedge funds needing quick exposure. Because it tracks the S&P 500, it represents about 80% of the US equity market cap, and it’s used as a hedging tool because of its liquidity and, crucially, it has huge depth in options and futures markets.

But it also tells a story about the growing dominance of ETFs around the world. Global ETF assets under management have grown from just under $1-trillion (R19-trillion) in 2009 to well over $12-trillion (R226-trillion) by 2024. They are cheap, liquid, flexible, tax efficient and allow quick diversification.

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That’s a lot of advantages, and in South Africa there are even more because locally listed ETFs don’t fall under exchange control regulations, so in the hands of the local investor, they don’t require you to apply specifically for foreign currency to make the investment.

The other thing they do is allow for thematic bets, and some of them can be just charming. Thematic ETFs focus on specific sectors or trends, and the gains in some of them are eye-popping. For example, last year, the Roundhill Magnificent Seven ETF (MAGS) returned a 64% return, focusing on leading tech companies; the VanEck Video Gaming and eSports ETF (Espo) returned 47.6%, benefiting from the gaming industry’s expansion; while the Defiance Quantum ETF (QTUM) posted a 50.5% return, focusing on quantum computing advancements.

As in the rest of the world, ETFs in South Africa are blossoming. One of the local experts in ETFs in South Africa, Mike Brown, the MD of ETFSA, has just brought out his quarterly research document into ETFs, which shows the total market capitalisation of the South African ETPs (exchange-traded products) industry is now R233.6-billion.

Brown tells me that more than 70% of all local ETPs reference foreign, rather than local, indices and there are more than three times more than there were a decade ago. There are now so many, they are likely to outnumber the actual stocks on the JSE this year, which is a real eye-opener.

Satrix, Sygnia and Absa are the biggest players in the market, but it’s interesting to see EasyETFs from EasyEquities now in the top 10, suggesting retail investors are gradually becoming a more present force. Brown says lots of the local ETFs reference single stocks, allowing professional investors to tailor specific portfolios for clients very cheaply.

What seems to be lacking a bit in South Africa are thematic ETFs, although there are some following tech and healthcare, for example. But Absa Capital’s NewGold ETF has predictably done well from the rise in the US dollar gold price, raising an additional R5.3-billion in new capital recently, allowing it to challenge Sygnia’s Itrix fund, a global market index fund, for second spot, as the largest individual fund. Satrix Managers, with R70.3-billion, or 30% of the entire industry market cap, is still the dominant player in the local markets.

Another new development is the emergence of actively managed ETFs, called AMETFs. There are now 28 of them; three years ago, there were none. Most ETFs are essentially tracker funds, but AMETFs combine the low cost of ETFs with the theoretical advantages of actively managed funds, which includes the ability to invest in alternative investments and to sell short — something lots of investors must be thinking about over the past few weeks.

The worst that can happen is that you lose money and become a hero on WallStreetBets, although sadly you would have to lose a lot! DM

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