2. Disclaimer
Keep it simple
Exchange Traded Products are subject to risks similar to those of shares. Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when
redeemed or sold, may be worth more or less than their original value. Past performance is not necessarily a guide to the future. The information furnished in this publication which
information may include opinions, estimates, indicative rates, terms, price quotations and projections, reflects the existing judgment of the author and current market conditions, which
judgment and conditions are subject to change without notice, modification or amendment. This publication does not necessarily reflect the opinion of Itransact. The information herein
has been obtained from various sources, the accuracy and/or completeness of which Itransact does not guarantee. Itransact recommends that independent tax, accounting, legal and
financial advice be sought should any party seek to place any reliance on the information contained herein. Itransact does not provide investment advice. This publication has been
prepared for general dissemination and information purposes only and may not be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial
instruments or to participate in any particular trading strategy in any jurisdiction. All rights reserved. Any unauthorised use or disclosure of this publication is prohibited. This
publication may not be reproduced without the consent of Itransact.
Itransact is an authorised financial services provider
3. Agenda
Keep it simple
• Introduction to Itransact
• History & background to exchange traded funds
• An inconvenient truth
• What are exchange traded funds & how do they work?
• Why its hard to beat an index fund - the story of skill & luck
• How costs destroy returns
• ETFs & Tax
• ETFs, ETF portfolios & other types of index products
• How to invest
• Fees & charges
• Questions
4. A lesson in simplicity
Keep it simple
Making the market simple
Simplicity is our guiding principle. It is fundamental to
5. Who is Itransact?
Itransact is the investment product brand/division trading under Automated Outsourcing Services [AOS] an independent
third party fund administration company.
• AOS Established in 1997
• BEE Empowered Company
• 170 Employees
• Total Assets Under Administration - 148 bn ZAR (January 2015)
Keep it simple
7. Access leading South African and international asset managers and banks. All in
one place for your convenience
We make
investing simple
for everyone
8. The history of Exchange Traded Funds
The investment platform for
exchange traded products
• 1976 - ETFs Invented by John Bogle (Founder of Vanguard)
• Don’t look for the needle….buy the haystack
9. The history of Exchange Traded Funds
The investment platform for
exchange traded products
• 1976 - ETFs Invented by John Bogle (Founder of Vanguard)
• 1993 – 1st ETF (S&P 500) launched
• 1996 - Barclays launches WEBS – World Equity Benchmark Shares
• 2000 - WEBS becomes i-Shares, the largest ETF provider on the planet
• 2001 - ETFs reach South African Shores – Satrix 40
• 2003 - Global ETF inflows exceed those of Mutual Funds (Unit Trusts)
• 2006 - AOS takes over Satrix and Deutsche Bank Investment Plan administration
• 2008 – AOS enables RMB and Absa Capital with ETF Investment Plan capabilities
• 2009 – Barclays Africa contracts AOS to administer and distribute Absa Capital listed structured products
• 2011 - AOS launches Itransact & makes multiple ETFs available to South African retail investors
• 2012 - ETFs the fastest growing investment products on the planet with over USD 2 Trillion
globally
10. An inconvenient truth
Research on the South African general equity market shows that only one out of every five actively managed funds beat their
benchmarks.
Keep it simple
Index 1 year 3 years 5 years
Benchmark 1: FTSE/JSE Top 40 TR ZAR 13% 32% 26%
Benchmark 2: FTSE/JSE Top 40 SWIX TR ZAR 7% 19% 18%
Source: Morningstar, general equity classification. 2015
12. Why its hard to beat an index fund (The story of skill & luck)
Keep it simple
FARMER A FARMER B
Farm Size: 10 Hectares
Nearest Town: Ermelo
Location: 35km East of Ermelo
Crop: Maize
Yield: 2 Tons
Farm Size: 10 Hectares
Nearest Town: Ermelo
Location: 25 km West of Ermelo
Crop: Maize
Yield: 4 Tons
Average Monthly Rainfall
80ml
Average Monthly Rainfall
120ml
13. Costs destroy returns
The investment platform for
exchange traded products
Over the past 100 years, the Johannesburg Securities Exchange has averaged a real (after-inflation) return of 7,5% per annum
That means an active manager’s fee of 2% is not a small amount – its almost one-third of the JSE’s average return
General Equity Average TER 1.65%
1 year average return before fees 22.46%
TER as a % of return 7.35%
Broad Market ETFs Average TER 0.30%
1 year average return before fees 24.75%
TER as a % of return 1.21%
Source: Morningstar 2015
20. Costs destroy returns
The investment platform for
exchange traded products
“We never employ fund managers (some of the worlds most highly paid people) since we
discovered their best kept secret – they could never consistently beat the stock market
index”
-Richard Branson
“ It is a failure of the system when money managers are paid huge sums to move money
around while nobody but the investors themselves suffer the costs of under-performance”
-Trevor Manuel
21. What are ETFs and how do they work?
The investment platform for
exchange traded products
• Regulated
ETFs are low-cost FSB regulated index tracking unit trusts that are listed on the stock exchange
• Simple
ETFs track the performance of an index making no attempt to beat the market; they merely mirror the return of
ETFs are “mechanically” managed resulting in lower investment costs
• Transparent
ETFs are backed by a basket of physical securities
• Diversified
An ETF provides instant access to a number of securities for the cost of a single investment - Own the
share.
• Low Cost
ETFs are passive investments (as opposed to active investments) which means that the assets are not continually
outperform the market. ETFs do not have any “managerial risk”
• Liquid
A market maker ensures that there is always a buyer and seller in the market at the live fair value (NAV) of the
22. How safe is an ETF?
The investment platform for
exchange traded products
• Most ETFs are regulated collective investment schemes
which contain important protection mechanisms to assure
the safety of your money.
• When you invest via Itransact we act solely as the
administrator of your investments.
• An approved trustee company looks after your money on
your behalf which means that the collective investment
scheme company does not hold your money or your
securities in their name.
24. How to invest
The investment platform for
exchange traded products
Itransact firmly believes in the value of impartial
independent financial advice. We therefore only provide
our investment platform services through professional
financial advisers.
Financial Advice Fees (Negotiated between financial
Initial – up to 3%
Ongoing – up to 1%
(excl VAT)
25. Fees & Charges
The investment platform for
exchange traded products
Administration Fee – 0.45% p/a – 0.70% p/a
Portfolio management fee – 0.15% p/a (Only applicable if a portfolio has been used)
Once off stock broker fee – 0.08%
(excl VAT)
26. ETFs & Tax
Keep it simple
Dividend Withholding Tax (DWT)
Allowable fund management expenses are paid from
pre-tax income in the fund
DWT is only payable on the net-of-fees distribution,
usually paid quarterly to unit holders
Capital Gains Tax (CGT)
All trades within the ETF trust are CGT exempt; CGT
only applicable once you sell your ETF investment
Remember that there is an initial portion that is tax-
free
27. “Simplicity is the ultimate sophistication”
-Leonardo da Vinci
Thank You
Exchange Traded Products are subject to risks similar to those of shares. Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when
redeemed or sold, may be worth more or less than their original value. Past performance is not necessarily a guide to the future. The information furnished in this publication which
information may include opinions, estimates, indicative rates, terms, price quotations and projections, reflects the existing judgment of the author and current market conditions, which
judgment and conditions are subject to change without notice, modification or amendment. This publication does not necessarily reflect the opinion of Itransact. The information herein has
been obtained from various sources, the accuracy and/or completeness of which Itransact does not guarantee. Itransact recommends that independent tax, accounting, legal and
financial advice be sought should any party seek to place any reliance on the information contained herein. Itransact does not provide investment advice. This publication has been
prepared for general dissemination and information purposes only and may not be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments
or to participate in any particular trading strategy in any jurisdiction. All rights reserved. Any unauthorised use or disclosure of this publication is prohibited. This publication may not be
reproduced without the consent of Itransact.
Itransact is an authorised financial services provider
Keep it simple