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Index trackers gain momentum in Africa

Anna Lyudvig
May 19, 2015, midnight

Word count: 534

Index tracking products in Africa are gaining assets faster than ever before, according to Zack Bezuidenhout, Head of South Africa and Sub-Saharan Africa at S&P; Dow Jones Indices.

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Index tracking products in Africa are gaining assets faster than ever before, according to Zack Bezuidenhout, Head of South Africa and Sub-Saharan Africa at S&P Dow Jones Indices.

“With new Smart Beta Indices being a good alternative to active manager funds, more indices being developed and investors knowledge of the use of index trackers increasing, we see the use of ETFs and index tracking products increasing as well,” he told Africa Global Funds.

S&P Dow Jones Indices have rolled out over 100 additional indices for Africa, ranging from Smart Beta, Fixed Income and highly liquid indices aimed for product development as the Africa markets have developed to now also accommodate ETFs and derivate products.

Bezuidenhout said that investors have become more aware of the benefits that index funds offer, more indices rolled out by SPDJI, and that they “compete very well, if not better than actively managed funds”.

In South Africa alone there has been seven index tracking funds developed this year: African Alliance SA S&P GIVI Equity Prescient Fund, CoreShares S&P SA Top 50 ETF, Satrix Quality Index Fund, New Funds S&P GIVI SA Top 50 ETF, New Funds S&P GIVI SA Financial 15 ETF; New Funds S&P GIVI SA Resources 15 ETF and New Funds S&P GIVI SA Industrials 25 ETF.

According to Bezuidenhout, Grindrod is expected to launch an ETF that tracks its S&P South Africa 50 Index.

“We have signed various index tracking agreements with the main Index tracker managers in South Africa on the back of our extensive South Africa Index range, as well as Fixed Income and Equity Index licenses with some of the large Nigerian asset managers,” he said.

Bezuidenhout expects more funds to be launched due to index providers now adding multi factor and multi asset class indices, and investors’ need for low cost and transparent investment products.

“We are working on additional products with CoreShares, Momentum Asset Managers and main players in Kenya, Nigeria and Mauritius,” he said.

While the current funds launched are focused more on the private investor, Bezuidenhout said that nothing stops an institutional client appointing an asset manager to invest the pensions fund assets in line with any of these index strategies, or even allocating assets to an ETF.

“The US and European ETF market has grown extensively due to more and more pension funds making use of ETFs,” he said.

“Improved transparency, liquidity, simplicity to invest and disinvest and lower costs are just some of the benefits,” he added.

“The simplicity of the design of an index is easy to understand relative to complex active manager investment philosophies and strategies. Index trackers gives you access to a diversified basket of shares, lowering the risk of investing in a single stock. By investing in index trackers, investors can select ” higher risk” active manager strategies as satellite investment in combination to the persistent performance that index tracker funds offer,” he said.

Bezuidenhout added that S&P Dow Jones Indices have various SPIVA reports that measure the performance of S&P Indices against active managers.

“The global results are eye-opening, and based on the South Africa market the majority of active managers have underperformed last year, but also over the long term. Once measured against Smart Beta indices, the results look even worse for active managers,” he said.

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