Actively Managed ETFs: The Dynamic Evolution of ETF Investing

Exchange-Traded Funds (ETFs) have been a staple of passive investing in South Africa for many years. Initially conceived as a low-cost way to track market indices like the JSE Top 40, ETFs have evolved to offer investors a diverse range of investment options.

While Actively Managed ETFs (AMETFs) have been available in the global market since 2008, their adoption in South Africa has been slower. These innovative funds combine the benefits of active fund management with the liquidity and transparency of ETFs. Despite their potential advantages, AMETFs have faced challenges in gaining traction among South African investors.

But before diving into the world of AMETFs, let’s take a quick look at the history of ETFs in South Africa:

Key Milestones in South Africa's ETF History:

• 2000: The launch of South Africa's first ETF, Satrix 40, which tracks the top 40 companies on the JSE.
• 2004-2008: Sector-specific ETFs like Satrix INDI and FINI emerged, along with commodity-based ETFs such as the NewGold ETF.
• 2010: Introduction of bond ETFs (e.g., NewFunds GOVI ETF), giving investors access to government bonds.
• 2015-2020: Rise of Smart Beta ETFs and ESG-focused funds, followed by a surge in Tax-Free Savings Accounts (TFSAs) adoption, which further propelled ETF investments.
• 2024: Actively Managed ETFs are gaining momentum as fund managers actively adjust portfolios to outperform traditional index-tracking ETFs.

What is an Actively Managed ETF (AMETF)?

An Actively Managed ETF is a hybrid that combines the expertise of active management with the flexibility of ETFs. Traditional passive ETFs that track a specific index, AMETFs give portfolio managers the freedom to actively buy and sell assets in response to market shifts and their investment strategies. The goal? To outperform a benchmark, rather than merely matching it.

The Anatomy of an AMETF: What Sets it Apart

1. Active Management: Fund managers take an active role in selecting and adjusting the investments within the ETF, using research, market insights, economic forecasts and investment strategies.
2. Benchmark Reference: While they aim to outperform, AMETFs still mention a benchmark, giving investors a point of comparison and indication of the managers expectation for performance.
3. Liquidity: Just like traditional ETFs, AMETFs benefit from high liquidity, making it easier for investors to enter or exit positions.
4. Tax Efficiency: AMETFs offer the same tax advantages as passive ETFs, avoiding some of the capital gains that investors would face if they bought and sold the underlying investments. 
5. Transparency: AMETFs promote transparency through more frequent disclosures around their portfolios holdings.

Why AMETFs Are Worth Considering

With so many investment options available, why should you consider adding AMETFs to your portfolio?

• Expertise on Your Side: With AMETFs, you're leveraging professional expertise to navigate complex market conditions, especially during periods of volatility
• Active Risk Management: Passive ETFs follow an index regardless of market conditions, while AMETFs allow managers to respond to risks or opportunities.
• Targeted Investment Strategies: AMETFs often focus on specific sectors or market opportunities, offering tailored exposure to growth areas like tech, emerging markets, or sustainable investments.
• Potential for Outperformance: Active management aims to beat the market, giving investors the opportunity for higher returns, though this comes with higher risk.

AMETFs vs. Traditional ETFs: A Side-by-Side Comparison

Here’s a quick comparison of Actively Managed ETFs and their passive counterparts:

The Final Word: Should You Invest in AMETFs?

For investors looking for a dynamic, expertly managed investment vehicle, AMETFs offer a compelling option. With the potential for outperformance, risk management, and tailored strategies, AMETFs combine the best of both worlds: the flexibility of an ETF and the strategic advantage of active management.

Happy investing!

Additional Resources:

• Are AMETFs the Next Big Thing in Your Portfolio?
• ETFSA Launches First Fully Balanced AMETF on JSE
• Maximizing Your Portfolio with ETFs and AMETFs
• Machine Learning and Active Rebalancing with Numoro's AQUA AM ETF
• An Actively Managed ETF for Low-Risk Investors

Confused about which ETF to choose?
EasyCompare offers a user-friendly platform to compare different ETFs and their holdings. You can also explore our beginner's course on ETFs to learn the basics before you dive in.

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