How to Choose the Right ETF for You

ETFs have grown from niche investment tools to core portfolio building blocks for many investors, offering exposure, simplicity and, yes, even a bit of flavour variety. In a recent episode of the Ghost Stories podcast, Siyabulela Nomoyi, Quantitative Portfolio Manager at Satrix*, unpacked the ETF landscape with a surprisingly relatable analogy that compares buying ETFs to buying biscuits.

There’s Nothing Passive About “Passive” Investing

At first glance, an ETF might seem like a passive investment that simply follows an index; however the choice of which ETF to buy is an active decision. 

There are over 14,000 ETFs available worldwide, and more than 100 are listed on the JSE. So, investors aren’t short on options.

You can pick from local or global exposure, equities or bonds, straightforward or more specialised strategies. The key is finding what fits your portfolio and supports your goals.

That’s where the biscuit analogy fits in. When you walk down the ETF “aisle”, you’ll see a wide variety, much like choosing from chocolate, shortbread or choc chip biscuits. The choice depends on your taste (risk appetite), your budget (fees), and what you’re in the mood for (market exposure or theme).

Types of ETFs: More Than Just Local vs Offshore

ETFs can be categorised as local or offshore, but that’s just the start. about the broader ETF “shelf”:

• Equity ETFs: Like the Satrix Top 40 or S&P 500 ETFs, these are building blocks designed for long-term growth.

• Bond ETFs: Including nominal and inflation-linked bond exposure, both locally and globally.
• Thematic ETFs: Offering exposure to themes like infrastructure, tech or ESG.
• Factor ETFs: Built on investment factors like value, momentum or quality.
• Multi-Asset ETFs: These are your ready-made “platter meals”, combining equities, bonds and more in a single ETF.

Actively managed ETFs give fund managers the flexibility to adjust the ETF’s holdings based on their research and judgment. The goal is to outperform a benchmark rather than just track it.

Understand Risk Before You Check Out

One of the biggest ETF myths is that all ETFs carry the same risk, but they don’t.

A broad market ETF tracking the JSE Top 40 will have a very different risk profile compared to, say, a niche biotechnology ETF. Both might be labelled “high risk”, the levels of volatility, diversification and sector exposure vary significantly.

Key Questions to Ask:

• How long do I plan to stay invested?
• Can I handle drawdowns and volatility?
• Am I overexposed to one region or sector?

The Secret Is in the Fact Sheet

Minimum Disclosure Documents (MDDs), also known as fund fact sheets, are your best friend because they provide a transparent view of what’s inside the ETF and are updated monthly, much like reading the ingredients list on a biscuit box.

Look For the Following:

• The index being tracked (e.g. FTSE/JSE Top 40)
• Top 10 holdings (which show concentration and underlying exposure)
• Fees and TER (Total Expense Ratio)
• Risk profile
• Historic performance

Use these to compare similar ETFs from different options to make sure the product fits your needs.

ETFs offer a simple and cost-effective way to invest, but simple doesn’t mean simplistic. Like filling a trolley with your favourite snacks, your ETF selection should be deliberate, informed and aligned to your investment goals.

As Siyabulela said, “ETFs are those biscuits in the aisle. There are a lot of very sweet things to choose from, you’ve got to find your taste and decide what works for you.”

Click here to listen.

Disclaimer:

*Satrix is a division of Sanlam Investment Management

Satrix Investments (Pty) Ltd is an approved financial service provider in terms of the Financial Advisory and Intermediary Services Act, No 37 of 2002 (“FAIS”). The information above does not constitute financial advice in terms of FAIS. Consult your financial adviser before making an investment decision. While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP, its shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.

Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities and an authorised financial services provider in terms of the FAIS. Collective investment schemes are generally medium- to long-term investments. With Unit Trusts and ETFs, the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document. 

For more information, visit https://satrix.co.za/products