ETFs A Beginners Guide

What Is an ETF? 

An ETF (Exchange Traded Fund) is a basket of securities that tracks the performance of an underlying index (such as the FTSE/JSE Top 40 Index, for example) or an asset, like gold. You invest in a share of that basket by buying into the ETF via a stock exchange. The big benefits of an ETF? You get instant diversification in your portfolio, plus, you generally pay lower fees. Read more about ETFs for New Investors here. 

How Does an ETF Differ from a Unit Trust Fund? 

The main difference is that an ETF tracks the performance of an underlying index whereas a unit trust is actively managed by a fund manager. An ETF is listed and traded on a stock exchange, like the Johannesburg Stock Exchange (JSE). This means that the price changes throughout the day (known as intra-day pricing). You will be able to log on to your online portfolio and see the value of your ETF at any point throughout the day. An index tracking unit trust is not listed on a stock exchange and is priced at the end of every day so any market movements during the day will only reflect in the value of your unit trust portfolio on the following day. There are also different costs associated with each.

Both ETFs and unit trusts are transparent, i.e. you can see the underlying shares they’re invested in on the Minimum Disclosure Document (available on the respective websites) and they’re also both liquid investments, meaning you can sell your investment at any time. However, since ETFs (and also unit trusts) track market movements, it is advisable to hold them for at least three to five years or more, depending on the type of fund you’re invested in.

ETFs and unit trusts both pay dividends to investors. Dividends are a portion of a company’s profit and are paid out periodically in cash or automatically reinvested. 

Learn more about the differences between ETFs and unit trusts here.  

How Do I Invest Into an ETF? 

You can invest directly into one or more ETFs via the SatrixNOW platform. You can also include ETFs as underlying investments in your Tax Free Savings Account and/or your retirement annuity. It is always prudent to obtain advice from a qualified financial adviser who will assist you in structuring your portfolio optimally to align with your goals and guide you on tax-related matters. 

It's also important to note that the investment vehicle you choose will have an impact on the liquidity of your ETF. If you invest directly into an ETF, you can sell or convert your investment into cash at any time. However, if your ETF is an underlying investment in a retirement annuity (RA), then the rules of an RA will apply, and you will not be able to access your funds within the RA until at least the age of 55, or when fund rules allow.

How Do I Select an ETF?

An ETF may be diversified, i.e. track shares in many different industries, or it could track one industry or sector, e.g. technology or property. Also, some ETFs will be more risky, or subject to market volatility, than others, and they may have different fees. When selecting an ETF, there are several more criteria you could consider like fund size and age, asset class, etc. If you’re unsure of your first ETF choice, consider the Satrix Access Range to get you started or if you prefer, it is advisable to speak to a financial adviser, to ensure that your portfolio choices are aligned to your risk profile, needs and goals. 

Is an ETF a Safe Investment?

ETFs, as mentioned, trade on a stock exchange and they track or mirror various indices, sectors and geographies. 

It is important to note that ETF prices fluctuate from day to day as the index they are tracking rises and falls. This means the value of the ETFs may fall below the price which the investor initially paid for them. Therefore, they should be regarded as medium- to long-term investments, as any volatility – or extreme market movements – is generally smoothed out over time. 

As with other investments, such as unit trusts, a general rule of thumb is to ignore market “noise” and leave your investments to grow over time, so long as you have the right advice, your investment strategy is aligned to your goals and your circumstances haven’t changed. Your investment strategy should be reviewed at least once a year, but not changed unless your personal circumstances have changed.

Are ETFs Regulated?

Yes, ETFs fall under the Collective Investment Schemes Control Act (CISCA) and are regulated by the Financial Sector Conduct Authority (FSCA). ETFs are also monitored by independent trustees.

How Do I Get Started?

To get started, visit To get started, visit SatrixNOW, our low-cost and easy-to-use investment platform with no minimum investment amounts. Satrix makes investing flexible, meaning you can choose to invest a lump sum or via a recurring monthly investment. There is also our Access Range, comprising four flagship funds, to help get you started.

Conclusion 

ETFs have an important role to play in an investment portfolio. Here’s a quick summary of their main benefits:

Liquid - You can sell your investment at any time.

Transparent - The Minimum Disclosure Document will list all the vital information about the ETF including the benchmark and fees.

Diversity - You can select different ETFs that track different indices, sectors or geographies.

Cost-effective - ETFs tend to have lower costs than unit trusts or other investments.

Regulated -  By the FSCA and monitored by independent trustees.    

Disclaimer: 

Satrix Investments (Pty) Ltd is an approved FSP in terms of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. 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.