Copyright© JSE Limited 2008

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27 February 2010

The South African and Global Landscape of Exchange Traded Funds (ETFs)

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What is an Exchange Traded Fund (ETF)?

An ETF is

• an investment product listed and traded on the JSE

• usually registered as a Collective Investment Scheme with the FSB

• tracks the performance of certain underlying assets

• for example:

• a basket of shares,

• a basket of bonds,

• a commodity

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What is an Exchange Traded Fund (ETF)?

These “baskets” of shares or bonds are known as indices, for example:

• FTSE/JSE

Top40; Financial 15; Industrial 25; Resources 20; South African Property Index

• eRAFI™

Financial 15; Industrial 25; Resources 20

• GOVI; Government Inflation-Linked Bond Index

• FTSE 100, DJ Eurostoxx 50; MSCI Japan; MSCI World; MSCI USA

Commodity, for example:

• Gold and oil

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What is an Exchange Traded Fund (ETF)?

An ETF can then be bought and sold just like an ordinary share

The price of an ETF is determined by the demand and supply for the ETF

HOWEVER

Market Makers continuously provide liquidity for buyers and sellers

THUS

ETF prices closely tracks Net Asset Value (NAV)

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What is an Exchange Traded Fund (ETF)?

Example of how ETFs track an index (Satrix 40 ETF vs. FTSE/JSE Top 40)

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

2005/01/31 2006/01/31 2007/01/31 2008/01/31 2009/01/31

J200

STX40

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Global Growth in ETFs

As at year end 2009

• 1,947 ETFs world wide

• Assets of US$1 trillion (+-R7.5 trillion)

• 110 ETF providers on 40 exchanges around the world

• 423 new ETFs launched while 80 ETFs were closed

• Plans to launch 818 new ETFs

Source: ETF Research and Implementation Strategy Team, Barclays Global Investors, Bloomberg

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Global Growth in ETFs

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Global Growth in ETFs

Source: ETF Research and Implementation Strategy Team, Barclays Global Investors, Bloomberg

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ETFs in South Africa

Total value traded as at year end 2009, over R60 billion (buy and sell sides)

Assets Under Management (AUM) now over R20 billion

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 -

10,000,000,000

20,000,000,000

30,000,000,000

40,000,000,000

50,000,000,000

60,000,000,000

70,000,000,000

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Total Value

Total Volume

Total Trades

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ETFs in South Africa

First South African ETF listed on the JSE in 2000

24 ETFs currently listed the JSE with total of 6 ETF providers

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6

5

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11 1 Top 40 Equity ETFs

Equity Index ETFs

International Equity ETFs

Bond ETFs

Commodity ETF

Dividend ETF

Property ETF

Currency ETFs

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Types of ETFs listed on the JSE

See List of ETFs

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Advantages of ETFs

Diversification

• Exposure to “basket” of shares when investing in one ETF

Low Costs

• “Passive tracking management fees” are lower than “active tracking management fees”

Cash flow distributions (dividends)

Regulation

• JSE and FSB

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Advantages of ETFs

Trading Flexibility

• Can buy ETFs real time, during trading hours (9am to 5pm) at market prices

Liquidity

Securities Transfer Tax (STT) exempt

Hassle Free

• Passive tracking investment that requires little investment research

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Key ETF features to consider

Fees

• Once off trading fee and ongoing management fee (monthly)

Limited share ownership rights

Capital Gains Tax

Exchange Traded Price

• ETF price could vary slightly from the Net Asset Value (NAV) of the underlying fund

Market Risk

• Prices will fluctuate (go up AND down) as the underlying securities’ prices go up and down

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Which ETF will you buy next?