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An exchange-traded fund (or ETF) is an investment vehicle traded on a stock exchange, much like shares. Most ETFs are passively managed index funds which normally track an index, with their main objective being to participate in the economic growth of an industry sector or commodity, such as palladium, platinum or gold.
ETFs generally provide the attraction of the returns of a traditional tracker fund (like unit trusts) with the liquidity of a listed security. ETFs are traded at prevailing market prices, which are approximately the same price as the net asset value of their underlying assets over the course of the trading day. Profits (or losses) are made from the difference between the buying and selling price of the ETF, like any other security.
ETFs | Unit Trust | |
|---|---|---|
| Trade priced throughout the day on JSE | Priced only at end of day | |
| Liquid, trades like a share | Liquid, trade at actual market value of assets | |
| Regulated by the JSE and FSCA | Regulated by FSCA | |
| Transparent - publish holdings | Transparent - publish holdings | |
| Easily accessible, trade through a stockbroker or investment platform | Easy accessible, trade through Unit Trust MANCO or LISP | |
| Cost Effective | Cost Effective |
The value of ETF securities will rise and fall according to market changes. As with unit trusts and most investment vehicles, your capital is not protected in an ETF. Therefore, depending on market movements during your investment period, you are not guaranteed to get back your full investment when you decide to sell.
Particular risks include:
Diversified Investment – ETFs give investors a straightforward and inexpensive way to obtain a broad exposure to a given index, sector, or commodity.
Tradability – ETFs provide investors with the ability to gain exposure to a broad market in one transaction as they trade on a stock exchange throughout the trading day.
Transparent – As the holdings of an ETF closely mirror the underlying index it tracks as a benchmark, this provides investors with a greater degree of financial transparency
Protection – ETF securities are fully hedged by underlying assets, such as gold bullion. The physical assets are securely held in the vault of an independent custodian. Additionally, ETFs are fully regulated by the exchange on which they are traded. To increase the level of investor protections, ETFs are also regulated by capital market authorities in addition to regulation by the exchanges. The level of regulations depends on the market of primary or secondary listings.
Low Cost - Because ETFs are passive investments and are designed to closely track the performance of their respective benchmarks, they have less frequent portfolio changes than actively managed funds, making them less expensive to operate.
Diversification of investment risk - Gold has a low to negative correlation with other assets with assets classes, making it excellent portfolio diversifier.
Long-term inflation protection - Historically, gold has always retained value. Over the long-term, gold had delivered inflation-beating return.
Protection against local currency depreciate - Gold is an excellent local currency hedge as well as a hedge against US dollar depreciation.
A low-risk investment compared to gold stocks - Over the years, investment in actual gold has proven to be notably less volatile than the returns on gold equities.
Efficient exposure
Currency hedge
Liquidity management
Growing your market
Managing risk
NewGold ETFs track the price of metals by:
Absa issues ETFs using a single issuance vehicle. NewGold Issuer is used for our Commodity-Linked ETFs: New Gold Issuer Prospectus