First actively-managed ETF on JSE offers diversified income exposure
The first JSE-listed actively managed ETF, the CoreShares by 10X Income Actively Managed ETF (AMETF), opened for business on 18 May.
CoreShares by 10X channel leader Gareth Stobie told Citywire South Africa that the ETF’s mandate is consistent with the Asisa domestic multi-asset income category.
Stobie said that until recently, the only ETFs allowed in domestic public markets were those that passively tracked underlying indices, currencies or commodities.
With new regulations in place, however, the JSE has opened the door to exchange-traded actively managed collective investment schemes.
Stobie said that the CoreShares Income AMETF addresses a need for listed strategies comprised of credit and fixed income instruments that are not typically available in an index construct.
The fund incorporates a diverse range of credit and fixed income opportunities – with the aim of delivering returns of inflation plus 2.5% annualised over rolling three-year periods.
‘Our team has worked diligently to develop a robust income solution for client portfolios, particularly for those in retirement who are looking to draw an income from their savings,’ Stobie (pictured above) said.
He added that the fund is designed for investors with a time horizon of three years or more, as returns can be volatile over the short term. The fund’s modified duration is currently 2.7 years.
‘There are two separate ecosystems,’ Stobie said.
‘One, which we can reach through conventional unit trusts on linked product platforms, is the bulk of advisers and DFMs. We have another group of clients, however, who prefer to invest through the JSE via shares and ETFs.
‘But all advisers and DFMs should consider ETFs to be another tool in the toolkit which can help build a robust and diversified investment portfolio for the long term,’ he said.
Stobie said offering this product as an index-tracking ETF is virtually impossible.
‘No indices capture the full opportunity set, especially in global credit instruments.’
Strategic asset allocation
The fund’s strategic asset allocation is to invest 10% in offshore investment grade credit and 10% in offshore high yield credit. The rest of the portfolio will be invested in local assets. The fund has a strategic asset allocation of 35% to South African nominal bonds, 15% to South African inflation-linked bonds, 20% to local money market assets and 10% to local credit.
The running yield on the portfolio is 9.2% before fees with an annual management charge of 0.38% plus VAT.
Stobie said it is serendipitous that since 10X took over CoreShares, the combined group includes an active investment management team.
Before the merger, CoreShares was purely a passive business and wouldn’t have been able to offer this product.
10X CIO Anton Eser (pictured above) and Christopher Eddy, 10X head of multi-asset, manage the fund.
‘The CoreShares Income AMETF will strategically invest in a diversified portfolio of income opportunities,’ Eser said.
‘We’re confident in our ability to provide investors with a high yield and a consistent income stream, with a return profile that is similar to bonds but which carries significantly lower risk thanks to diversification and sound risk management frameworks.’
Eser said the benchmark is the Stefi Composite + 1%, comparable to leading funds in the sector. Under the rules of the multi-asset income category, the fund can invest up to 10% in equities, but Eser says there are no plans to invest in equities, which do not form part of the strategic asset allocation.
The CoreShares Income AMETF complements a number of the group’s other new fixed income ETFs, said Chris Rule, head of client solutions and product at 10X.
‘This is the third fixed income ETF solution we have brought to the JSE over the past year if one includes the repositioning of our preference share ETF to track a high yield bond basket (the CoreShares Yield Select) and our standard Government Bond ETF (CSGOVI). As a result, we now have a comprehensive suite of income opportunities for stockbroking and private wealth clients,’ said Rule.