The first actively managed exchange-traded fund (AMETF) listed on the JSE last month.
The CoreShares Income AMETF, which is aimed at delivering bond-like returns but with reduced risk, is a first-of-its kind solution for retail and institutional investors in South Africa, with this low-cost, holistic strategic income strategy being easily accessible on the country’s main bourse.
This comes after the JSE introduced new regulations, effective October 2022, allowing any strategy that can qualify as a unit trust to be able to list on the exchange – so long as the underlying assets and securities are “sufficiently liquid for robust pricing”.
In essence, this means ETF providers can now be more flexible in their investment approaches. They can adopt multi-asset strategies and include asset classes that cannot easily be indexed, such as corporate credit.
Chris Eddy, Head of Multi Asset Funds at 10X Investments remarks, “The Income AMETF arrives at a particularly opportune time, capitalising on high real yields in the market. With a yield of 9.9%, as of end-May, the fund aims to deliver returns of 2.5 percentage points above inflation over rolling 3-year periods.”
To produce a steady stream of income while also managing risk, the ETF is diversified across broad range of local and global, fixed and floating rate securities including money market instruments, nominal and inflation-linked South African bonds, South African credit as well as global investment-grade and high-yield credit.
The global credit exposure demonstrates 10X’s approach to diversification as it is spread across 425 issuers in US and Europe, and across multiple sectors, with exposures capped to avoid concentration risk. Interest rate risk is managed separately to credit risk, with a maximum portfolio duration of 3 years.
Importantly, the ETF format allows the fund to charge a management fee of just 0.38%, excluding VAT. This helps to further maximise risk-adjusted returns and provide a higher net yield to investors.
Eddy comments “We believe this is a compelling value proposition that could have multiple use cases for investors on the JSE. It can, for instance, be used as a core income holding in a well-diversified portfolio; or for clients drawing down in retirement the portfolio can produce a steady income stream with relatively low volatility.”
This strategy can complement the other building blocks of a well-rounded portfolio, such as active stock selection and the use of conventional index-tracking ETFs, which provide efficient, low-cost exposure to specific markets or asset classes.
“All things considered, we are excited to be delivering the first AMETF to the South African market, which is ripe for an easily tradeable, outcomes-focused strategic income solution, says Chris Eddy.”
10X will introduce additional solutions in the months ahead as the local ETF market begins to build scale. The introduction of actively managed ETF’s will, in our view, accelerate the growth of the domestic ETF market.
ETFs can be bought via online share trading platforms or traditional stockbrokers. The same strategy is also available as a unit trust, the 10X Income Fund, available via the My 10X Portal for self-directed investors, and coming soon to all the major LISPS for access via an IFA.
Watch Michelle Noth and Christopher Eddy discuss the new JSE rules allowing for actively-managed ETFs: