Page 160 - Profile's Unit Trusts & Collective Investments - September 2025

Chapter 8 Classification of CISs

R ETFs allow large investors to “cash out” or redeem an investment by taking a basket of shares
in proportion to the ETFs holdings. Unit trusts can only repurchase units for cash. (This ability
to “cash in” ETF units for underlying shares creates arbitrage opportunities which ensure that
ETFs usually trade at NAV.)
R Settlement of ETFs in SA is via the JSE/STRATE settlement and clearing systems, which
takes three business days. Unit trusts can usually be liquidated in 24 to 48 hours, although the
actual time varies from one manager to another.
Both ETFs and unit trust index funds, as collective investment schemes, must publish NAV prices
on a daily basis. The JSE does allow ETFs to trade directly with clients for large orders. In this case,
the transaction must be done at the NAV price, as per the CISCA rules.
Arbitrage ensures that ETFs trade very close to NAV. In the event of a mispricing (ie, a discrepancy
between the NAV of the ETF and the market price):
R investors may swap an ETF for a physical basket of shares, which can then be traded in the
market to take advantage of the mispricing;
R investors may arbitrage between the market (spot) price of the ETF
and the futures contract on the index. (SAFEX – the futures market and
SETS – the spot equities market, operate on the same JSE trading platform, which facilitates
this type of trade.)
In addition, official market makers are appointed by the ETF managers to provide market liquidity
and to ensure that the ETFs trade at or close to fair value (NAV).
From a cost point of view, ETFs and unit trust funds compete directly with each other, and this
is reflected in their competitive pricing structures. As with most CIS products, the final cost to the
investor depends on various factors. In general, for the retail investor, ETFs bought via a stockbroker
are cheaper than buying unit trust index funds directly from a CIS manager, but a unit trust index
fund bought through a LISP offering zero or low initial charges may be cheaper than brokerage fees
on purchase of an ETF. Annual service fees also differ depending on the purchase route (see fund
fact sheets).
Some ETFs offer “investment plans” which allow retail investors to invest in a fund via a monthly
debit order.
These investment plans are typically outsourced and have an additional layer of costs specific
to the investment plan investor (ie, in addition to the fees charged by the fund). So, for example, an
annual fee of between 0.575% and 0.345% (based on a sliding scale) of the total amount invested
is charged by the Satrix investment plan. This fee would not be payable if the investment was made
via the JSE (through a stockbroker), but then stockbrokers do not offer the convenience of monthly
debit orders.
The first ETF-based retirement annuity (RA) launched in 2013. Like other LISP or wrapper
retirement products, these vehicles are managed in order to be compliant with Regulation 28 of
the Pensions Fund Act. Only ETFs are used as underlying investments, giving investors a low cost
retirement funding option free of the contractual limitations and penalties often associated with life
assurance RA products. Investors in these products enjoy the comfort of knowing that the investment
will never drastically underperform the mix of underlying indices. Like Regulation 28 compliant
Multi Asset funds, the ETF-based RAs combine different asset classes and a mix of underlying
funds to achieve their investment objectives.

158 Profile’s Unit Trusts & Collective Investments September 2025