Type of ETFs and how to choose: A brief guide


What is an Exchange-traded fund (ETF)?

An ETF can be regarded as a basket (fund) of assets . It is overall regarded as a low cost and a low investment vehicle. If you want to learn more about ETFs follow the link : Turning ETFs into EFTs: Mastering Passive Income. 

The main types of ETFs that are available on the market and examples:

Bond ETFs:

A Bond ETF is an ETF which exclusively invests in the bond market. In other words this means a Bond ETF is a basket of bonds. The benefit of a Bond ETF is that it give the investors the opportunity to benefit from the relatively expensive bond market at very low costs. Bonds are considered to be a low risk investment option, so you can opt to invest in Bond ETFs if you want to gain exposure into the bond market at low costs. Some examples of the Bond ETFs that you can purchase are :

  • Investec GOVI ETF
  • NewFunds GOVI ETF
  • Ashburton World Government Bond Exchange Traded Fund (ETF)

If you want to get a better profile of these ETFs follow the link (Bond ETFs on the market)

Inflation-linked bonds ETF:

Inflation linked bonds are investment vehicle designed to offset or hedge risk that  is associated with inflation. To learn more about inflation you can use the following link (). The way in which an  inflation- linked bond works is that the nominal face amount and the repayment of the principal are calculated to match the rate of inflation. For the purpose of demonstrating the practical benefit of an inflation linked bond I will use an example. If you  invest R1 000 000 in asset X, and you receive an annual return of 8% , the gross amount that you will receive after 10 years from that investment will be R2,158,925.00. However, the actual value of this amount will be much less. For the purpose of this example if we say that the interest rate was 3% a year  for the 10 years you held the investment, it would mean that the true value of investment will be reduced to R 1,651,620.79.

If you had alternatively invested in an inflation linked bond ETF, the return in this case 8% will be readjusted (increased) annually to match(compensate) for the rate of inflation.  Therefore your investment would not subject to the depreciation caused by inflation.

Examples of inflation-linked bond ETFS that you should consider:

If you want to get a better understanding of these inflation-linked bond ETFs follow the link()

Sector ETFs 

These are ETFs that only invest in assets that cover a specific sector of the market. The more common example would be property ETFs. If you want to learn more about REITs follow the link (). Using the example of property ETFs to demonstrate how sector ETFs work, it would mean that this ETF would only consist of property related assets in the fund.

Examples of sector ETFs in South Africa would be :

  • CoreShares PropTrax SAPY
  • CoreShares PropTrax Tend
  • Coreshares S&P Global Property ETF
  • Satrix Property 
  • STANLIB SA Property ETF
  • Sygnia Itrix Global Property ETF
  • Fourth Industrial Revolution ETF β€“ 
  • S&P 500 Info Tech Index Feeder Fund (STTECH)
  • NewFunds S&P GIVI INDI 
  • Satrix INDI 25 
  • Satrix FINI 15 

If you would like to learn more about these sector ETFs use the  following  link ()

Commodity ETFs

These are ETFs that specifically track commodities such as gold and other precious metals. Perhaps the most common example of a commodity ETF is gold ETFs:

Examples of commodity ETFs in South Africa would be :

Stock ETFS 

These are the most common and people are more familiar with this group of ETFs. Stock ETFs focus on investments in the stock market. 

Here are examples of Stock ETFS:

  • Satrix Top 40
  • Satrix Nasdaq 100 ETF
  • Satrix DIVI Plus 
  • Satrix DIVI Plus 
  • Ashburton Top 40 Portfolio 
  • STANLIB Top 40 

International  ETFs

These are ETFs that give the investor exposure to the international markets. They focus on investing in assets in a particular foreign markets. Good examples of these type of ETFs are :

  • Satrix MSCI Emerging Markets ETF 
  • Sygnia/Itrix MSCI Japan ETF 
  • Sygnia/Itrix FTSE 100 ETF 
  • Sygnia/Itrix MSCI USA ETF 

These are some of the most commonly known ETFs that are available on the market. Not one category can be said to be better than the other, as they each offer exposure to different markets. It is better to determine which markets you want exposure in and select the respective  ETF(s) that satisfies  that objective. To learn more on how to build an ETF portfolio that aligns with your personality follow the link ().



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