ETF FAQs 

ETF

• What is an Exchange Traded Fund (ETF)?
• Why are ETFs being advised as the most appropriate medium to long term investments in today’s markets?
• Why should I acquire ETFs rather than the more traditional unit trusts?

NewGold

• Why is Absa Capital’s NewGold ETF the simplest and most cost-efficient method for investors to invest directly in physical gold bullion?
• How else can investors buy into gold on the JSE?
• What other commodity ETFs can investors acquire on the JSE?
• Is NewGold ETF Shari'ah compliant?
• Why would I want to invest in NewGold ETF securities?

NewRand

• Why would I want to invest in NewRand ETF securities?
• Are NewRand ETF securities proven? After all, ETFs are relatively new on the market.
• What are the advantages of buying NewRand ETFs over other products?

eRAFI™

• Why would I want to invest in eRAFI™ Overall ETF securities?
• Why is using valuation metrics a viable alternative to the usual market capitalisation methods of assessment?
• Why is the eRAFI™ Overall ETF a viable alternative investment vehicle?

NewSA

• Why should I invest in NewSA ETF (NewSA) securities?
• Given that the NewSA ETF has a social responsibility aspect, is it still a viable investment opportunity?

Shari’ah

• Who should invest in Shari’ah Top 40 Index ETF (Shari’ah Top 40) securities?
• Given that the NewSA ETF is Shari’ah compliant, is it still a viable investment opportunity?
• Within the index screening methodology, what do you mean by, Appropriate purification of dividends at 5 % ?

ETF FAQs

• What is an Exchange Traded Fund (ETF)?


Exchange Traded Funds (ETFs) are passively managed index funds that are listed and traded on a securities exchange. An ETF tracks the performance of and/or gains a broad exposure to a particular index, sector or a commodity for individual and institutional investors.


• Why are ETFs being advised as the most appropriate medium to long term investments in today’s markets?


The first ETFs were launched in the early 1990s, but were little-known until about the year 2000. It was then that investors began realising that ETFs were consistently delivering better returns at lower commissions than unit trusts. ETFs can be described as investment products that have evolved past unit trusts in offering improved medium to long-term investment returns with relatively little risk.


• Why should I acquire ETFs rather than the more traditional unit trusts?


ETFs generally outperform traditional unit trusts, while their commission charges at 1% or less are considerably cheaper than unit trusts, which charge up to 3%. Other key advantages are that ETFs are as easily bought or sold as any security; can be traded throughout normal JSE trading hours; and their actual value can be calculated at any time.

NewGold FAQs

• Why is Absa Capital’s NewGold ETF the simplest and most cost-efficient method for investors to invest directly in physical gold bullion?


NewGold continuously tracks the gold price and enables investors to purchase -- through the JSE -- securities that are equivalent to approximately 1/100 ounces of real gold held in a secured stockpile of gold bullion. Investors can easily acquire NewGold ETF securities through an accredited stockbroker or an Absa investment plan.


• How else can investors buy into gold on the JSE?


Investors can purchase from a choice of gold shares, but none of these are direct investments in physical gold bullion, as is the NewGold ETF.


• What other commodity ETFs can investors acquire on the JSE?


None, NewGold is the only pure commodity ETF on the JSE.


• Is NewGold ETF Shari'ah compliant?


The NewGold ETF is a non-interest product investing directly in gold bullion. In March 2008 the Shari'ah Supervisory Board issued a ruling stating that the NewGold ETF complies with Shari'ah. NewGold opens the way for Muslim investors to gain exposure to gold through investing in a listed ETF.


• Why would I want to invest in NewGold ETF securities?


Research shows that gold securities should constitute between 5% and 10% of an optimum investment portfolio. Historically gold has always retained value and has consistently delivered inflation-beating returns. Physical gold has proven to be relatively low-risk and is an excellent South African Rand hedge product that also protects against US Dollar depreciation.

NewRand FAQs

• Why would I want to invest in NewRand ETF securities?


NewRand ETF enables investors to simply and affordably take advantage of fluctuations in the South African Rand/US Dollar exchange rate. NewRand tracks the NewRand index which, in effect, lets investors buy into 10 top-rated stocks through purchasing a single security.


• Are NewRand ETF securities proven? After all, ETFs are relatively new on the market.


The NewRand ETF is actually one of the JSE’s oldest ETFs, having been launched in 2003. By end-December 2008 NewRand had assets under management of over R500 million, which is a clear endorsement from investors.


• What are the advantages of buying NewRand ETFs over other products?


The NewRand ETF offers exposure to a spread of quality JSE-listed companies, which are re-evaluated and re-selected constantly according to their results, with a view to protecting investments against Rand depreciation.

eRAFI™ FAQs

• Why would I want to invest in eRAFI™ Overall ETF securities?


The eRAFI™ Overall ETF methodology weights shares based on fundamental valuation metrics - sales, cash flow, book price and dividends, quality of earnings and risk of financial distress - rather than traditional market capitalisation.


• Why is using valuation metrics a viable alternative to the usual market capitalisation methods of assessment?


The market capitalisation method of indexing can overweight stocks that are overvalued in the market and underweight stocks that are undervalued. This is not sound investment practice.


• Why is the eRAFI™ Overall ETF a viable alternative investment vehicle?


Because eRAFI™ strategies have statistically outperformed capitalisation-weighted index strategies by more than 2.5% per annum in over 23 mature international stock markets, and significantly higher in emerging markets such as South Africa.

NewSA FAQs

• Why should I invest in NewSA ETF (NewSA) securities?


Because NewSA securities are socially responsible investments that recognise transformation and Broad Based Black Economic Empowerment (BBBEE) in South African companies. This is an ideal investment for institutional investors wanting to put funds into South African BBBEE companies.


• Given that the NewSA ETF has a social responsibility aspect, is it still a viable investment opportunity?


Yes, because empowered companies are generally favoured for business relations, contracts and tenders, particularly at a time when the South African government is driving large scale infrastructural development.

Shari’ah FAQs

• Who should invest in Shari’ah Top 40 Index ETF (Shari’ah Top 40) securities?


Muslims and any other investors wanting to participate in a daily disclosed, low-cost, and easy-to-access investment product that conforms to Shari’ah principles.


• Given that the NewSA ETF is Shari’ah compliant, is it still a viable investment opportunity?


Yes, because the Shari’ah compliant listed companies selected for the index are still blue-chip FTSE/JSE Africa Top 40 Index enterprises.


• Within the index screening methodology, what do you mean by, Appropriate purification of dividends at 5 % ?


Total interest and non-compliant activities income should not exceed 5 % of total revenue to qualify as a complaint company within the FTSE/JSE Shari'ah Top 40 Index. As a result there is a level of purification needed for each dividend declared in order for the remaining portion of interest income (5 % max) to be purified. Every time that a dividend is declared we will advise all investors of the need to purify (donate to a charity) 5 % of the dividend declared.