13 February 2013
The daily priced funds, available from BlackRock and based on principals pioneered in their popular iShares ETF (Exchange Traded Funds) range, are offered at an annual management fee of 0.55%, substantially less than most active funds on offer.
An ETF is a passive investment product that tracks a particular index. It is listed and investors can trade the investment as they would a normal share. An index fund also tracks a particular index but it is daily priced which makes it available to investors without requiring them to open a stockbroking account to purchase the product. This makes it an ideal investment for those looking for cost-effective international exposure.
There has always been a case for diversifying internationally, but even more so now as expectations are that global equities will outperform the local market over the next few years. Many clients know they need international exposure but don’t know where to start, due to the sheer number of available funds, managers and investment strategies. Buying an index is not only cost-effective, but simplifies some of the decision-making. In addition to the diversification benefits, investors are protected against weakening of the rand.
“Investment opinions differ, but we believe that active and passive funds both have a place in a diversified investment portfolio,” says Andrew Brotchie, head of product and investment at Glacier International. “A core-satellite strategy can help investors achieve cost-effective long-term growth with a level of outperformance,” he says.
There are a vast number of international ETFs and they all have variations in terms of the indices they track. Some are physically-backed, buying the underlying components of the index, while others are synthetically-backed and may not necessarily buy the actual index. They could, for example, buy derivatives, which introduces a level of complexity that many investors may not be familiar with. All of this means the ETF market can be as daunting as the collective investment scheme landscape. Glacier International helps investors and their financial advisers to select the appropriate fund for their particular circumstances. This is especially attractive for those who are not necessarily seasoned offshore investors.
According to etfSA.co.za, exchange traded products grew assets under management by 19% to R47.8bn at the end of 2012. Although growing steadily, the local market has some catching up to do with the global ETF market which was valued at USD 2 trillion at the end of 2012, according to a BlackRock survey.
Glacier International was launched in January 2010 as part of Glacier by Sanlam’s strategy to expand its solution set to meet the needs of its affluent client base. In addition to now offering cost-effective passive funds, they are also the only company in South Africa to offer P2 Strategies, an innovative investment strategy that protects on the downside, cushioning returns in collective investment funds in volatile markets. These strategies are managed by USA-based Milliman, one of the top risk management companies in the world.
Glacier International was also first to market last year with its “Navigate” fund range – a simple and cost-effective way to invest offshore. The solution comprises a range of carefully selected actively managed funds across different investor risk profiles.
The new range of index funds is available as an investment option within the Global Life Plan, thereby giving investors all the associated benefits of investing within a life plan. “There are estate planning advantages too,” says Brotchie. “By investing via an offshore life plan issued by a South African life company, investors ensure that the investment forms part of their South African estate, thus avoiding the complications of having part of their estate located offshore.”