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Exchange Traded Products Wednesday, 10 April 2013 Presenter: Shaun van den Berg : Head of Client Education at PSG Online : Head of Client Education at.

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Presentation on theme: "Exchange Traded Products Wednesday, 10 April 2013 Presenter: Shaun van den Berg : Head of Client Education at PSG Online : Head of Client Education at."— Presentation transcript:

1 Exchange Traded Products Wednesday, 10 April 2013 Presenter: Shaun van den Berg : Head of Client Education at PSG Online : Head of Client Education at PSG Online

2 Introduction to Exchange Traded Products –What are ETPs? –Investment Plan: Requirements & Costs –Advantages & Disadvantages What are ETFs & ETNs? –ETFs & ETNs available in South Africa –How to choose an ETF and ETN –Investment Strategy Summary ConclusionAgenda Presenter: Shaun van den Berg

3 Introduction to Exchange Traded Products

4 Exchange traded products (ETP) - investment vehicles - derive their prices from other instruments - trade intra-day on the JSE. ETP - Exchange traded funds (ETF) & Exchange traded notes (ETN). –First ETP - ETF - launched on JSE In 2000 –First ETN launched in ETP replicate performance of a specific index / comply with a prescribed investment mandate. Open-ended investment vehicles - securities listed & traded on national stock exchanges. ETPs such as Satrix 40 ETF pool investor funds - cost-effective instruments - gives investors access to a large basket of underlying holdings - such as shares. By purchasing one share (ETF) on the market - gain exposure to the forty best performing companies listed on the JSE / Top companies listed in the financial, industrial & resource sectors. Most ETFs (except NewGold, the largest ETF by market capitalisation) - collective investment schemes / Bound by the regulations governing investment products. What are Exchange Traded Products?

5 ETP Investment Options Exchange Traded Products (ETP) PSG Online Equity Trading Account PSG Online Investment Plan

6 Once-off purchase into an exchange traded product (ETP) investment. The minimum lump-sum investment is R Monthly debit order - minimum of R300 per fund per investment period. Investment Plan: Requirements

7 Annual fee – 1% (excluding VAT) - total value of portfolio. –Debited monthly to your account. Debit order fees - Charged at R3.50 on all debit orders. Trading fee of 0.1% (excluding VAT) Investor Protection Levy of % (excluding VAT) - levied on all transactions. No Securities Transfer Tax (STT) levied on ETFs. –Seen as a Collective Investment Scheme Settlement fee - R12.45 (including VAT) - Charged on all trades per fund per day –The fee is split between the pool of investors who submitted investment instructions for that fund for the day. –If you are the only investor to submit an instruction in a fund for the day, you will be charged the full R12.45 (including VAT) settlement fee; –Alternatively you will be charged the proportional amount depending on the number of investors. Investment Plan: Costs

8 Diversification - Wide range of ETFs and ETNs - track domestic & foreign equity indices - commodity-based indices - property indices- 'style' & fundamental indices, as well as bonds & multi-asset portfolios. Liquidity - ETFs and ETNs are actively traded, ensuring their liquidity. Accessibility - ETFs and ETNs traded using a PSG Online share trading account or via the PSG Online ETP Investment Plan account - Once-off transaction or monthly debit orders. Flexibility - PSG Online offers you access to a wide range of ETPs from a number of different ETP providers, including ABSA, Deutsche, RMB, Nedbank, Proptrax, Investec, Standard Bank & SATRIX. Cost Effective - ETFs and ETNs acquired with relatively low entry level investments & low cost structures. Some ETNs have no entry level minimums & no formal annual fees, while others do. Most ETNs do not pay dividends. Transparency - ETF and ETN owners can track the value of their investments on a day-to-day basis.Advantages

9 ETFs and ETNs - sold as cost effect investments. Prospective investors should be aware of the relative costs: –Initial fees, –Annual fees, and –Re-investment costs of different investment options. Investors can either invest in ETFs & ETNs through an investment plan / Direct through a stockbroker. –PSG Online offers both options. Performances of index trackers - generally better investments in upward trending markets. –Bottom up, actively managed stock pickers generally outperform relative to index-based products in sideways trending market. Exchange traded fund (ETF) investors receive dividends ETN investors generally do not receive dividends.Disadvantages

10 Exchange Traded Funds (ETF)

11 Similar to unit trusts - invest in a group or basket of holdings - rather than a single share or bond. Like unit trusts, ETFs are open ended - there are no fixed amount of units in a fund. ETF designed to track a wide range of instruments –Actively managed growth portfolios –Fixed interest portfolios. –Optimum mixed asset-type portfolios. ETF are passively managed - Shares in respective funds traded actively intra-day. ETFs listed on a stock exchange / Offer the same benefits as share trading. Investments valued at prevailing market prices / Can be redeemed at any time. ETF dividends & interest can be automatically reinvested. What are Exchange Traded Funds?

12 ETFs marketed to investors requiring exposure to different asset types as a cheap & safe way to invest in local and international markets. –Not all ETFs are cheaper than all collective investments. –Not all ETFs' underlying assets or holdings are suitable for all investors. Only 20% of SA unit trusts beat their benchmark indices over the past 1 to 7-years / Strong argument to consider the case for passive instruments such as ETFs. –As of December 2012, 38 ETFs listed on the JSE –Most registered as collective investments. –The biggest funds, by market cap- NewGold & Satrix 40. ETFs represent less than 4% of assets under management of the collective investments industry - but growing. Exchange Traded Funds (ETF)

13 ETF’s underlying net asset value (NAV) - calculated by taking the current value of the fund’s net assets (the value of all securities inside minus liabilities) / Divided by the total number of shares outstanding. –NAV published every 15-seconds. –Traditional unit trust fund - NAV is set at the end day. –ETF’s NAV is not necessarily its market price. Determined by supply & demand. ETF’s market price can differ from its NAV. The way ETFs are structured keeps the gap tight. ETF NAV

14 Price Determination - Unlike collective investments, ETF can be bought/ sold intra-day/ Do not have to wait until the end of the day before knowing the price of the investment. Large & liquid - Large ETFs able to minimise costs on a per unit basis / Able to produce a better total return. –Optimally, the shares that the ETF invests into should also be large & liquid to reduce costs. Suitable as a DIY approach - While some investment products have pricing structures which assume the use of a financial advisor / ETF investors do not require a financial advisor. –ETFs purchased directly do not incur annual management fees. No Securities Transfer Tax (STT) levied on ETFs traded through the JSE. Asset Classes - Previously closed / Allow for easy expression of a macro view / Makes investing simpler & quicker. Experienced investors use ETFs to express an investment view, while 'hedging' a possible downside of this view. –Strong relative view on a particular share or sector can exercise that view by taking the opposite exposure in a broad-based market ETF. –Thinks that resources shares will underperform - sell resources shares & Buy an ETF on the broad market / Hedge against the overall market movement. Advantages of investing in ETFs

15 ETF costs might not in fact be as low as first assumed. –Fees & costs discussed elsewhere in this presentation. Be mindful of the index tracked by way of an ETF. –The JSE Top 40 index, for example, which is tracked by the SATRIX 40, is extremely concentrated. At their respective peaks, Anglo American was 15% of the index & BHP Billiton 12%. ETFs enable & possibly facilitate 'investor herding‘ - Tendency that created investment bubbles' for centuries. –ETFs can channel investments into sectors / Can speed up markets & encourage short-termism which some commentators fear could lead to market instability. There is a time & place for ETFs in client portfolios but investors need to understand the advantages & disadvantages before investing. Disadvantages of investing in ETFs

16 Loosely categorised or grouped into: Index Tracking ETFs –Broad Market (Top 40) –JSE Sector Exposure –Bond (Fixed Interest) ETFs –Floating Interest Rate ETFs –Property ETFs –'Smart' or 'Style' ETFs –Multi-Asset or Balanced ETFs –Foreign ETFs Fundamental ETFs Commodity ETFs ETFs available in South Africa

17 Most ETFs are index trackers –Reflect the performance of chosen index: Top 40 Index, Industrial 25 Index, Financial 15 Index, and Resources 10 Index. Two property ETFs –Proptrax SAPY –Proptrax TEN. Main selling point for many people is the cost. Index Tracking ETFs

18 There are currently two bond trackers: The zShares GOVI ETF The BIPS Inflation Linked ETF Bond (Fixed Interest) ETFs

19 Market is moving towards "smart" passive funds. Do not only track JSE indices - Seek to include & capture other factors - determine long term performance of a range of asset classes. –For example, the Satrix Divi Plus fund, provides investors with access to a portfolio of 30 shares chosen by the JSE, based on projected dividend paying potential. JSE uses consensus forecast of the investment industry analysts - Identify 30 out of the top 100 shares - best forecasted dividend returns for next year. 'Smart' or 'Style' ETFs

20 Multi-Asset ETFs invest in a number of assets, including: –Equities, –Bonds, –Cash, and –Money market. Aim to replicate asset allocation unit trusts - favourite among investors - diversify assets Much cheaper - Maximum of 0.8% for retail investors / Compared to similar unit trusts = 2%. Balanced or Multi-Asset ETFs

21 Deutsche Bank - primary issuer of the five foreign ETFs on the JSE. Foreign ETFs give access to: –Europe, –United Kingdom, –United States, –Japan, –World markets. Foreign ETFs

22 38 ETFs available ABSA Capital (15) Deutsche Bank (5) Investec (1) Nedbank Capital (3) Proptrax (2) RMB (3) Satrix (7) Stanlib Collective Investments (2) Note: Different ETF providers call ETF different things List of ETF Providers (8)

23 Commodity ETF - NewGold Exchange Traded Fund (ETF) Market Capitalisation: R20.46-Billion* Physically holds gold bullion - Tracks the Rand price of gold. NewGold issues listed instruments - Debentures. Each debenture backed by physical gold approximately equivalent to 1/100 ounces of gold bullion –Held with a secure depository on behalf of investors. NewGold charges an annual fee of 0.4% of the value of the gold bullion held in custody in order to meet its operating expenses. According to Profile Media, NewGold is one of the best performing tracker funds over 2, 3 & 5 year periods. Source: ETF Provider: ABSA Capital (15)

24 NewGold ETF 418%

25 “Style” ETF NewFunds Equity Momentum Exchange Traded Fund –Tracks the performance of shares ranked by their relative price momentum - Shares with higher relative price momentum given higher weightings. –First filtered based on total market capitalisation & liquidity (measured by three months average value traded). –Both filters are inflation adjusted - Ensure better tradability. –Remaining shares filtered based on relative momentum & Shares with negative values are excluded before the ranking takes place. –Shares are ranked in descending order based on relative momentum / Top 40 ranked shares are selected. NewRand Exchange Traded Fund (Market Capitalisation: R83-Million)* –Tracks the performance of a basket of the top 10 South African Rand hedges NewSA Exchange Traded Fund –Tracks the performance of a modified Top40 index weighted in accordance with their empowerment ratings (Empowerdex - Independent empowerment rating agency). Shari'ah Top 40 Exchange Traded Fund –Reflect the Shari'ah compliant top 40 companies / Islamic world. ETF Provider: ABSA Capital (15) Source:

26 NewRand Exchange Traded Fund 248%

27 NewSA Exchange Traded Fund 104%

28 “Fundamental” ETF eRAFI™ Overall Exchange Traded Fund –Methodology that weights shares based on fundamental valuation metrics - Sales, Cash flow, Book price & Dividends –Two additional filters (the quality of earnings screen & the financial distress risk screen) - Rather than traditional market capitalisation. –40 of the largest listed companies- Ranked by fundamental value eRAFI™ Financial 15 Exchange Traded Fund –Invests in 15 financial shares that fall within the top 100 companies based on their underlying value indicators eRAFI™ Industrial 25 Exchange Traded Fund –Invests in 25 industrial shares that fall within the top 100 companies based on their underlying value indicators eRAFI™ Resources 20 Exchange Traded Fund –Comprised of 20 resources companies with the largest fundamental value that fall within the top 100 companies listed on the JSE ETF Provider: ABSA Capital (15)

29 eRAFI™ Exchange Traded Funds

30 Top 40 (Broad Market Access) NewFunds SWIX 40 Exchange Traded Fund –Shareholder weighted Top 40 Index –Adjusted for cross-holdings & strategic holdings. –Reduce the weightings of mainly resource & dual-listed shares Bond (Fixed interest ETFs) NewFunds GOVI Exchange Traded Fund –Tracks the performance of SA Government Bond Total Return Index –Bonds issued by the South African government NewFunds ILBI Exchange Traded Fund –Convenient & cost-efficient way to gain exposure to the performance of de facto SA Government inflation bond benchmark index Floating Interest Rate ETFs NewFunds TRACI 3 Month Exchange Traded Fund –First money market ETF to be launched on the JSE –Fully investable & constructed to track the overnight, 3-month, 6-month and 12- months SA money market deposit rates ETF Provider: ABSA Capital (15)

31 NewFunds SWIX 40 ETF

32 NewFunds GOVI & ILBI ETF

33 NewFunds TRACI 3 Month ETF

34 “Balanced” ETF MAPPS Growth Exchange Traded Fund –Unlike traditional ETFs provides exposure to one index or asset class - Designed to provide investment returns based on the appropriate asset allocation for investors at different stages of life. –Offers risk diversification benefits - Exposure to a spectrum of asset classes. –Underlying asset allocation combines sophisticated proprietary research & investment expertise into a cost-effective, easy-to- understand investment solution managed within the framework of Regulation 28 of the Pension Funds Act, 1956 (Regulation 28). –Aimed at investors with a longer time horizon (e.g. younger investors) who are willing to accept higher variability of returns MAPPS Protect Exchange Traded Fund –Aimed at investors with shorter time horizons (e.g. retirement) –Lower tolerance for return variability. –Investors would prefer a more stable return stream. ETF Provider: ABSA Capital (15)

35 MAPPS Growth & Protect ETF 24.9% 24.87%

36 Foreign Exchange Traded Funds db x-trackers Euro Stoxx50 ETF –Dow Jones Euro STOXX 50 Index - One of the most widely-known European Blue Chip indices. db x-trackers FTSE®100 ETF –FTSE 100 index - The most important UK Blue Chip index. db x-trackers MSCI Japan ETF –Reflects the performance of the Japanese equity markets - Contains about 400 constituent securities db x-trackers MSCI USA ETF –Reflects the performance of the US equity markets - Contains about 600 constituent securities db x-trackers MSCI World ETF –Reflects the performance of the developed world's equity markets - Contains about constituent securities ETF Provider: Deutsche (5)

37 DBX Tracker ETF

38 Bond (Fixed interest ETFs) Z Shares Govi Exchange Traded Fund –Regarded as a core bond JSE-listed ETF which invests in government bonds. –The GOVI Index is a Total Return index. Assumes any cash distributions (dividends) are reinvested –All coupons paid from underlying bonds are theoretically reinvested by acquiring additional bonds in the same proportion as the index composition. ETF Provider: Investec (1)

39

40 Top 40 (Broad Market Access) BettaBeta Equally Weighted Top40 ETF –Comprised of the same companies as the FTSE/JSE Top 40 Index, but they are held in equal proportions of 2.5% each. –Rebalanced in line with the quarterly review of the FTSE/JSE Africa Index Series & underlying constituents mirror changes. ETF Provider: Nedbank Capital (3)

41 “Style” ETF Betta Beta Green Exchange Traded Fund Enables investment in companies rated by the Carbon Disclosure Project (CDP) as ‘disclosers’ on climate change issues & the most improved performers in responding to climate change. Also rewards companies that have registered Clean Development Mechanism (CDM) projects based in SA with the UN. Launch date in December 2011 –Fund spread 23% financials, 22% resources & 55% industrials ETF Provider: Nedbank Capital (3)

42 Floating Interest Rate ETFs PrefEx Securities Exchange Traded Fund –Provides investors with an efficient & easily accessible means by which to achieve a return that tracks the price & yield performance of the J251 Index (Preference Shares). –Attempts to place an investor in substantially the same position, from a capital & income perspective, as if they held the underlying constituents in their correct weightings. –Suitable for an investor who is currently paying a high proportion of tax on interest income (i.e. retirees or a high net worth individuals). ETF Provider: Nedbank Capital (3)

43

44 Property ETFs PropTrax Property Index Tracker SAPY ETF –South Africa's first Property Sector ETF –Replicates the price & yield performance of the top 20 South African Listed Property Funds. –Provides access to diversified real estate portfolios, with good income yields & capital stability or appreciation. –Gives the investor access & exposure to the high performance real estate sector / Low entrance levels, reasonable fees & general index stability / Ideal for novice & professional investors. PropTrax Ten Index ETF –Replicate the price & yield performance of the Property Index Tracker Top Ten Equally Weighted Listed Property Index –Consists of the top ten companies with equal weightings of 10% each –The underlying constituents are rebalanced quarterly. ETF Provider: Proptrax (2)

45 Proptrax SAPY & Proptrax 10 ETF 47% 37.76%

46 Bond (Fixed interest ETFs) RMB Government Inflation-X Linked Bond ETF Top 40 (Broad Market Access) RMB Top 40 Exchange Traded Fund JSE Sector Exposure RMB Mid Cap Exchange Traded Fund –Invests in all the component securities of the index in proportion to their weightings in the index. –Contains the largest 60 companies not included in the FTSE/JSE Top40 Index (41st to the 100th companies). –Pays a distribution quarterly to investors which is made up of any dividends or interest that is earned from the underlying shares. ETF Provider: RMB (3)

47 Top 40 (Broad Market Access) Satrix 40 ETF ( Market Capitalisation: R190-million) –Accurately replicates the FTSE/JSE Top 40 index –Holds exact weighting & number of shares. –Dividends paid by the top forty companies, less expenses incurred by managing the portfolio, Paid out on a quarterly basis. –Replicate the total performance (capital plus dividend yield) of the top 40 companies listed on the JSE. Satrix SWIX Top 40 ETF –Shareholder weighted Top 40 index makes use of the share register of the top forty companies to reduce the constituent weights for foreign shareholders in these shares. –Adjusted for cross-holdings & strategic holdings. –Reduce the weightings of mainly resource & dual-listed shares in the Top 40 index by approximately half. ETF Provider: Satrix (7) Source:

48 Satrix 40 Exchange Traded Fund 359% 80.61%

49 JSE Sector Exposure Satrix FINI ETF –Tracks the performance of the FTSE/JSE Financial 15 index –SA´s 5 largest banks, other general financial companies, property companies, plus the main long-term & short-term insurance companies. Satrix INDI ETF –Tracks the performance & yield of the top 25 industrial companies Satrix RESI ETF –Tracks the performance of the FTSE/JSE Resources 20 index –Consists solely of resources based shares, including mining companies, mining holding companies, mining finance & exploration companies & resource based shares, such as Sasol. ETF Provider: Satrix (7)

50 Satrix FINI, INDI & RESI ETF % % 25.12%

51 “Style” ETF Satrix DIVI Plus ETF –Consists of 30 companies - Selected from JSE Top 40 & Mid-Cap indices –Expected to pay the best normal dividends over the forthcoming year. –The high yield nature provides a defensive investment for the risk averse investor. –Appeal to investors seeking a high income portfolio. –Has a lower correlation with other indices on the JSE –Provides an ideal product for diversifying investment portfolios. ETF Provider: Satrix (7)

52 Satrix DIVI Plus ETF 57.89%

53 “Fundamental” ETF Satrix RAFI ETF –Index weights the underlying constituents using four fundamental factors, rather than pure market capitalisation. Dividends, cash flow, sales & book value. –Measures the total return of the underlying index by combining the capital performance plus the reinvestment of income of the constituent companies in the index. –All dividends received reinvested on behalf of investors. ETF Provider: Satrix (7)

54 Satrix RAFI ETF %

55 Top 40 (Broad Market Access) Stanlib SWIX 40 Exchange Traded Fund Stanlib Top 40 Exchange Traded Fund ETF Provider: Stanlib (2)

56 Level of Assets: To be considered a viable investment choice, an ETF should have a minimum level of assets or market capitalisation – The smaller the ETF, the more likely it will have a limited degree of investor interest - Translates into poor liquidity & wide bid/offer spreads. Trading Activity: An investor needs to check if the ETF that is being considered, trades in sufficient volume on a daily basis / Trading volume - excellent indicator of liquidity, regardless of the asset class. The higher the trading volume for an ETF, the more liquid it is likely to be & the tighter the bid-ask spread. Important considerations when it is time to exit the ETF Underlying Index or Asset: Consider the underlying index or asset class on which the ETF is based. From the point of view of diversification, it may be preferable to invest in an ETF that is based on a broad, widely followed index, rather than an obscure index that has a narrow industry or geographic focus. Market Position: "First-mover advantage" is important in the ETF world - Decent probability of garnering the lion's share of assets, before others jump on the bandwagon. Prudent to avoid ETFs that are mere imitations of an original idea / They may not differentiate themselves from their rivals & attract investors' assets. How to Pick the Right ETF? Source:

57 Exchange Traded Notes (ETN)

58 ETNs share some characteristics with ETFs - Differ in structure. –Both have low market entry barriers –Allow you to track index-based commodity prices on the JSE. ETNs are debt instruments & not equity instruments. –Investors do not own the underlying commodities, –Do not receive dividends. ETN are unsecured senior debt note issued by a bank or financial institution. The underwriting institution has an obligation to pay the holder of the JSE listed ETN security a return linked to the performance of the underlying asset, security or benchmark. Despite ETNs being debt instruments they do not offer capital protection. ETNs are non-interest paying debt obligations. ETN prices fluctuate with the price of the commodity or holdings they track & the redemption price is based on the underlying commodity price or share price. Exchange traded notes are not Collective Investment Schemes. ETNs are regulated by the JSE ETNs are subject to the solvency & credit rating of the issuer. ETNs are exempt from Securities Transfer Tax (STT) but Capital Gains Tax (CGT) & income tax may or may not be levied depending on the circumstances of individual investors. What are Exchange Traded Notes?

59 First launched by Barclays Capital, ETNs are senior, unsecured & unsubordinated debt securities. ETNs are effectively debt products similar to bonds - Performance is linked to an underlying security, basket of securities or index. The ETN 'promise' is dependent on the financial strength of its issuer (guarantor) to have the money available when the investor wishes to sell the investment. Investors should therefore take the credit risk of the issuer into account before investing in an ETN. –If ABSA goes bankrupt, the investor may not receive the return they were promised. As with similar investment products such as unit trusts or ETFs, no principal protection or guarantees are offered. The guarantor of the investment may or may not actually invest in the pre-determined index. In SA, ETNs are not independently rated & rely on the credit of issuer. Any change in the rating of the issuer could affect market price of ETN. Exchange Traded Notes (ETN)

60 Cost-efficient & highly liquid - Bought or sold at any point in time during JSE trading hours. Provide exposure to a portfolio of products - Single investment. ETNs provide convenience of trading a single share that represents a basket of underlying holdings. ETN indices are transparent, calculated & published daily. ETNs provide investors with access to new markets - Opportunities for diversification. Advantages of investing in ETNs

61 Like all equity based investments - Investing in ETNs might result in a loss for the investor. ETNs are debt securities - Do not have any voting rights Investors do not receive dividends. Disadvantages of investing in ETNs

62 22 ETNs available ABSA Capital (5) Deutsche Bank (3) Investec (3) RMB (2) Standard Bank (9) List of ETN Providers (5)

63 Currency Exchange Traded Notes NewWave EUR ETN –Each NewWave Euro Currency ETN is designed to provide investors with an easy to access & liquid investment in Euros, similar to having a currency deposit account with a financial institution. –Each note equals a fixed principal amount of 1 Euro –Accrues interest on a daily basis at the overnight LIBOR rate minus a 0.10% interest rate spread. –Interest is distributed on a semi-annual basis. NewWave GBP ETN –Each note equals a fixed principal amount of 1 British pound NewWave US Dollar ETN –Each note equals a fixed principal amount of 1 US Dollar ETN Providers: ABSA Capital (5)

64 NewWave EUR, GBP & US Dollar ETN

65 Commodity Exchange Traded Notes NewWave Platinum ETN –Launched in February 2012, enable investors to gain exposure to a return from investing in precious metals without the necessity of directly trading & storing precious metals. –First ETNs in the SA market that referenced the spot price of precious metals. –Provide investors with cost-effective exposure to the spot price of platinum in a listed instrument trading on the JSE in South African Rand. –Each NewWave Platinum ETN is equivalent to 1/100th of an ounce of platinum bullion (less investor fees). –Other commodity ETNs track performance of the underlying commodities futures indices – Additional risk factor NewWave Silver ETN –Provide investors with cost-effective exposure to the spot price of silver in a listed instrument denominated in South African rand. –Equivalent to 1/100th of an ounce of silver bullion (less investor fees). ETN Providers: ABSA Capital (5)

66 NewWave Platinum & Silver ETN

67 Foreign Exchange Traded Notes Deutsche Bank MSCI Africa Top 50 ETN –Free float-adjusted market capitalisation weighted index –Reflect performance of large & mid cap shares in Africa. –Calculated in US Dollars on an end of day basis & a total return net index. –Any dividends or distributions reinvested after deduction of any taxes. Deutsche Bank MSCI China ETN –Includes companies incorporated in the People’s Republic of China & listed in USD in the form of B shares either on the Shanghai Stock Exchange or the Shenzhen Stock Exchange (in HKD), or listed in HKD in the form of H shares on the Hong Kong Stock Exchange. Deutsche Bank MSCI Emerging Markets ETN –Consisted of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia and South Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand & Turkey. ETN Providers: Deutsche Bank (3)

68 DB MSCI Africa, China & Emerging Markets ETN

69 Commodity Exchange Traded Notes Gold Exchange Traded Note –Differs from other listed gold notes in that there is no exposure to the Dollar/Rand exchange rate –Tracks the physical spot gold price in London. –Referred to as the Quanto feature - Results in a percentage move in the underlying gold price being reflected in a similar percentage move in the Investec Gold ETN. –Invest in the price movements of gold without the effect of also having to predict the Dollar/Rand exchange rate. –Price of gold fixed twice daily in USD on the London Bullion Market - Basis for all sales & purchases of gold. –Traditionally the Rand and gold price - Negative correlation - Gold price rises / Rand strengthens against the USD – Wipes out some of the profit gained from a straight USD gold investment. –At present there is no annual management fee for the listing of the Investec Gold ETN. ETN Providers: Investec (3)

70 Investec Gold ETN Spot gold price

71 Top 40 (Broad Market Access) SWIX Top 40 Exchange Traded Note Top 40 Exchange Traded Note ETN Providers: Investec (3)

72 Commodity Exchange Traded Notes RMB Coal Exchange Traded Note –Offers investors a cost effective & convenient way to take a long-term or short-term view on the performance of coal. –The RMB Coal ETN is an inward listed security. –References the performance of the Richards Bay Coal Futures contracts traded on ICE, plus the US Treasury Bill rate of interest, as well as the daily spot USD / ZAR exchange rate. –Opportunity to gain exposure to the performance of international coal benchmarks via a Rand denominated investment. ETN Providers: RMB (2)

73 Commodity Exchange Traded Notes RMB Oil Exchange Traded Note –Offers investors exposure to the front month futures contract for light sweet crude oil listed & traded on the New York Mercantile Exchange (NYMEX). –Alternative to investing in an oil future or directly into an oil company. –A single unit gives investors exposure to 1 barrel of oil, - More accessible & easier than investing directly in a future (which trades at barrels of oil). –Investor funds earn interest at US treasury bill rates on the full amount of the note. –The RMB Oil ETN is listed & traded in Rands. –The investor therefore gets a return based on the oil future, treasury bill rates & the USD/ZAR exchange rate. ETN Providers: RMB (2)

74 RMB Coal & Oil ETN

75 Commodity Exchange Traded Notes Standard Bank Commodity Basket Total Return ETN –Provides investors with a Rand denominated security to directly access in a cost effective & convenient way the Standard Bank Africa Commodity Index (SBAFCI) –Reflects a diversified basket of commodities produced in Africa, their weightings in the basket calculated on the basis of their average African production value during the most recent five year period. –To achieve more stable returns, commodity weights in the index are adjusted based on an aggregated risk measure of the commodity returns. ETN Providers: Standard Bank (9)

76 SBK Commodity Basket TR ETN

77 Commodity Exchange Traded Notes Provides investors with exposure to commodities in a cost effective manner. A total return index created from the near dated USD commodity future, USD interest rates & USDZAR exchange rate. The near-dated future - Most cost effective way of gaining exposure to commodities. Standard Bank Commodity Copper Linker Standard Bank Commodity Gold Linker Standard Bank Commodity Palladium Linker Standard Bank Commodity Platinum Linker Standard Bank Commodity Silver Linker Standard Bank Oil ETN Standard Bank Corn ETN Standard Bank Wheat ETN ETN Providers: Standard Bank (9)

78 SB Oil, Corn & Wheat ETN

79 Keep it simple - Forget about fancy & complicated ETNs. Conduct your due diligence Thoroughly analyse your research. Start watching how ETNs perform. –Pick those ETNs with strong performance records & low fees. Put together a simple, yet fully diversified portfolio by spreading your money between three or so ETNs. How to choose an ETN

80 Create a portfolio consisting of both exchange traded products & unit trusts. Investors have the option to create a 'core-satellite equity investment strategy' –A low cost exchange traded fund (ETF)is used as the core of the portfolio, –Higher risk active funds, with higher return targets, used to 'add flavour' to portfolio. Investment Strategy

81

82 ETFs & ETNs offer investors several advantages that give you: –More choice, –More control, and –More protection over investment portfolio. Like all investments, the role of exchange traded product (ETP) in your overall strategy is dependent on your goals & preferences. Trading Platform for ETPs: –PSG Online Equity Trading Account –PSG Online Investment Plan Review the PowerPoint presentation Read ETP info available on PSG Online website Traders Forum (Durban) – Wednesday, 17 April 2013 Fundamentals Webinar: Wednesday, 24 April 2013 Good Luck & Happy Trading! Summary & Conclusion

83 Thank You (011) Contact Us


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