1 year ago

Blue Chip Issue 83

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Blue Chip Journal is the official publication of the Financial Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip is a quarterly journal for the financial planning industry. Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry. Visit Blue Chip Digital:


BLUE CHIP BLUE CHIP On the money Making waves this quarter Exchange-traded funds and exchange-funded notes AUM, LIQUIDITY AND TRADING VOLUMES Exchange Traded Funds (ETFs) have become popular among institutional investors. But their choice depends on the ETF’s underlying characteristics. has presented data that shows that 68% of institutional investors consider Assets Under Management (AUM), liquidity and trading volumes as key determinants for selecting an ETF. A higher AUM indicates a large trading volume, therefore, high liquidity. Higher volumes and liquidity ease trading in the ETF. Moreover, a high AUM enables the fund to spread its costs across the investors, increasing their returns. MoneyTransfers’ analysis identified six other criteria for picking an ETF. Almost 53% of the respondents said that they’d consider the Benchmark Index. Another 48% favoured the fund’s provider’s brand and market position. Moreover, 46% based their decision on historical performance. Meanwhile, 45% would base their choice on the provider’s value-added services. That said, some 34% of the respondents considered management fees a key factor in their selection. Finally, the study identified some 29% of those investors who’d value transaction cost above all else. INDEXATION ≠ PASSIVE The discussion around passive versus active is an ever-evolving debate that for some has come to the point of “agree to disagree”. Unfortunately, many market participants see all non-actively managed investments as passive. At MitonOptimal, we see indexation as the use of passive building blocks to create a fund or portfolio with a specific mandate or outcome in mind. This includes Active Beta, Smart Beta, Themed Indexation, Factor Indexation and many more. Within these strategies a wide variety of nuances play into the end outcome for the client and the generalisation of “concentrated index exposure” no longer applies. Using “active share” as a measure of differentiation, most of these strategies vary greatly from the index and in some cases even more than active asset managers. It is also possible to build an active portfolio using exchange-traded funds (ETFs), exchange-traded notes (ETNs) and other asset class building blocks without having to make calls on any stock-specific outcomes. MitonOptimal are strong proponents of indexation and have been successfully implementing these strategies within our Core Indexation Portfolios, Tailored Portfolios and Funds for over a decade. Jacques de Kock, Quantitative Analyst and Fund Manager, MitonOptimal WE PROVIDE PEACE OF MIND MitonOptimal provides advisers with peace of mind by offering established investment expertise, dedicated support and long-term partnership in managing their clients’ investment affairs. George Dell | Head of Business Development | E: | T: 021 689 3579 | Issued by MitonOptimal Group (MitonOptimal). MitonOptimal South Africa (Pty) Ltd, registration no. 2005/032750/07, an authorised Financial Services Provider (“FSP”) with license no. 28160. MitonOptimal South Africa (Pty) Ltd complies with all the requirements of the Financial Advisory and Intermediary Services (FAIS) Act (Act 37 of 2002).

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