/ 15 June 2011

Multi-asset ETFs invest in equities, bonds and cash

Investors have approached exchange-traded funds (ETFs) with caution because they invest in equities, but it’s interesting times because Absa Capital has just launched the first multi-asset ETFs, which invest across equities, bonds and cash. This is good news for the slightly more risk-averse retail or institutional investor.

Vladimir Nedeljkovic, head of investments at Absa Capital, says these new products may change the way local investors view ETFs, particularly as diversification meets lower costs — it’s well known that investing in passive indices is generally more affordable than actively managed portfolios.

So what’s special about these Multi-Asset Passive Portfolio Solutions (MAPPS)? There are two products on offer: the MAPPS Growth ETF and the MAPPS Protect ETF, which Nedeljkovic says has been developed with retirees in mind.

The MAPPS Growth ETF invests 75% in a portfolio tracking the Swix 40, 10% in government bonds, 10% in the Barclays Absa SA government inflation-linked bond index (Ilbi) and 5% in cash. This is ideal for younger investors with time to play with, who can ride out volatile market conditions.

By contrast, the MAPPS Protect ETF offers a less volatile product, investing 40% in Swix 40, 15% in the Govi, 35% in the Ilbi and 10% in cash. Both MAPPS ETFs adhere to the restraints of regulation 28 of the Pension Funds Act, so they’re ideal for retirement investment and they can dovetail with retirement annuities, preservations funds and so on.

ETF industry is growing
Nedeljkovic says that the ETF industry is growing and one has to remember that it took the unit trust industry longer than a decade to reach its current size. As investors find ETF products to suit their needs, so uptake will be greater. It’s exciting to see fixed income brought into the ETF space and clients don’t have to pay multiple layers of fees to have access to different platforms any more.

Of course, platform fees still come into the cost. But the average Total Expense Ratio (TER) for ETFs is 40 to 50 basis points, as against the 150 basis points for unit trusts, so portfolio running costs are fairly low.

Whether it’s wealth generation or wealth protection you’re concerned with, these ETF products could be worth a look.

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