Speaker 0:
Hello and welcome to this boutique connect session. I'm joined today by Ryan Baso, head of Index Portfolio Management at One Invest. Welcome back,

Speaker 1:
Ryan. Thank you. Great to be here.

Speaker 0:
So, Ryan, the South African listed tracker awards the Salta. What are the types of awards that are on offer? Um, at the Salta Awards.

Speaker 1:
Uh, yeah. Chloe. So So this award ceremony was introduced about four years ago from the J AC in partnership with with various other uh, E t p or exchange of product providers in the market.

Speaker 1:
And I think it's to firstly help investors evaluate, uh, various invest tracking, uh products out there in the market and evaluate them on various basis. So such as trading efficiency, tracking, efficiency, fund performance, capital raising is another one. So if I just touch on a few of those and why it's important. So,

Speaker 1:
firstly, tracking efficiency, which is one of the key measures of an index tracking manager implementing a rule set or implementing the benchmark rules. And how closely do they actually deliver those index returns?

Speaker 1:
So if you think of the practical side of it, even if a manager perfectly implements a set of rules perfectly implements the index methodology and construction.

Speaker 1:
The index does not incur any costs during this construction period or in its index level or its index return that it publishes. Whereas your manager does incur trading costs. UH, such as your securities transfers, tax, uh, custody fees, brokerage, et cetera. So even doing a perfect job, you will always fall short of the benchmark return. So your manager then has got to do, uh, a lot of value added activities without increasing the risk to the portfolio.

Speaker 1:
And this is how they they aim to either deliver the benchmark return or slightly outperform the benchmark return. So so, tracking efficiency is that key measure that what an investor is paying for is is what they're receiving. Uh, we then got trading efficiency, which is something that does at times, go under the radar.

Speaker 1:
Um, and why that's important is on an exchange traded fund that is traded on the stock exchange. There is a A bid price and an offer price that's always up on the exchange provided by, uh, the issuers market maker. So the bid price is basically saying where the market maker is willing to buy the ETF or where you as an investor can sell it. And the offer price is where the market makers is willing to sell the product or sell the the ETF and i e. Where an investor can buy it.

Speaker 1:
And this naturally creates a spread in the market. And when you execute an order without any without specifying any price, you would generally cross that spread and immediately lose some value in your investment.

Speaker 1:
So the Ted Efficiency Award is is a measure of how closely that spread is that's provided by the by the market maker for each product, uh, as well as how closely that closing price matches matches the benchmark. So those are some of the the key awards that's that's handed out, uh, throughout the the or throughout his existence.

Speaker 0:
OK, so perhaps you can elaborate on some of the awards that one picked up.

Speaker 1:
Yeah. Um, so so one. This has been consistent winners since the launch of amongst all of those that have mentioned that the tracking the trading, uh, as well as the performance, uh so so so this year. And as we know, performance is is obviously one of the very key me, uh, me season and how well your your your investment is done. And how well has it beat inflation?

Speaker 1:
Um, and this year we've had our rhodium ETF pick up, uh, two awards for performance, both the the three year and five year best performance in that category. Uh, and then we've had our S and P 500 infotech ETF, uh, pick up both that trading efficiency that I that I mentioned as well as the the three year performance. Uh, in that category, Uh, and one of our ETF s the top 40 ETF, uh, came runner up as the People's Choice award.

Speaker 1:
Uh, and this people's choice is is basically the investors, the people in the industry vote and, uh, you know, the the old boy in town, the top 40 has been taking that award consistently. Uh, but we we were actually quite impressed to see us come as close runner up this year.

Speaker 1:
Uh, especially that, you know, our one invest has been in existence. The brand has been in existence for just over three years. Relative to your your 20 year plus on, uh, hopefully in next year, we do expect to to have a lot more of our ETF. S, uh, feature in a five year number. They just aren't old enough at this point. Um, but hopefully with the with the breadth of product that we have and as they come to age, uh, we should feature in in more categories next year.

Speaker 0:
So then have you been seeing any growth in some of your offerings? And what has driven the new the new interest as well as perhaps you can comment on

Speaker 0:
interest during risk on and risk of environments globally and locally,

Speaker 1:
where we've seen a lot of interest in in one of our products, particularly this year, uh, has been in the ETF US d, uh, that we listed towards the end of last year. Um, And then that fund, uh, aims to to deliver the return of your US dollar, uh, currency return. But will a little kicker

Speaker 1:
and And where that kicker comes from is that the fund is structured to basically be a money market proxy in US d terms. Um, so it invests in US Treasuries that are that have a year or less, uh, to maturity. And then this is where this this additional pickup comes from. So you actually earn a pick up relative to the US Rand exchange rate?

Speaker 1:
Uh, and this is somewhere along the lines of, um, the Fed funds rate return. So roughly, sitting around a year to date to return now, or year to date, number of 5%. So So we've definitely seen a lot of interest in that product, and and I guess naturally. So where we seeing, uh, the land blowing out recently? You know, due to all of the idiosyncratic stuff that we have going on

Speaker 1:
as well as the various global factors, that's that's impacting all currencies across the world.

Speaker 0:
Absolutely. But then perhaps you can comment Ryan, uh, with regards to interest, investor interest in passive products during risk on and risk off, um, environments.

Speaker 1:
No, that's that's That's quite an interesting question, Chloe. And I think it's It also touches on where the exchange tail product industry has come to over all these years of su been existence in South Africa and and the breadth of product that we're seeing now. So it's a number around 100 exchange products out here in S A

Speaker 1:
and and that breadth of product is what allows investors to shift their investments throughout various parts of a market cycle. So throughout expansionary cycles, where it's a risk on equities or contract recycles, and investors quite can easily shift between products. Now, with the bread that we have out there,

Speaker 1:
um, so nationally, as you pointed out, this on environments, uh, you'll see a flock to, uh commodities, particularly in South Africa. Flock to equities. There's a proliferation of, uh, equity products out there, both from market cap, uh, index tracking, as well as specific styles that we see out here in the South African market as well as there's products out there that touches on,

Speaker 1:
uh, fixed income, uh, currencies here, as I mentioned, and even products that aim to outperform during a contractually or risk of environment. All of those exist now in the South African market.

Speaker 1:
Um, I think they all give the investor the breadth of product in order to construct a well diversified portfolio, uh, to to to seek out, you know, inflation beating returns while trying to to minimise their risk.

Speaker 0:
So, um, how are new technologies such as artificial intelligence and machine learning shaping the index tracking landscape.

Speaker 1:
Yeah, so? So I don't think it's just just in the extra tracking landscape. I think it's the asset management industry and various other industries as a whole. Um, that's that's been touched by artificial intelligence or deep and machine learning. Uh, but particularly in in our environment, um,

Speaker 1:
you know, any efficiencies is is welcome in any industry, I guess, uh, but more so in an index tracking environment where you are trying to eke out every basis point in order to provide a more cost effective product to the client, as well as what I mentioned earlier about, uh, losing any slippage relative to your benchmark. Um, so we've seen a lot of use and ourselves as well as employed a lot of use in,

Speaker 1:
uh, algorithms, uh, which help us to trade more efficiently. Trade at specific points in the day in order to harvest liquidity in order to harvest a little bit of pick up relative to the benchmark, um, reduce slippage costs, uh, largely in summary.

Speaker 1:
Uh, and I think those sort of trends will continue to to to to play a bigger and bigger role, uh, both from a Data Analytics point of view and portfolio construction, as well as an efficiency in execution and trading.

Speaker 0:
Absolutely. So let's close off the session. Ryan, Where do you think the

Speaker 0:
Because for the South African exchange traded products, Um, will be this year.

Speaker 1:
I think if I if I focus purely just on South Africa, Um, I think we've got a lot of the key building blocks in product out there at the moment. And I mean key building blocks in in terms of being able to construct a well diversified, long term growth portfolio. So a lot of the big asset classes, your fixed income equities, property, foreign equity have been covered by by exchange products out there.

Speaker 1:
Um, but I think where we will see more listings come through is around the the more niche stuff. So stuff that's sitting in the alternative space, for example, uh, E s G. Is is another theme, as we've seen and we've seen quite a few products already been listed on on that front. In fact, we've just listed a social responsible investment ETF last year.

Speaker 1:
Um, but I think it's going to be the more niche stuff and and that will then open the door to index managers also needing to provide a solution approach to their investors. How do we then bring all of this various products

Speaker 1:
together? That makes sense for the investor and provides them on a A solution on a needs basis or on a goals based scenario? And I think I think that's where we'll see the local market moving towards. Thank

Speaker 0:
you very much, Ryan, for your time. We appreciate your insights.

Speaker 1:
Thanks, Chloe. Great being here. Thank you.