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By Gareth Stobie*
A new exchange-traded fund (ETF) by CoreShares gives South African investors unrivalled, low-cost exposure to global equity markets – including both developed and emerging markets.
The CoreShares Total World Stock Feeder ETF (share code: GLOBAL), which will be listed on the JSE in the weeks ahead, will give investors the broadest investable opportunity set available in Johannesburg yet, as measured by the number of stocks and markets represented.
The highly diversified, ‘all in’ global strategy will track the FTSE Global All Cap Index, which provides access to large, mid, and small-cap stocks across 25 developed and 24 emerging markets.
The index is comprised of more than 9,000 constituents across 10 sectors and 49 equity markets, and represents $69.8 trillion in combined market capitalisation.
This simple yet powerful product has been priced as a cost leader within this category, with an expected forward total expense ratio of just 0.29%.
The global appeal
Investing in a truly global fund allows investors to reduce their ‘home bias’ – a common habit in which investors are disproportionately exposed to their own market. Considering that South Africa only makes up around 0.5% of the global equity market, most investors need to increase their global allocations.
It is important for investors to ensure that they maximise their reach, since markets can change dramatically and it is almost impossible to predict the next decade’s winner. To avoid missing out, investors should have exposure to as many markets as possible.
The inclusion of emerging market exposure in the CoreShares Total World Stock Feeder ETF is significant, given the high growth rates of many emerging economies, and the geographic diversification this brings.
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Emerging markets are usually omitted from ‘world’ ETFs on the JSE, meaning these strategies do not fully represent the global economy. Developing economies make up over one-third of world GDP.
To address this imbalance, emerging markets including China, India, Indonesia, Brazil, Russia, Turkey and others make up 11% of the FTSE Global All Cap Index, which this ETF tracks.
This exposure can also lead to better returns. This is because investors tend to be rewarded when making emerging market allocations, as the greater risk premium typically leads to outperformance over developed markets in the long run.
We believe that having both developed and emerging market exposure in one low-cost product is a compelling proposition.
Diversification across sectors and company sizes
The CoreShares Total World Stock Feeder ETF is highly diversified across sectors, with technology, financials, industrials, consumer services, healthcare and consumer goods all having weightings of more than 10%, as of end-February.
When this product comes to market, South African investors will, for the first time, have access to global large, mid and small-cap shares in one convenient locally listed ETF.
The inclusion of small-cap shares enhances diversification and gives investors the opportunity to bolster their long-term returns through the ‘size premium’.
Moreover, the large basket of stocks in the ETF provides 98% coverage of the total stock market, with only frontier markets and micro-cap shares omitted. By comparison, an ETF that only provides exposure to developed-market large- and mid-cap companies provides coverage of 75%.
Finally, concentration risk is reduced in this global fund, with the top 10 shares making up 12% of the total portfolio, and small caps accounting for around 10%.
The benefits of passive investing
Index-tracking ETFs, along with other passive investment products, deliver market-related returns and significantly reduce investing costs relative to active fund management. Studies show that fees play an important role in determining relative performance.
And by providing diversification, ETFs lower the risk of underperformance relative to the market. With exposure to a broad range of markets and types of companies, the CoreShares Total World Stock Feeder ETF offers remarkable levels of diversification.
The ETF will feed into the US-listed Vanguard Total World Stock ETF which tracks the same index and has more than US$25 billion under management.
CoreShares will be running a book build ahead of the listing. The book build will close on 7 May, and the ETF will list on the JSE on 17 May.
The fund is suitable for all investors – whether institutions or individual retail investors – who are looking to make a long term, global equity investment and diversify outside of South Africa.
- Gareth Stobie is the Managing Director (MD) of CoreShares.