The ETF Phenomenon 25 Years On

It is 25 years since the first exchange-traded fund (ETF) was launched in South Africa – the Satrix 40 ETF, which tracked the JSE Top 40 Index, listed on the JSE on 27 November 2000. The emergence of this new type of investment product, a decade after the first ETFs appeared in the United States, heralded a major shift in the local investment industry.

An ETF is similar to a unit trust fund in that it is a pooled scheme that holds a selection of underlying assets. However, unlike a unit trust, where investors buy units in the scheme through an asset management company, an ETF is listed on a stock exchange, and investors essentially buy shares in the fund. This is done through a stock broker or trading platform in the same way as one would invest directly in listed shares.

Another major difference until recently was that ETFs were solely “passive” instruments linked to a market index, designed to hold underlying assets in the same proportion as the index they were replicating. That changed about two years ago when, after a change in JSE listing requirements, the first actively managed ETFs (AMETFs) appeared in South Africa.

A third difference was that, because of their passive nature, the investment costs of ETFs were generally far lower than those associated with actively managed unit trusts, which typically required teams of highly paid analysts.

Last week, Prescient Fund Services published its ETF Evolution report reflecting on the growth of South Africa’s ETF industry over the first quarter century of the millennium.

Ben Meyer, Managing Director, Prescient Capital Markets, writes that when ETFs were originally launched in South Africa, they were not categorised as collective investment schemes. “This meant that, unlike unit trusts, within which the buying or selling of underlying securities does not trigger a tax event, the first local ETFs were taxed during re-balancing or trading activities,” he says.

The Collective Investment Schemes Control Act, signed into law in 2002, provided an updated legal structure for pooled investments. “In 2004, index-tracking ETFs were converted into the collective investment scheme (CIS) structure – a move that would ultimately pave the way for ETFs to move into the mainstream,” Meyer says.

And move they did. The highly popular Satrix 40 was joined by ETFs tracking a host of other indices, local and offshore. Globally, companies designing indices, such as Standard & Poors (S&P) and Morgan Stanley Capital International (MSCI), began producing indices specifically with the ETF industry in mind, including so-called “factor” indices, which imitate the investment styles of active managers.

Types of exchange traded products (ETPs) have also expanded. One group of ETFs that do not fit into the CIS structure are those tracking the gold price or the prices of other precious metals, commodities or currencies. Another type of non-CIS product is the exchange-traded note (ETN), which does not hold the assets it tracks but promises the investor a return based on the performance of those assets.

According to ETP broker platform ETFSA, as at the end of June 2025, there were 281 ETPs listed on the JSE, including 92 ETFs and 29 AMETFs, from 14 issuers. The market capitalisation of the SA ETP industry totalled R258.1 billion as at 30 June 2025, an increase of 10.5% over the second quarter and of 14.7% over 12 months. Increases include new inflows plus returns on capital.

The South African ETP industry remains relatively small compared with some other countries – in South Africa, ETPs comprise about 6.2% of the R4.16 trillion of total assets in collective investments.

But their popularity is growing. Niki Giles, Head of Strategy at Prescient says one of the most transformative aspects of ETFs has been their ability to democratise access. Unlike traditional unit trusts, which have different fee structures for different types of investor, ETFs have a single fee class. They are more liquid than unit trusts, as they are traded in real time on the stock exchange.

“This immediacy is especially appealing to a younger cohort of retail investors who have cut their teeth on cryptocurrency platforms and expect instantaneous transacting. For these mobile-first investors, the ability to execute trades in real time, monitor price movements, and respond to market shifts is not just a preference; it’s a baseline expectation,” Giles says.