ETFs in South Africa: Cheap, Cheerful, and Slightly Misunderstood
Exchange Traded Funds have earned a place in modern portfolios. In South Africa, they have become the go-to choice for cost-conscious investors seeking broad exposure without the traditional active management fees. The idea is simple: low cost, transparent, efficient.
And for the most part, that idea holds true.
Providers like Satrix, CoreShares, and Sygnia have made diversified investing available to thousands of retail investors. For a fraction of what active unit trusts used to charge, you can invest in the Top 40, global equities, bonds, or property with a single trade. This accessibility is important.
However, the story does not end with the headline fee.
The term “cheap” is often thrown around in ETF marketing. The Total Expense Ratio may be 0.30% or 0.40% and compared to the 1.5% to 2% many investors used to pay, it seems enticing. Yet the TER is not the whole picture. Trading spreads, index rebalancing costs, and for offshore exposure, embedded foreign ETF fees and currency costs, all lie below the surface. They are not deceitful or hidden; they are just part of the structure. But they are real costs.
In a market like the JSE, size and liquidity are also important. South Africa has a relatively concentrated exchange. A few large companies dominate the indices. Investing in “the market” does not always mean broad economic diversity. It often leads to significant exposure to a small group of global-facing companies. Passive exposure, in this case, can increase concentration rather than reduce it.
Then there is the philosophical aspect. Passive investing assumes that markets price assets efficiently over time. It does not consider whether a company is overvalued, overleveraged, or poorly managed. It simply owns what the index owns. In rising markets, this discipline appears wise. In bubbles, it can seem lazy. ETFs do not offer downside protection or valuation discipline; they only provide exposure.
None of this undermines their role. For many South African investors, ETFs remain a solid building block. They are transparent, generally cheaper than traditional active funds, and reduce manager risk. They eliminate style drift. Over long periods, controlling costs is one of the few factors investors can reliably manage.
But cost is just one factor.
An investor seeking steady income may find that passive equity exposure leads to volatility instead of stability. A retiree withdrawing capital might find liquidity useful, but sequence-of-returns risk can be harsh. A long-term investor may question whether pure index exposure in a small, concentrated market is truly diversified or simply convenient.
The debate should not be “ETFs versus active.” It should focus on purpose. What outcome is the portfolio designed to achieve? Growth? Income? Stability? Inflation protection? Liquidity?
ETFs are powerful tools. However, they are not a strategy on their own.
For South African investors, the real benefit comes from not blindly following passive investing or rejecting it, but from understanding what it offers and what it does not. When used thoughtfully, ETFs can anchor a disciplined portfolio. When used uncritically, they can merely reflect the market’s risks, wrapped in the reassuring language of low cost.
Cheap is valuable.
But value is not the same as cheap.
