With the local ETF space becoming more competitive, investors are starting to benefit from a growing number of niche ETF products. We can already buy ETFs based on the quality of the constituents or the momentum of the share price. Soon we’ll be able to buy companies whose share prices are considered cheap in the market based on the value of the underlying assets held by the company – a value filter.
By the end of this year, we’ll have more options around asset classes too. We can already buy offshore bond ETFs that weren’t available last year. We are also looking forward to ETFs that automatically rebalance into cash when the market becomes volatile and back into shares when there’s less volatility.
We are starting to see more ETFs offering sectoral exposure. Last year Sygnia launched the Fourth Industrial Revolution ETF – a product dedicated to cutting edge technology. Today, Stanlib is launching the S&P 500 Info Tech Index Feeder Fund (STTECH). While both products invest in technology firms, the Stanlib ETF invests only in companies represented in the S&P 500 (as the name implies), while the Sygnia product has greater scope to invest in more niche tech firms like GoPro.
The Stanlib ETF invests in 68 technology companies listed in the United States. Investments are weighted by the market capitalisation of the companies, meaning technology giants like Apple, Microsoft, Facebook and Alphabet make up a huge slice of the pie – 43% to be exact. The ETF is US dollar denominated and since it’s a feeder fund, Stanlib expects to offer this product at a TER of just 0.35%.
With exposure to a single asset class (equity) and a single sector (technology), this ETF carries greater risk than a more diversified ETF like the S&P 500, which invests in various sectors. Since the ETF has 15.7% exposure to Apple, holding this ETF alone carries a measure of single stock risk too. Also bear in mind that the ETF invests in S&P 500 companies. If you already hold US or World ETFs, you might double up your exposure to these companies by adding this ETF. Ensure you understand your overall portfolio exposure to this sector before taking the plunge.