Investing in the Time of Corona – Think ETFs

The Covid-19 pandemic has seen markets plummet quicker than liquor supplies during hard lockdown, and then shoot up just as fast as the price of counterfeit cigarettes.

If 2020’s financial “corona-coaster” has taught us anything, it’s that nothing is predictable and
nothing is set in stone. So where does that leave you, the savvy investor trying to decide where and how to invest during this global pandemic?

Global Assets Under Management (AUM) in exchange-traded funds (ETFs) has grown exponentially over the last decade and Sygnia expects this growth to intensify during Corona times, as ETFs are like investment lifeboats in stormy markets. Here’s why:

Global Exposure

It’s no secret the local market has not fared well during the Covid crisis and there is potential for further rand weakness ahead, therefore it’s a good idea to have exposure to markets outside of South Africa.

ETFs are simply index-tracking investment vehicles that allow you to sit in South Africa and
invest in a broad range of hundreds, or even thousands of company stocks overseas at the click of a button, and without having to worry about the complexities of exchange controls.

Diversification

ETFs also offer simplified diversification. As they track a market index, they automatically hold a range of shares across a number of sectors of the market. And of course diversification helps to minimise risk, so if one part of your portfolio is not performing your other investments can compensate.

Liquidity

With the uncertainty and volatility that we are experiencing now, ETFs are an ideal instrument to ensure liquidity, as you are able to buy and sell as quickly as any share. While you can only do this throughout the day while the JSE is open, you can monitor your ETF investments 24/7.

Costs

Net of fee performance is what to look for in volatile times to ensure profits are not eroded by unnecessarily high fees. ETFs fit that bill by having extremely low fees compared with traditional mutual funds, with global ETFs carrying annual fees as low as 0.04%. Plus the initial
investment is very low, allowing entry-level investors to also ride the ETF wave.

Transparency

ETFs are a far cry from old-school actively managed mutual funds where you had no say in what you were investing in, how it was invested and the cost of investing, plus you were kept in the dark about performance from day to day (sometimes even months).

Since ETFs track an index you know exactly what’s inside an ETF, and you can literally monitor the indices and their performance any time of day or night. You can also choose exactly what to invest in based on your ethics, or where you see potential opportunities.

In a world where markets are in unchartered waters, your investment vehicle needs to be lightweight, fast, agile and in clear view at all times so that you can navigate your way through these rough seas. ETFs tick all those boxes, and more.