The Rise of Actively Managed ETFs in South Africa

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The global exchange-traded fund (ETF) market has experienced remarkable growth over the past decade, culminating in assets under management (AUM) reaching US$14.85 trillion in 2024, reflecting a 10-year compound annual growth rate (CAGR) of 17.1%. This expansion underscores the increasing preference among investors for diversified, cost-effective, and flexible investment vehicles. In South Africa, the ETF landscape is evolving in tandem with global trends, marked by significant developments and promising prospects for 2025.


The Rise of Actively Managed ETFs in South Africa


Historically, the South African ETF market was dominated by passive investment products. However, recent years have witnessed a shift towards actively managed ETFs (AMETFs). As of mid-2024, the South African market featured nine AMETFs, with plans to introduce ten more by the end of the year, potentially doubling the market size. This surge is attributed to increasing interest from larger South African asset managers seeking to offer investors a broader selection of ETFs. 

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The inclination towards AMETFs in South Africa contrasts with trends in markets like the United States, where passive ETFs have traditionally been more prevalent. This divergence is largely because South African investors have their passive options covered via offshore funds and established local passive ETFs. Active managers in South Africa are now exploring new distribution channels through the ETF wrapper, capitalizing on opportunities to offer differentiated products to the market. 

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Drivers of Growth in the South African ETF Market


Several factors are propelling the growth of the ETF market in South Africa:


New Asset Flows and Product Launches: The first half of 2024 saw new capital raised amounting to R8.3 billion, indicating robust investor appetite. The introduction of new ETFs, both active and passive, has provided investors with a wider array of investment options, catering to diverse risk appetites and investment strategies. 

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Positive Performance of Global and Local Stock Indices: The strong recovery in global equity indices in the latter half of 2023 contributed to the appreciation of ETF values. For instance, the MSCI World Index (in rands) increased by 30.8% over 2023, benefiting many ETFs listed on the Johannesburg Stock Exchange (JSE). 

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Regulatory Developments: Regulatory changes have facilitated the introduction and management of ETFs, making it more accessible for fund managers to launch new products. The process of launching new ETFs in South Africa currently takes around six months, with listing costs in the region of ZAR 150,000, providing a conducive environment for market expansion. 

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Retail Participation and Market Dynamics


Retail participation is poised to be a significant driver of growth in the South African ETF market. The accessibility of ETFs, which trade like any other security on the JSE, has attracted retail investors seeking liquidity and ease of access compared to more traditional investment options. The surge in stock market investing, fueled by successful retail investment platforms, has led to private investors playing a more prominent role in daily deal flow. Prior to the pandemic, private investors represented only 3% of volumes on the JSE; this figure has increased significantly since 2021. 

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The growing variety of AMETFs and the entry of well-known brands into the market are expected to further stimulate retail adoption. As cash rates drop, there is also an anticipated increase in appetite for higher-yielding investment strategies within AMETFs, particularly those offering fixed income or money market options. 

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Outlook for 2025 and Beyond


The positive trends observed in South Africa's exchange-traded product (ETP) industry are likely to continue into 2025. The industry's market capitalization experienced a 28% surge to R165.4 billion in 2023, marking a record increase since the first ETF was listed in South Africa in 2000. This growth is expected to persist, driven by the introduction of innovative products and the increasing participation of both institutional and retail investors. 

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In conclusion, the South African ETF market is undergoing a transformative phase, characterized by the rise of actively managed products, increased retail participation, and supportive regulatory frameworks. These developments align with global trends and position the market for sustained growth in 2025 and beyond. Investors and fund managers alike are poised to benefit from the expanding opportunities within this dynamic landscape.


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