At the end of February 2013, there were 39 exchange traded funds (ETFs) and 23 exchange traded notes (ETNs) listed on the JSE, says Moneyweb
Now, there’s a new ETF on the JSE.
Absa Capital’s NewGold Platinum exchange traded fund is the first local ETF backed by physical platinum and only the group’s second domestic commodity ETF after its own NewGold product, says Moneyweb
But don’t confuse the platinum ETF with the existing platinum exchange-traded note, NewWave Platinum ETN.
Here’s how the local platinum ETF differs from the platinum ETN
You see, an ETF replicates an index by buying the correct weighting of shares in the index, while an ETN’s returns are based upon the performance of a market index minus applicable fees, and investors can hold the debt security until maturity, explains Investopedia
And that’s not the only difference. The South African Reserve Bank has given approval for the ETF to be considered a domestic asset, meanwhile investors still have to use their foreign allowance to invest in the ETN.
Added to this, if the issuer’s credit rating is downgraded, the value of the ETN will decrease. So if the issuer defaults, the ETN is likely to be null and void – and you’ll lose your money, says FSP Invest.
With the ETF, on the other hand, you just have a tracking risk, as ETFs are constructed to mirror the movement of a specified underlying index explains The South African Investor
Another reason smart investors choose ETFs over ETNs
That means the risks associated with ETNs are far greater than ETFs since you’re opening yourself up to both credit risk as well as market risk.
But because the NewPlat ETF is backed by physical platinum, you’re not running any credit risk – would do if you went for the ETN instead. That’s why Absa is allowing investors to switch out of the NewWave Platinum ETN into the NewPlat ETF for a 0.01% fee, says Moneyweb
This is likely to make the platinum ETF more attractive to retail investors than the local ETN.
So attractive, in fact, the Deutsche Bank has predicted that as much as 21% of the total demand for platinum in 2013 will come from ETFs.
to find out more about Absa Capital’s NewPlat ETF.