ETFs combine the advantages of investing in index funds, including diversification and low costs, coupled with the liquidity and flexibility of investing in individual stocks. ETFs offer investors many advantages over other investment vehicles, including diversification, liquidity, cost effectiveness and transparency.
Transparency
ETFs disclose their holdings on a daily basis, thereby enabling investors to know exactly what stocks or underlying assets they hold, what the value is and to make more informed investment decisions. The net asset value (“NAV”) of the Satrix participatory interests and the market price thereof will be published daily on the Satrix website.
Diversification
ETFs represent an investment in an index or basket of securities, thus providing a convenient approach to achieve diversification. This level of diversification would be time consuming (and expensive) to replicate using individual stocks.
Cost efficiency
ETFs have relatively low total expense ratios compared to other investment products. This is because ETFs are index-based and generally do not experience the amount of portfolio turnover and trading costs that other products may have.
Liquidity
ETFs are traded as a cost-effective instrument to gain sector and market exposure. Investors can buy and sell their investment at any time.
Furthermore, the market makers will attempt to maintain a high degree of liquidity through continuously offering to buy and sell participatory interests at prices around the NAV, thereby ensuring tight buy and sell spreads. You will under normal circumstances and conditions be able to buy Satrix securities from or sell them to the market makers.
Flexibility
Speaking of flexibility, like an equity, ETFs trade throughout market hours. ETF’s can be bought and sold like shares and prices are continuously updated during the trading day. Therefore ETFs trade like a normal share on the stock exchange.
Scrip lending
Certain ETF’s such as Satrix 40 engage in scrip lending, earning income off the securities lending. This income is set-off against total cost, lowering the actual cost paid by the investor.