Itransact investor - 2015

The Investment Platform

for Exchange Traded

Products

Disclaimer

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Exchange Traded Products are subject to risks similar to those of shares. Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, whenredeemed or sold, may be worth more or less than their original value. Past performance is not necessarily a guide to the future. The information furnished in this publication whichinformation may include opinions, estimates, indicative rates, terms, price quotations and projections, reflects the existing judgment of the author and current market conditions, whichjudgment and conditions are subject to change without notice, modification or amendment. This publication does not necessarily reflect the opinion of Itransact. The information hereinhas been obtained from various sources, the accuracy and/or completeness of which Itransact does not guarantee. Itransact recommends that independent tax, accounting, legal andfinancial advice be sought should any party seek to place any reliance on the information contained herein. Itransact does not provide investment advice. This publication has beenprepared for general dissemination and information purposes only and may not be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financialinstruments or to participate in any particular trading strategy in any jurisdiction. All rights reserved. Any unauthorised use or disclosure of this publication is prohibited. Thispublication may not be reproduced without the consent of Itransact.

Itransact is an authorised financial services provider

Agenda

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• Introduction to Itransact

• History & background to exchange traded funds

• An inconvenient truth

• What are exchange traded funds & how do they work?

• Why its hard to beat an index fund - the story of skill & luck

• How costs destroy returns

• ETFs & Tax

• ETFs, ETF portfolios & other types of index products

• How to invest

• Fees & charges

• Questions

A lesson in simplicity

Keep it simple

Making the market simple

Simplicity is our guiding principle. It is fundamental to

Who is Itransact?

Itransact is the investment product brand/division trading under Automated Outsourcing Services [AOS] an independentthird party fund administration company.

• AOS Established in 1997

• BEE Empowered Company

• 170 Employees

• Total Assets Under Administration - 148 bn ZAR (January 2015)

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http://images.google.co.za/imgres?imgurl=http://www.fpi.co.za/Portals/5/images/Convention/Absa Investments Logo ENG.jpg&imgrefurl=http://www.fpi.co.za/Default.aspx?TabName=Exhibitors&usg=__yJ6YCx47us-pm21RmHe2K6lqyTk=&h=289&w=389&sz=49&hl=en&start=1&tbnid=-TZYcHy2_hYi5M:&tbnh=91&tbnw=123&prev=/images?q=absa+investments&gbv=2&hl=en&sa=G

http://www.investec.com/SouthAfrica/Securities/PrivateClient/

The role of Itransact

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Access leading South African and international asset managers and banks. All in one place for your convenience

We make

investing simple

for everyone

The history of Exchange Traded Funds

The investment platform for

exchange traded products

• 1976 - ETFs Invented by John Bogle (Founder of Vanguard)

• Don’t look for the needle….buy the haystack

The history of Exchange Traded Funds



• 1976 - ETFs Invented by John Bogle (Founder of Vanguard)

• 1993 – 1st ETF (S&P 500) launched

• 1996 - Barclays launches WEBS – World Equity Benchmark Shares

• 2000 - WEBS becomes i-Shares, the largest ETF provider on the planet

• 2001 - ETFs reach South African Shores – Satrix 40

• 2003 - Global ETF inflows exceed those of Mutual Funds (Unit Trusts)

• 2006 - AOS takes over Satrix and Deutsche Bank Investment Plan administration

• 2008 – AOS enables RMB and Absa Capital with ETF Investment Plan capabilities

• 2009 – Barclays Africa contracts AOS to administer and distribute Absa Capital listed structured products

• 2011 - AOS launches Itransact & makes multiple ETFs available to South African retail investors

• 2012 - ETFs the fastest growing investment products on the planet with over USD 2 Trillion globally

An inconvenient truth

Research on the South African general equity market shows that only one out of every five actively managed funds beat theirbenchmarks.

Keep it simple

Index 1 year 3 years 5 years

Benchmark 1: FTSE/JSE Top 40 TR ZAR 13% 32% 26%

Benchmark 2: FTSE/JSE Top 40 SWIX TR ZAR 7% 19% 18%

Source: Morningstar, general equity classification. 2015

An inconvenient truth

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Fund Cost

RMB Top 40 0.19% p/aAllan Gray 1.50% p/a

Why its hard to beat an index fund (The story of skill & luck)

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FARMER A FARMER B

Farm Size: 10 Hectares

Nearest Town: Ermelo

Location: 35km East of Ermelo

Crop: Maize

Yield: 2 Tons

Farm Size: 10 Hectares

Nearest Town: Ermelo

Location: 25 km West of Ermelo

Crop: Maize

Yield: 4 Tons

Average Monthly Rainfall

80ml

Average Monthly Rainfall

120ml

Costs destroy returns



Over the past 100 years, the Johannesburg Securities Exchange has averaged a real (after-inflation) return of 7,5% per annum

That means an active manager’s fee of 2% is not a small amount – its almost one-third of the JSE’s average return

General Equity Average TER 1.65%

1 year average return before fees 22.46%

TER as a % of return 7.35%

Broad Market ETFs Average TER 0.30%

1 year average return before fees 24.75%

TER as a % of return 1.21%

Source: Morningstar 2015













Costs destroy returns



“We never employ fund managers (some of the worlds most highly paid people) since we

discovered their best kept secret – they could never consistently beat the stock market

index”

-Richard Branson

“ It is a failure of the system when money managers are paid huge sums to move money

around while nobody but the investors themselves suffer the costs of under-performance”

-Trevor Manuel

What are ETFs and how do they work?



• Regulated ETFs are low-cost FSB regulated index tracking unit trusts that are listed on the stock exchange

• Simple ETFs track the performance of an index making no attempt to beat the market; they merely mirror the return of ETFs are “mechanically” managed resulting in lower investment costs

• Transparent ETFs are backed by a basket of physical securities

• Diversified An ETF provides instant access to a number of securities for the cost of a single investment - Own the

share.• Low Cost

ETFs are passive investments (as opposed to active investments) which means that the assets are not continually outperform the market. ETFs do not have any “managerial risk”

• Liquid A market maker ensures that there is always a buyer and seller in the market at the live fair value (NAV) of the

How safe is an ETF?



• Most ETFs are regulated collective investment schemes which contain important protection mechanisms to assure the safety of your money.

• When you invest via Itransact we act solely as the administrator of your investments.

• An approved trustee company looks after your money on your behalf which means that the collective investment scheme company does not hold your money or your securities in their name.

Differentiated product mix

We simplify the complexities of

investing

How to invest



Itransact firmly believes in the value of impartialindependent financial advice. We therefore only provideour investment platform services through professionalfinancial advisers.

Financial Advice Fees (Negotiated between financial

Initial – up to 3%Ongoing – up to 1%

(excl VAT)

Fees & Charges



Administration Fee – 0.45% p/a – 0.70% p/a

Portfolio management fee – 0.15% p/a (Only applicable if a portfolio has been used)

Once off stock broker fee – 0.08%

(excl VAT)

ETFs & Tax

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Dividend Withholding Tax (DWT)

Allowable fund management expenses are paid from pre-tax income in the fund

DWT is only payable on the net-of-fees distribution, usually paid quarterly to unit holders

Capital Gains Tax (CGT)

All trades within the ETF trust are CGT exempt; CGT only applicable once you sell your ETF investment

Remember that there is an initial portion that is tax-free

“Simplicity is the ultimate sophistication”-Leonardo da Vinci

Thank YouExchange Traded Products are subject to risks similar to those of shares. Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, whenredeemed or sold, may be worth more or less than their original value. Past performance is not necessarily a guide to the future. The information furnished in this publication whichinformation may include opinions, estimates, indicative rates, terms, price quotations and projections, reflects the existing judgment of the author and current market conditions, whichjudgment and conditions are subject to change without notice, modification or amendment. This publication does not necessarily reflect the opinion of Itransact. The information herein hasbeen obtained from various sources, the accuracy and/or completeness of which Itransact does not guarantee. Itransact recommends that independent tax, accounting, legal andfinancial advice be sought should any party seek to place any reliance on the information contained herein. Itransact does not provide investment advice. This publication has beenprepared for general dissemination and information purposes only and may not be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instrumentsor to participate in any particular trading strategy in any jurisdiction. All rights reserved. Any unauthorised use or disclosure of this publication is prohibited. This publication may not bereproduced without the consent of Itransact.

Itransact is an authorised financial services provider

Keep it simple

Date post:	04-Aug-2015
Category:	Economy & Finance
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Itransact investor - 2015

Economy & Finance