Worth its weight in gold

A pioneer in the South African exchange-traded funds industry, Absa Corporate and Investment Bank’s exchange-traded products business was established in early 2000 to provide investors with passive investment solutions by using exchange-traded products as tools or building blocks. Blue Chip speaks to Michael Mgwaba, who heads up the ETP business at Absa.

Michael Mgwaba, Head of ETP Business, Absa

Please share your career trajectory to your current position.

I have more than 17 years of experience in the exchange-traded product (ETP) industry, starting in the middle office and working my way up to head the ETP business and as CEO of one of the largest exchange-traded fund (ETF) issuers in Africa, the NewGold Issuer (RF) Limited.

In your role, you are responsible for the development and origination of innovative funds and solutions for retail and institutional investors. Are there any new products for 2024 in the pipeline?

Our team is working on a few products/solutions that in our view can be considered viable investment tools for various investors in their portfolio construction. We can provide more detailed information when cleared with the listing authority.

Please tell us about Absa’s ETP business.

The Absa ETP business established itself as the market leader in precious metals and fixed-income ETFs and has been the largest issuer of ETPs in the market for the better part of the last two decades. Some of its flagship products are NewGold which has multiple listings across Africa and NewPlat which at some point became the world’s largest platinum ETF. The business has won many accolades over the years, it has expanded its offering to include Actively Managed Certificates (AMCs) and today its focus is on products linked to precious metals, global currencies and more.

NewGold ETF is one of the simplest and most cost-efficient methods for investors to invest directly in actual gold. How so?

NewGold was one of the first few gold ETFs launched globally in 2004 and the first of its kind in Africa. It started off charging the same investment fee as some of the large global gold ETFs at 0.40% annually. To align itself with its mission to provide an effective way to own gold and democratise its investment, Absa decided to reduce its cost to investors significantly, ensuring that the man on the street can also enjoy the investment benefit associated with investing in gold

Today, NewGold is one of the lowest-cost gold ETFs in the world at 0.30% annually and currently, there are no similar products in South Africa whose effective charge is lower than that of NewGold.

The use of NewGold by investors has also evolved over the years, whereas in the past it was mainly acquired by long-term investors who wanted to benefit from sustainable returns. Today, we also see tactical investors who want to benefit from short-term trends like changes in interest rates, currency fluctuations, etc. Other investors use it to park excess cash while in search of good opportunities in the market and sell it later.

Why gold?

Gold has historically demonstrated the following attributes: a superior store of value, especially during times of high inflation and currency volatility. It has proven to have a low to negative correlation to most asset classes, making it one of the most effective diversifiers in a traditional 60/40 portfolio. Recent analysis done by the World Gold Council suggests that adding gold into a diversified portfolio investing in global assets can improve risk-adjusted returns. It is rare to find all these attributes in one asset. These attributes stem from the fact that gold has both industrial and investment use and its supply and demand is diverse.

Please tell us about the current ETP landscape.

South Africa’s ETP industry has grown tremendously over the years, especially around the number of products it offers to the market, diverse asset classes that are offered via ETPs and various investment strategies that investors today can access by investing in ETPs. It has moved from an industry associated with passive investment strategies to one that provides both active and passive strategies/solutions. Today its offering is used by institutional investors in portfolio construction and core-satellite strategies as well as by retail investors as building blocks. The industry has evolved over the past 22 years and its offerings now include AMCs and Actively Managed ETFs.

What advice would you give investors in terms of ETPs?

With markets very volatile and geopolitical tension perpetuating an uncertain future, diversification becomes more important than ever. ETPs are an efficient and cost-effective way to achieve it. Gold can act or be considered as insurance in your portfolio.