Over the past few years South Africa’s investment landscape has undergone a relatively unnoticed, but important transformation. The emergence of actively managed exchange traded funds (AM-ETFs) represents both a significant innovation in the local retail investment market and a challenge for investors and advisors: what are these exactly, and how should you make use of these?
After becoming accustomed to having to choose between passive ETFs and actively managed unit trusts, AM-ETFs now offer them a new hybrid investment opportunity. It is important to understand what this means. It is also important to understand whether this is really “new wine” or just more of the same in a “new bottle”.
South Africa’s ETF market has historically been dominated by “passive” or index-tracking products. These traditional ETFs are designed and managed to replicate a published index. According to the regulations, an ETF must attempt to hold the same securities in the same proportions as the index it tracks. It may also hold some cash and listed derivatives, but the commitment to its clients is to provide investors with the returns of the relevant index[1].
The first ETFs typically tracked local equity market capitalisation indexes such as the Top 40 or the All Share Index (ALSI). The market sophistication has moved on, and ETFs now provide access to a range of size (mid cap) and risk-factor based equity indexes (value, momentum and quality), commodities (gold) and other asset classes (bonds, property and multi-asset), both locally and globally. These ETFs should be seen as systematic investments, not passive in the traditional, market capitalisation sense.
Since 2023 the market has expanded to include actively managed ETFs (AM-ETFs). This shift was enabled by regulatory changes from the Johannesburg Stock Exchange (JSE) in that year. The mandates of these instruments now allow fund managers to apply their discretion in portfolio construction in an ETF, without being tied to a predefined benchmark.
The innovation lies in that combination. An AM-ETF allows a portfolio manager to make active allocation decisions, while still delivering those decisions through a listed, exchange-traded wrapper like the traditional passive ETF.
The new framework thus enables fund managers to construct and manage portfolios for their clients which could previously only be accessed via unit trusts management companies (MANCOs) and Linked Investment Service Platforms (LISPs). Now investors can access them with the ease, flexibility, daily liquidity and transparency of securities listed on the JSE.
This change is in line with global experience. Recent regulatory changes across the US, Europe and Asia have paved the way for active management within ETFs in South Africa. This change is fuelling innovation: according to BlackRock[2], almost half of all global ETF launches in June 2025 were AM-ETFs.
Locally, in Q3 of 2024, AM-ETFs represented just over 2% of the South African ETF market only a year after their introduction, while the total market capitalisation of JSE-listed ETFs grew from R68-billion to R240-billion between 2019 and 2025[3]. By late 2025, this momentum had accelerated further: following a new wave of listings, the JSE now hosts 131 ETFs with a combined market capitalisation above R259-billion[4].
Some key similarities
A common misconception is that AM-ETFs and unit trusts occupy entirely separate regulatory universes. Both instruments share a common statutory foundation[5]. Both vehicles are governed by the Collective Investments Schemes Control Act (CISCA), are monitored by independent trustees and are highly regulated by the Financial Sector Conduct Authority (FSCA). Both pool investors’ capital to invest in a diversified portfolio of assets and both are structured as collective investment schemes in which each investor owns a proportionate share of the underlying holdings.
The divergence begins when AM-ETFs are listed. By virtue of their listing on the JSE, AM-ETFs must also comply with the JSE’s Debt and Specialist Securities Listings Requirements, which govern their initial listing and ongoing disclosure obligations.
This dual regulatory layer – CISCA from the FSCA plus JSE listing rules – creates a relatively more demanding transparency regime for AM-ETFs relative to unlisted unit trusts. Any ETF must publish its holdings daily, while unit trust regulation only requires quarterly disclosure of holdings.
Both AM-ETFs and unit trusts may qualify for inclusion in retirement annuities and tax-free savings accounts (TFSAs), provided they meet specific legislative requirements. Crucially for retirement investors, Regulation 28 of the Pension Funds Act governs the asset allocation of retirement funds in South Africa, ensuring diversification and limiting risk by capping exposure to certain asset classes.
Traditionally, investors seeking Regulation 28-compliant solutions have relied on (unlisted) balanced unit trusts or CIS funds. The creation of Regulation 28-compliant AM-ETFs has therefore broken new ground in the retirement savings space[6] from an access perspective.
From a cashflow perspective there is no fundamental difference in tax treatments between the two. Dividends received are net of the 20% dividends withholding tax on dividends declared by South African companies and interest income is also taxed in the same way.
There are some potential differences due to the way that Capital Gains Tax (CGT) is implemented in the two wrappers, but the relative importance of this is based on turnover levels. The CGT implications of trades inside ETFs are felt by the investor in the tax year that they occur, while these are only experienced by the holder of a unit trust when their units are sold.
Some key differences
While the regulatory architecture is broadly shared, the trading mechanics of AM-ETFs and unit trusts diverge significantly – and these differences have practical implications for investors.
Unit trust funds trade through a MANCO or a LISP. These funds are not available for trade on the JSE, and because there is no active market price, all instruments within the fund are priced at the end of the day. AM-ETFs, by contrast, trade like ordinary shares on the JSE, with real-time pricing throughout the trading day.
This intraday tradability allows investors to react immediately to market events and execute at a known price – a transparency advantage that end-of-day unit trust pricing cannot offer.
The ETF, by virtue of its listing, is subject to the JSE settlement cycle for equities, which is currently three trading days (T+3). When selling an ETF investment, proceeds will be received a few days later than when selling a unit trust, which typically settles within one to two business days. The global trend towards a T+1 settlement cycle may put pressure on the JSE to align with international markets. For AM-ETFs, such a change would also bring their settlement cycle in line with that of unit trusts.
Unit trusts remain very accessible for smaller or regular investors. ETFs, traded like shares, require a stockbroking account and attract brokerage fees on each transaction. However, the picture changes when we look at fees. According to a 2025 study on South African unit trusts, the average Total Expense Ratio (TER) for actively managed funds is approximately 1.61%, while ETFs typically charge between 0.2% and 0.5%[7].
AM-ETFs will likely occupy a cost point between these two given the active management input, but the absence of distribution fees typically embedded in unit trust platforms should create a cost advantage for investors.
New investment opportunities?
The emergence of AM-ETFs creates a larger set of possibilities that did not exist previously in South Africa’s investment menu – but this expansion comes mainly from an access, not an underlying product perspective. Investors can now access actively managed balanced portfolios that combine equities, bonds, property, cash and offshore exposure through securities that are listed on the JSE.
The result is a more dynamic, transparent and accessible way to invest in diversified strategies that were previously only available through CISs[8]. This is the first time that genuinely active, multi-asset management has been directly accessible via the JSE.
The launch of Regulation 28-compliant balanced AM-ETFs is particularly useful to advisors. Investors can now purchase a Regulation 28-compliant balanced ETF on the JSE, just as they would any other share – with real-time pricing, daily transparency and intraday tradability.
According to the Prescient Management Company, one area of anticipated growth for active ETFs is funds offering enhanced income returns, allowing cash that is part of a share portfolio to be invested in an actively managed income ETF, earning a higher income yield for the investor[9].
Global feeder AM-ETFs allow South African investors to access offshore active strategies within the familiar investment environment of the JSE, without the need for separate, direct offshore account structures. Local investors face currency volatility and domestic growth constraints so having access to internationally priced ETFs can provide them with exposure to global earnings streams, while remaining within a familiar regulatory framework[10].
Conclusion
The introduction of the AM-ETF represents less of a product innovation, but rather a shift in the South African investment industry with regards to the relationship between active management, liquidity, transparency and accessibility. By combining the portfolio-management discretion of a skilled fund manager with the real-time trading and disclosure requirements of a listed security, AM-ETFs provide a very relevant new investment solution in the local investment product landscape.
So, the answer is that these instruments represent more a case of “new bottles” than “new wine”. However, they deserve attention from investors, advisors (and retirement fund trustees). They should be seen as complements for unit trusts or passive ETFs – as a meaningful addition to an increasingly sophisticated investment toolkit.
As more products come to market and the regulatory environment continues to mature, AM-ETFs may well become an integral bridge between traditional active funds and the more transparent, liquid and cheaper world of exchange-traded investing.
[1] The specific index facts that each ETF follows is detailed in their documentation. An excellent resource covering the range of Exchange Traded Products in South Africa for investors and advisors is provided by ETFSA (https://etfsa.co.za).
[2] BlackRock (2025), “Decoding active ETFs”. https://www.blackrock.com/
gls-download/literature/market-commentary/decoding-active-etfs-ca-en.pdf.
[4] https://allafrica.com/stories/202602200493.html
[5] https://satrix.co.za/news/article?name=ETFs_and_Unit_Trusts
[6] [8] https://www.moneymarketing.co.za/the-rise-of-balanced-actively-managed-etfs-in-south-africa/
[7] https://www.landingpro.co.za/unit-trust-vs-etf-which-investment-is-better/
[9] https://etfexpress.com/2025/04/14/steady-growth-for-south-africas-
thriving-etf-market/
[10] https://www.moonstone.co.za/ninety-one-to-list-two-actively-
managed-etfs-on-the-jse/
