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The lowdown on SIH’s takeover of Absa’s investment businesses

SIMON BROWN: I’m chatting now with Nerina Visser from etfSA. Nerina, good morning, I appreciate the early morning time.

A huge deal last week – Sanlam Investment Holdings buying Absa’s investment businesses. Lots of talk around it. Perhaps buried a little bit deeper in the statement, which got less attention, this includes Satrix overtaking a fair bunch of Absa ETFs, [but] not the ETNs, not their commodities. I suppose the first question – I hold the Momentum Absa ETF – is that this shouldn’t be stressful. This should just be a fairly simple process, which is expected to conclude sometime around the second quarter of next year.

NERINA VISSER: Correct. good morning, Simon. Yes. it’s certainly not stressful for the investor. I think quite a bit of work is required for Satrix, in particular, in taking this over. Lots of regulatory hurdles and hoops to jump through. So I think the team is going to be quite busy between now and that second quarter. But yes, for the investor really there should be nothing to be concerned about. You mentioned the Momentum ETF. It obviously depends which specific ETF you’re in. Well, not what the investor is in.

But the specific ETF will depend on what will Satrix do with it. How will they convert this? Are they going to keep it, are they going to close it down, are they going to change it? So it’s quite a mixed bag when you look at the 15 ETFs that are part of this transaction. Yes, I think we’re going to see some different strategies around these different ETFs.

SIMON BROWN: There is some overlap. Momentum there – they both have a Momentum. I’m the nerd here, and I preferred the Absa methodology – but that’s a duplication. And in that case the Absa one is way bigger. There are also local government bonds, there are inflation bonds. Could we see some merging?

NERINA VISSER: Simon, let’s just think about the regulatory aspect of this. If you make any change to a unit trust, the collective investment scheme – and these ETFs are all CISes – there are very few changes that can be made without approval by the investor, so [there is] a balloting process. Just about the only thing you can change without approval would be a name change. So if it is just a straight conversion or a renaming of an existing one that Absa has and that Satrix then rebrands, no problem with that.

But the minute you want to merge, the minute you want to change the underlying index, the minute you want to change anything in terms of the methodology around those indices, that all requires balloting. That’s why I’m saying that certainly the Satrix team is going to be very busy.

You mentioned the Momentum one, but the Govi one, the government bond one, is I think a really interesting one because that’s by far the biggest of the Absa ETFs being taken over at just under R3 billion [worth of] assets under management. That’s more than half of this transaction because this transaction is less than R5 billion that we are talking about. But that government bond one is a big one and one which is being used a lot.

So in the case of the Absa one and the Satrix one, yes, those two offer you exactly the same at the moment, so it would make sense to merge them. But it’s not just a case of ‘let’s merge and let’s get on with it’. It is going to require a balloting process.

SIMON BROWN: Okay. So there will be some process and some voting, and that is not a difficult process. In the past sometimes it’s a bit slow because of regulation.

From an investor perspective, as you mentioned, it’s not a problem; but from an industry perspective it’s sad to see a player exit. Absa’s keeping NewGold there, keeping their commodities, their ETNs. They’ve got those currency ones as well, the NewWave. But sad to see an issuer in a sense exiting.

NERINA VISSER: Yes. Certainly sad, but I think this sort of consolidation often is good, although one doesn’t normally expect to see this type of consolidation among the two largest players. Absa for a very long time, because of those commodity ETFs, was the largest ETF issuer, Satrix of course being the most prolific and the longest-standing one. Sygnia is are also right up there in the mix.

But we did see earlier this year that Satrix overtook both Sygnia and Absa to now be solidly the largest one, and this transaction clearly will put them very much in the lead as far as that is concerned. But at the end of the day the Absa ETFs have always been dominated by those commodity ones – almost R25 billion. That’s quite a bit less at the moment than it used to be for those commodity ETFs. So the R5 billion for these 15 equity and bond-based ETFs, [is] a lot smaller and, and actually [there’s] very little overlap between Satrix and Absa.

From that perspective I don’t think we’re going to be losing all that much. I do think that, because this transaction for Absa has been a long time coming, you haven’t really seen much activity from the Absa ETF team around marketing these, promoting these, maybe looking at some of their methodology and so on. From that perspective I think it’s a great development.

One thing I think is going to be really interesting to see is what they do with it. Are those two Mapps ETFs the only multi-asset balanced fund ETFs that we’ve got? Satrix is a huge player in the multi-asset index tracking space in South Africa – great vehicles for them to actually translate some of those Balanced Fund assets that they manage into an ETF form, and something which I think is really missing within the ETF space.

So that alone, I think, is going to be very interesting and provide a great positive contribution to the ETF industry in South Africa.

SIMON BROWN: You make a great point. Those Mapps – the Mapps protect, the Mapps growth [is] great. They’ve got equity and they got some cash and some bonds in there at the same time. I take your point, in essence we are left with Absa. They’ve kind of become the commodity-specialist house.

We’ll leave it there, Nerina Visser from etfSA, I appreciate the early morning.

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