Investment Education through Exchange Traded Products (ETPs)

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2 A K A S I I N I T I A T I V E S I N N O V A T I O N I N P A R T N E R S H I P W I T H E T F S A Investment Education through Exchange Traded Products (ETPs) Kasi Initiatives 109 River Bushwillow Estate Van Dalen Road Ruimsig Johannesburg, SA 1742 Phone (+27) Fax (+27)

3 Table of Contents ENRICHING LIVES IN TOWNSHIPS THROUGH EXCHANGE TRADED PRODUCTS (ETPs)... 2 OUR INITIATIVE Kasi Investment Club Umbrella (KICU)... 4 WHAT IS KICU?... 4 WHAT ARE EXCHANGE TRADED PRODUCTS (ETPs)?... 5 How can ETPs benefit our investment Club / Stokvel?... 6 Are ETPs cost effective?... 6 Are ETPs easily tradable?... 6 Are ETPs transparent?... 6 Do ETPs pay dividends?... 6 What fees do I pay for ETPs?... 6 Do clubs/stokvels or individuals have ownership of their ETPs?... 7 Are ETPs regulated?... 7 Are ETFs taxes efficient?... 7 ETPs in General... 7 Make up of ETPs... 8 Building an ETP Portfolio WHAT ARE THE BENEFITS OF AFFILIATING WITH KASI INVESTMENT CLUB UMBRELLA (KICU)? WHAT IS REQUIRED TO SETUP AN INVESTMENT CLUB? KICU ACHIEVEMENT TO DATE OTHER CONTACT DETAILS... 13

4 ENRICHING LIVES IN TOWNSHIPS THROUGH EXCHANGE TRADED PRODUCTS (ETPs) Enriching lives in townships through Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs), collectively called Exchange Traded Products (ETPs), is a Kasi Initiatives Innovation via its Kasi Investment Club Umbrella (KICU). Kasi Initiatives is a vigorous and pioneering company which is 100% black owned. We offer unique services that drives measurable business improvement, focusing on accelerating economic development and enriching communities (townships aka kasi) through differently thought sustainable innovative initiatives. Townships are almost synonymous with poverty and in addressing the complex issues of poverty in South African townships; a shift in mindset is required. As such, we as Kasi Initiatives have taken a leading role in starting this mindset shift by introducing sustainable innovative initiatives to people living in townships. Investment education is the focus, specifically in demystifying the Johannesburg Stock Exchange (JSE) and introducing township masses to Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs), collectively called Exchange Traded Products (ETPs). Both ETFs and ETNs are an easy vehicle to access the JSE and own blue chip shares, hence our choice. Reasons for focusing on investment education are best expressed by the following: the JSE Magazine; Compared to Australia, where almost half of all trading is conducted by the country s 5.7 million individual investors (27% of the population), only South Africans (0.4% of the population) invest directly in the stock market and also enhancing long term saving culture through massive education drive on financial management and literacy and innovation in simple savings products for the low income groups as well as the middle income groups which are key requirements in boosting consumer confidence (Bertha Chiroro, 2010) Majority of the people in South Africa lack financial literacy and believe that investing is only for the sophisticated or wealthy especially in the townships. The initiative between JSE Investment Education Project (Jiep) and the Department of Education aim at growing the economy through financial knowledge and demystify the investment myth, mainly focused on young learners and tertiary students. Our initiative focuses on low and middle income groups, with an objective of translating the newly taught financial literacy into investment via Exchange Traded Products (ETPs). In townships, one word that is associated with savings is stokvels. Stokvels are clubs or syndicates serving as rotating credit unions in townships where members contribute fixed sums of money to a central fund on a weekly, fortnightly or monthly basis. Each month a different member receives the money in the fund, which was collected during that period, with no one ever defaulting on contributions. The members can then use the collected fund for their own use, either for payment or investment purposes. These stokvels have been a target by various investment houses in South Africa such as First National 2

5 Bank (Which launched an account aimed at Stokvels), hoping to bring these informal saving schemes into the main stream financial world and use these saving effectively (estimated R44 Billion is generated by these stokvels annually). This being the case, the stokvels are still very much a part of black communities in the townships and will probably remain so for a number of years to come. In most cases people support what they know and hence people in townships support stokvels and the reason that these clubs are so successful also centers on the social aspects surrounding these clubs - for example Stokvel rotating hosts organise lunches on Sunday afternoons, where they are able to share food, laughter and many more with family and friends (members of the stokvel). Now, introducing investment education to these clubs / Stokvels, thereby demystifying investment myths can only mean one thing, successful savings and investment through exchange traded products (ETPs), resulting in better returns than what the bank can sometimes offer but not forgetting to responsibly highlight the low risks associated with these kinds of investments. With this initiative Kasi Investment Club Umbrella (KICU) was born (A Kasi Initiatives Innovation), this club is aimed at bringing together clubs and individuals interested in learning about investments, share investment experiences and help people in becoming more successful investors. But this initiative required partnership efforts that will see South Africa s individuals and corporate sector becoming active participants in forming public-private partnerships to address issues such as the need for saving and investing for the future. Having realised the importance of having strategic partners for this intiative to be successful, We as Kasi Initiatives have partnered with etfsa ( a home for Exchange Traded Products and it is an internet based information and transaction website that provides simple and efficient solutions for investors wishing to discover, understand, manage and profit from the world of Exchange Traded Funds. We aim to convert the investment education into an investment in exchange traded products (ETPs), giving ordinary people (most from the bottom of the pyramid) access to the blue chip shares in the stock exchange via ETFs or ETNs. The second phase of the initiative, Kasi Initiatives aims to form partneship with the Johannesburg Stock Exchange (JSE). The JSE has been involved in investment education for a longer period. This partnership will see a better package investment education portfolio which will strive to turn townships into economic hubs. This holistic approach will add great value for all stakeholders, the clients will gain better understanding on savings and investments, better returns on their investment as oppose to normal endowment plans or bank savings options. The administrators via this initiative will create employment as they ensure client satisfaction all times and etfsa and JSE will see the education turn into business via exchange traded products. The above workings can only mean success for everyone partaking in this innovative initiative. Kasi initiative will be pursuing partnership with government entities that could help advance this innovative initiative further. 3

6 OUR INITIATIVE Kasi Investment Club Umbrella (KICU) This is a Kasi Initiative innovation aimed at creating a platform to provide avenues for sound investment information, education and support that could help non investor clubs (stokvels) or individuals to become informed, confident and knowledgeable about the Exchange Traded Products (ETPs). KICU provides a variety of services and tools to address the problems and questions one may face as an investor. We cannot tell you what investments to make, but we can help you to invest wisely and to understand risks associated with these investments. WHAT IS KICU? KICU is an acronym for Kasi Investment Club Umbrella; it is aimed at bringing together like minded people, it can be individuals or people belonging to different investment clubs such as stokvels interested to learn more about investment and savings. KICU provides tools, advice and resources to support the member clubs to achieve financial freedom and ensure the money they work hard for, works hard for them in return. KICU provides an excellent opportunity for its member clubs/individuals to stay focused, gain experience and accelerate investment learning to share the load and pool their knowledge to learn more, with less time and effort than they can on their own. Social interaction with like-minded members also adds an important and enjoyable dimension to the club experience via seminars organised by KICU and its partners. New investor clubs find that KICU provides a safe and supportive environment to learn the basics of investing and risks, while experienced investor clubs gain an opportunity to sharpen their investment skills. All club members benefit in learning from other clubs, added buying power through a shared portfolio that enables clubs to invest and quickly build a diversified portfolio both in Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs). Among the numerous benefits of participating in KICU is the opportunity to gain knowledge. Many members come into KICU without any investment experience and no ability to choose etfs or etns, and within a year or two they are investing both on their own as individuals and through their clubs, Another advantage is the ability to build wealth a few rands at a time. In many clubs, members start out small, investing R300 to R1000 a month or more. As they become more confident, they begin contributing more and more as they diversify their portfolios. Many people join investment clubs to help them save. As KICU we help these clubs with guidance on how to set up these clubs and operate them efficiently. Investment clubs strongly reinforces a saving culture, because as a member you're expected to attend club meetings and contribute. In a world where communication too often is limited to ing, investment club participation is an opportunity to meet face-to-face regularly with people sharing like interests, friendships are a possibility in that sphere not like Facebook friends. 4

7 Some clubs/individuals take profits and use them to dine out or even go on a cruise vacation together or others such as stokvel clubs buy bulk groceries in December for sharing which minimizes the festive season spending. While others continue to make their money work for them by buying into properties and so forth WHAT ARE EXCHANGE TRADED PRODUCTS (ETPs)? ETPs are essentially 21 st century unit trusts that trade on the stock market. They offer a way to buy diverse portfolio of shares, and other investments such as bonds or commodities, in single affordable products. By owning an ETP, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. An Exchange Traded Product (ETP) is an investment vehicle which provides an investor with direct access to a basket of shares traded on stock exchanges such as the Johannesburg Stock Exchange (JSE) with the convenience of trading in a single security. Most ETPs track an index, such as the FTSE/JSE Top 40. ETPs are attractive as investments because of their low costs (Total Expense Ratio TER) and the ability to purchase them like a normal exchange listed security. An ETF combines the diversified portfolio of a unit trust investment with the tradability features of a listed security allowing it to be bought or sold at the end of each trading day at the market ruling price. ETPs are passive investments, i.e. they provide the average performance of the asset class or index being tracked and not active investments (which seek to outperform the index). Types of Exchange Traded Products (ETPs) There are two types of ETPs i.e. Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs). Exchange Traded Funds (ETFs) Typically track a basket (or index) of shares. The shares that replicate the index are physically held in a Trust (under the control of an independent Trustee) and ETF investor purchases a participatory investment in this portfolio (fund), which trades as an ETF on the JSE. ETFs are typically registered as Collective Investment Schemes (the same as unit trusts) and are regulated by the Financial Services Board (FSB) under the Collective Investment Schemes Act (CISCA). Exchange Traded Notes (ETNs) Typically provide access to assets that are less suitable to physically hold and store, such as commodities, currencies, etc. The issuer of the ETN is allowed to cover its liability to deliver performance through exposure to futures or forward contracts and does not have to hold such assets in physical form. The issuer of the ETN has the obligation to provide the total return (performance) of the asset being tracked. This obligation requires that the investor needs to take into account the credit worthiness (credit rating) of the issuer of the ETN. This is not necessary with an ETF. 5

8 How can ETPs benefit our investment Club / Stokvel? Buying a basket of shares (an ETP) is less risky than buying a single listed company share, as the diversification and spread of investments reduces the risk exposure. ETPs typically track an index of the most liquid shares on the stock market. Indices are regularly rebalanced by the Johannesburg Stock Exchange (JSE) to ensure that they reflect the most successful securities on the exchange. The return on these ETPs are far better than most of the products offered by other financial institutions, this will mean that the club/stokvel money is working hard for its members. Are ETPs cost effective? When you buy an ETP you only pay once for exposure to a basket of shares. If you bought this index basket yourself, via a stock broker, it would be more expensive, and you would pay brokerage charge and Securities Transaction Tax (STT) for each of the shares purchased. When you buy an ETP, you only pay brokerage charge once and there is no STT payable for ETP transactions. ETPs generally have lower costs than other investment products because most ETPs are not actively managed and the underlying portfolio of shares is not traded regularly. ETPs typically have lower marketing, distribution and administration expenses. Are ETPs easily tradable? Yes, you can buy or sell ETPs at any time on the JSE just like any other listed security. The JSE trading system facilitates buying and selling prices at all times and there are market makers to provide liquidity (prices) for large orders. Alternatively, investors can transact ETPs via etfsa.co.za where all orders are pooled and traded once a day. Are ETPs transparent? Being listed on the JSE means that prices are updated at frequent intervals and are available to investors throughout the trading day, and not just once a day like a unit trusts. The ETP issuer discloses the underlying portfolio of shares in the ETP fund on a daily basis. Do ETPs pay dividends? Yes, ETFs collect the dividends from all the companies in the index tracked and pay these dividends over to investors, normally four times a year at the end of each quarter. The accrued dividends in any ETF portfolio are published daily in the net asset value (NAV) figures by all ETF issuing companies. ETNs typically do not pay dividends. What fees do I pay for ETPs? EtfSA Investor Scheme TM has a brokerage charge of 0,1% of the amount invested for any ETF transaction executed on its platform. Stockbrokers have varying brokerage charges, depending on the size of the transaction and typically have a minimum brokerage charge (from R50 to R120 per trade) which is incurred on each trade or leg of a trade. Online brokers typically charge between 0,4% to 0,8% per transaction. Full service stockbrokers charge 1,0% and upwards. Stockbrokers typically charge a 6

9 custodian and administration fee which ranges from R50 per month up to R1000 per year. Buying ETFs direct from etfsa Investor Scheme TM incurs a maximum annual management charge of between 0,45% and 0.8% of the value of the investment. This includes administration, custodian charges and reporting to investors. If affiliated with Kasi Investment Club Umbrella (KICU), the fees range from R50 R600 per annum per club (the fee change depends on the number of club members). Do clubs/stokvels or individuals have ownership of their ETPs? Yes, every ETP security you own is registered in your name or club/stokvel name on the JSE/STRATE electronic share registers by etfsa Investor Scheme TM on a daily basis. Are ETPs regulated? Nearly all ETF issuers are registered Collective Investment Schemes and are regulated and controlled by the Financial Services Board (FSB). All ETFs are publicly listed securities and are also regulated by the JSE. ETNs are regulated by the JSE but are not Collective Investment Schemes. Are ETPs taxes efficient? SARS has ruled that this tax (0,25% of any purchase) does not have to be paid when transacting in ETPs. Exemption from STT for ETPs is a big saving, relative to transacting in the individual shares. Dividends paid out of ETFs are tax-free but if ETPs are sold at a profit, a capital gain tax of around 13% of the profit is payable. ETPs in General The increasing tendency for passively managed investment products, such as Exchange Traded Products (ETPs), to outperform actively managed unit trusts and mutual funds, is a global phenomenon, but appears to be also pertinent in South Africa. The reasons for the growing ascendency of passively managed funds include: The South African equity markets (and bond markets) are becoming increasingly narrow. For instance, 85% to 90% of all trade on the JSE occurs in the Top 40 shares. The Top 60 shares account for some 95% of all trades. You can buy the performance of these top shares through an index tracker, so the active manager has to look beyond the index constituent shares to find alternative value. Purchasing smaller companies can increase risk and volatility for the investment manager, without always providing superior performance. The larger shares in the main index are typically well researched and all information available on these companies is already in their share prices. In other words, the efficient market hypothesis exists for the key index shares. This again makes it difficult for the active manager to find undervalued shares, without taking on higher risk. Foreign investors are increasingly using ETPs, either South African Funds or Emerging Market Funds (in which South Africa has a 7% to 8% weighting), to gain exposure to the South African equity market. All of the above means that most investor demand is concentrated on the index constituent securities. This helps to explain why such shares typically perform better than other shares on the JSE, particularly when bundled together in index tracking ETPs. 7

10 Make up of ETPs The following tables describe the make-up and functionality of different Exchange Traded Products. (ETPS). 8

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13 Building an ETP Portfolio Now that an understanding of ETPs has been reached, a question of how to build an effective portfolio might arise. Remember, there are three steps to successfully building a portfolio with ETPs: One, determine the right allocation for you. Two, implement your strategy, and Three, monitor and assess your portfolio in the context of your situation. If you follow these steps, you should be able to build a portfolio of ETPs that meets its intended objective. See below how one can use ETPs to build a portfolio. Allocation should cover at least 5 areas i.e. Equities, Commodities, Bonds, Property and Cash 11

14 WHAT ARE THE BENEFITS OF AFFILIATING WITH KASI INVESTMENT CLUB UMBRELLA (KICU)? As an affiliate member club/stokvel: It means being part of a family of people who want to succeed and expand their investment knowledge in a friendly conducive environment. It means an opportunity to learn from others and networking opportunities for other opportunities that might not be ETP related. If the member club is not yet setup we will give guidance and help in starting up the club The member club application with etfsa will be processed on the club/stokvel behalf. The member club will receive regular feedback and update on ETP performances and products. The member club queries or questions with etfsa will be followed up directly with etfsa. The member club will be invited to regular session on ETPs and other investment products developments The member club investment execution instructions will be done with etfsa on behalf of the client. The member club will be invited to all affiliate member club/stokvels quarterly feedback functions. WHAT IS REQUIRED TO SETUP AN INVESTMENT CLUB? The FAIS Act allows for Investor Clubs/Stokvels to operate collective accounts through FSB approved administrators such as etfsa. We as KICU will help your club/stokvel setup the following required documentation: The club/stokvel founding document or constitution. Letter of authorisation which authorises a representative/authorised person to act on behalf of the club/stokvel, this authorisation letter should be signed by all members. A detailed register of all club/stokvel members, with members ID numbers, physical addresses and contact details. A club/stokvel bank account bearing the name of the club/stokvel. For the authorised person, FICA documents i.e. certified copy of ID and recent proof of residence For all your ETP needs, join Kasi Investment Club Umbrella (KICU), for building wealth one ETP at a time, You can join in as a collective (family, group of friends, stokvel, savings club, church, group of employees, and so forth) or you can join in as an individual. Investing in ETFs or ETNs from as little as R300 per month or from R1000 once-off lump sum amount investment through etfsa platform. We also offer an option of saving for predetermined saving term in buiding up for the lump sum investment, for example: if a club can only save R100 a month, we will save it on behalf of the club then on 11 months we do a lump sum investment on ETPs on behalf of the club. These predetermined savings terms will change in accordance with contribution of the club and will be setup accordingly. 12

15 KICU ACHIEVEMENT TO DATE With the minimum resources available to Kasi Initiatives, from inception in October 2011, Kasi Investment Club Umbrella (KICU) has managed to grow its membership steadily. One of the club s performances is show below, this is based on real data: INVESTMENT CLUB A Description Share Price on 31 March 2012 Share Price on 31 March 2013 % Return Zshares Govi R R % BettaBeta EWT 40 R R % SATRIX FINI R 9.47 R % SATRIX INDI R R % Proptrax Ten R R % Rand Value R 68, R 85, % Kasi Investment Club Umbrella (KICU) is currently in negotiation with various other social investment clubs, stokvels and individuals around the country to join the KICU in order to invest in Exchange Traded Products (ETPs) as well as meet new people and share experiences on how to invest and save for a better future for yourself and family. The membership is focused to grow faster in the period of 2013/14 with etfsa on board as advice partners. OTHER CONTACT DETAILS For more information on how to become an affiliate member club, do not hesitate to contact us on: Contact Name : Gladwin Mfolo Mike Brown Company : Kasi Initiatives etfsa Mobile : gmfolo@kasiinitiatives.com mikeb@etfsa.co.za Web : Also; Follow us Like us on: Kasi Initiatives Check our website at Disclaimer Kasi Investment Club Umbrella or Kasi Initiatives is not a registered financial services provider. The Exchange Traded Products (ETPs) contained herein are Collective Investment Schemes in Securities (CIS)and/or JSE listed securities which are generally medium to long-term investments that contain elements of risk and can be affected by market values, interest rates, exchange rates, volatility, dividend yields and issuer credit ratings. The price of ETPs can go up as well as down and past performance is not necessarily a guide to the future. The ETPs herein are listed on the Johannesburg Stock Exchange Limited and trading in ETP securities will incur trading and settlement costs. ETP securities are traded at ruling prices and can engage in scrip lending. The information and opinions provided herein are of a general nature and do not constitute investment advice.whilst every care has been taken, no representation, warranty or undertaking, expressed or implied, is given as to the accuracy or completeness thereof 13