ETFs offer hope for South Africa’s savings crisis, according to report

South Africa’s poor savings culture remains one of the country’s most pressing financial challenges, according to Prescient Fund Services.

The group has released its inaugural (Exchange-Traded Funds) ETF Evolution Report, offering insights into the state and future of the South African ETF market

The report says that with only 6% of South Africans expected to afford retirement, according to the National Treasury, and household savings sitting at a negative 1.20% as reported by StatsSA, the reality is stark: many households are spending more than they earn.

This crisis is driven by a combination of factors, including limited financial education, widespread distrust in complex financial products, and a financial ecosystem that often rewards product sales over consumer outcomes. The result is a population largely excluded from long-term wealth creation and retirement security, the report reveals.

According to the report, while this savings shortfall reflects broader economic pressures beyond individual discipline, it also signals the urgent need for investment solutions that are transparent, inclusive, and easy to understand. ETFs offer a promising pathway to address this gap. By democratising access to investments, ETFs can empower South Africans, especially those without large sums of capital or access to traditional financial advice, to begin building wealth in a meaningful way.

Niki Giles, head of strategy at Prescient Fund Services, believes the local ETF market is well-positioned to meet this need. “South Africa’s ETF industry is vibrant, innovative, and drawing attention from both local and international investment managers. With a growing appetite for diversified investment vehicles and a regulatory environment that supports some offshore exposure, the country offers a potentially compelling value proposition for those looking to list ETFs.”

Kim Gibb, chief executive officer of Prescient Management Company, adds: “If you think ETFs are just low-cost tools to mirror the market, it’s time to think again.”

She notes that while many South African investors and wealth managers view ETFs as simple, affordable ways to track indices like the JSE Top 40, this perception has both helped and hindered the industry. On the one hand, it has driven adoption by offering broad market exposure at lower costs than traditional funds. On the other hand, it has a limited understanding of the full potential of ETFs, with many advisers struggling to communicate their evolving benefits.

The report found that the South African ETF landscape is transforming, with actively managed ETFs (AMETFs) introducing more sophisticated strategies. These instruments offer greater flexibility, transparency, and the potential to outperform traditional benchmarks. Since the JSE allowed AMETFs to be listed in 2022, 29 have already come to market, many focused on offshore investing.

Historically, the report says, ETFs in South Africa have been synonymous with passive index-tracking. That’s no longer the case. The emergence of AMETFs has expanded the toolkit for investors who want to do more than simply follow the market; they want to navigate it strategically.

However, several misconceptions persist, the report says. According to the report, the first is that ETFs are always cheaper. While index-tracking ETFs are generally low-cost, AMETFs involve active management, research, and oversight, which can result in fees similar to traditional unit trusts. That said, they offer added transparency and trading flexibility.

Another myth is that ETFs are harder to manage. Some investment managers believe launching an ETF, especially an active one, is operationally complex. In reality, the core investment process remains the same. With the right partner handling logistics and compliance, managers can focus on strategy.

It says there’s also a belief that ETFs and unit trusts can’t coexist. In truth, both play important roles. Unit trusts remain vital within certain institutional mandates and traditional LISP platforms, where ETFs aren’t yet fully integrated. But thanks to platforms like EasyEquities, ETFSA, and various banking apps, ETFs, including AMETFs, are already widely accessible to retail investors.

The idea that all ETFs are passive index trackers is another misconception. AMETFs allow investors to pursue outperformance and offer downside protection, making them more strategic than purely passive products. They provide active opportunities and fund structures aligned with traditional unit trusts. Lastly, the notion that ETFs are only suitable for broad market exposure is outdated. Actively managed and thematic ETFs can target specific sectors, regions, or strategies, making them highly versatile tools within a portfolio.

Looking ahead, the report says ETFs, especially AMETFs, are poised to play a critical role in reshaping South Africa’s investment landscape. By offering accessible, transparent, and strategic options, they can help reverse the country’s poor savings trajectory and unlock long-term financial resilience for a broader base of South Africans.

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