 Hey guys, it's MJ the students actually and in this video I want to look at exchange traded funds and the difference that they have with exchange traded derivatives I'm also going to look at over-the-counter derivatives But what I thought of instead of doing it like a lecture where I just show you the theory I thought let's actually go to the web page and let's actually see what these things are So remember in the last video we spoke about indices and benchmarks Well an exchange traded fund is a listed security. So it's on the Johannesburg stock exchange or on your stock market Which acts just like a portfolio and it's based completely on the index So what you have is let's say the Satrix 40. This is quite a popular one What this one is it's they say we're gonna invest your money According to the index on the top 40 shares So if we see here, this is all the little information over here You can see they've got 15% of the funding NASPAS 13% in South African breweries. That's like the beer company BHT in Billington British American tobacco, you know, they've they've allocated it according to market cap and We can actually see, you know, how they've been split up and all those type of things Surprisingly, they have been doing quite bad badly I mean after a year you would have lost 5% which is not good You can see in the long run, they do make nice money But yeah lately there has been some turmoil in the market But what this exchange trader fund is doing is instead of you going to the stock market and saying I actually don't know which share I want to buy Instead of you going and buying each of the top 40 shares in a direct proportion and trying to do, you know 40 of these various trades and doing the calculations You just give your money to the Satrix top 40 and they've created this thing known as an exchange traded fund Which acts like a share that controls other shares So it's a really great way for someone who's not say a savvy investor to just get total exposure on the market What is quite interesting though is Remember in the previous video we did look at equally weighted Indices and I see that there's this company called grid rod bank Which I've actually never heard of has actually made a top 40 equally weighted ETF which is quite yeah quite exciting Funnily enough it has done even worse So despite there being studies done that show that these funds perform better When we actually look at the real information We're seeing that they've been performing quite badly. I mean check that minus 11% that is huge but very interesting to see how the sector breakdown changes between the equally weighted one and This one over here. This is our Satrix top 40 So look how the financials make just a small little chunk there But now when we equally weighted there's quite a lot of financial companies so each of them will take an equal chunk look how much financials jumps up like that and This is interesting because which one actually looks more diversified This one the one that is weighted by market cap Appears to be more diversified Then the one that is equally weighted which again goes against You know conventional thinking and one of the reasons for creating these exchange traded funds And this is the lovely thing about finance is you can learn something, you know This is this is orange But then you go look at it in the real world and you see no, it's actually blue, you know It's a direct contradiction of the notes So that's what's always important when studying finance to look at the actual stuff going on because Yeah, this is supposed to be more diversified but looking at that little thing over there You're less diversified by sector. You will be more diversified by Individuals so here we see Naspers holding 15 percent where on this one here I mean each person only has 2% but you see now there's standard bank. There's net bank. There's all the financial guys Get incorporated there. Anyway, let's uh, let's close these things What else should we should we check out there's the satrix swicks swicks, I think that's how you pronounce it now this one is It's been so the top 40 is by market cap This one is the shareholder weighted so some shares have been allocated to strategic holdings Which means they're not available for the public to trance Transact on so what the swicks does it only uses The shares that the public can purchase so it's quite interesting to see how how it's a little bit different Um, funny enough, it still does just as badly in the short term and I mean that does look kind of Similar do we still have which one is this one? Yeah, this is equally weighted one So the swicks is quite a quite an interesting one They love asking exam questions about this because like I said most textbooks Talk about the all share or the top 40 the swicks is a South African one So when studying for the exams know that But let's maybe talk about the rest of the world. Let's see how America is doing because I know a majority of my viewers are from the US So let's go and check how how your guys ETF is doing Probably much better than us. So this is a South African product that just has exposure to the American shares So if you want to invest in Apple and Microsoft at Johnson and Johnson General Electric and you know all the big companies in the world then you might be interested in this type of fund How have they been performing? They've been performing better than us. Look, I mean only minus one percent. I mean we were after when you were minus five percent So the American stock market has been doing well, although, yeah, these last three months have not been good to us Let's see another country. What other country should we check out? Should we check out the world? Let's see how the world's doing. How so this is if you're like, I want you have Like as much diversification as possible. I want to get a lot of exposure I think they will have a big job. I was just going to say Apple. I mean this is the world and Look at the American. Yeah, this the American one So look at the top holdings of the American one Apple X on Microsoft Johnson and Then the world has Apple Microsoft Johnson Johnson's basically got the same Top guys, although they do have smaller percentages. So the top five make up 5.9 percent We hear you've got 10 percent So you're getting more diversification. I wish they would break up the sector not just say foreign I mean can't really draw much information from that Although look at the world. The world hasn't been doing that great either. Hey So so far it looks like America. So I'm jumping around a lot is the best, but let's let's maybe look at Let's look at another country. Should we check out? Let's check out the UK their whole little Brexit thing. Let's see if people overreacted and Let's see. So HSBC that is a bank. Oh look is a British American tobacco Which is also in the South African stock exchange Is one of their top companies? Royal Dutch BP Glaxo. Okay, let's check how they do. Oh That's terrible minus 13 percent So it's weird people put their money into these exchange-traded funds because they think you know This is how it's an easy way to make an investment and make lots of money But if you put your money in these things, especially this year, you will be crying So that's Britain not doing too well. Let's see. We'll see Japan and then we will see Europe So this is Japan Japan's top shares are Toyota Softbank also tobacco look look at tobacco Which is interesting because a lot of there's becoming a lot of these new funds called tobacco free investments because people believe it is Morally wrong to invest in a tobacco company Which is going to be very interesting because they can't buy these these shares. Oh look how well Japan's been doing Japan's been doing very nicely. Oh, that's that's very cool So yeah, all done to Japan. Let's let me just clear some of these at the top Okay, let's check out Europe. What do we think Europe's gonna do? I think they're probably gonna do badly But I haven't seen these yet. So let's see Okay, the top shares in Europe is total which I think is the petrol company These guys I'm not even trying to pronounce them, but they're beer. They also buying S.A. Buries That's a medicine company. That's a technology company. I Don't know that one. You know who that is. Please. Let me know in the comment section below Yeah, you're doing terribly Well, they're not as bad as us, but you know, we're doing horrendously bad So, I mean, this is quite a fun place to come you can check out how how everyone's doing. Let's check out property So property is an interesting one Do we think it's gone up or do we think it's gone down? Let's check So this is South African property. So I'm just just letting you know growth point is one of our big ones High proper remember looking at those. Let's see how they've done Mmm, not so bad. What's a bad? That's that's concerning. So yeah, we're still the greatest company in the greatest country in the world Despite us not doing too too well in the equity markets at the moment I Mean green does that mean like it's only What like green companies, let's see how they doing they probably doing even worse Let's see. I'm not I'm not actually doing that bad the green companies. So I think these are the socially responsible ones Yeah, I don't know that's a bit of a strange one. I don't know this This core share you know that anyway, let's look at One more which one should we look at So APSA is a big bank in South Africa. It's got like a partnership going worth Barclays So we can see they offer quite a few interesting ones Let's look at the the Gavi so this is an index on South African government bonds So let's say you wanted you're like equities are doing bad. How have the bond market been doing? So you can see here a hundred percent in South African bonds. Okay, do they do better or worse than equities and Look at that. Look at that. The bond market is doing better than the equity markets That's very interesting fascinating stuff that Yeah, that is wow, so maybe no, I'm not letting you financially vast So that that is an interesting thing to see I Don't know what maps means. Oh, so you can sometimes get growth Shares and value shares. Let's actually see which one's better. Okay. Who do you think is better growth or protect? Growth or protect. Let's check. Okay. So this is the growth portfolio. So the growth portfolio Has done. Oh Quite badly. Let's check it compared to the protect portfolio. This is the perfect body Yeah, protect portfolio. They've probably done better in these bad market climates. Let's check Minus 2% minus 1% Yeah, minus 3-5. Yeah, so the market has rewarded the the people who have taken like the less volatile Assets, which is quite a it's interesting. It tells you quite a bit about the market environment and What's going on and stuff like that? Let's see what else we can check out The mid cap that's quite a fun one. So these are the companies that aren't you know, aren't your large cap They aren't your big Businesses in South Africa. These are like more the middle guys. There's less liquidity in this market more volatility. So what do we think? I'm thinking they went down. I don't know. Let's see. Let's see Yeah, they went down but not as bad as the large cap. So that is quite interesting got quite a nice diversification of Sectors, although you're like very small in the telecom sector Okay, so sorry we supposed to be comparing exchange-traded funds To exchange-traded derivatives So, I mean one of the things that you can see about the exchange-traded funds is you don't have a lot of choices You know, you kind of have I mean it fits on a page Those are and a lot of these are like the same the top 40 Top 50 and then Satrix also got the top 40. They've also got the top 40 So a lot of them are actually up the same thing so You don't have a lot of options when it comes to your exchange-traded funds We see that they do sometimes have high concentration a low amount of constituents Which means they get quite a low spread the nice thing about them is that there is no need for Active management once you buy these things they just keep running like a normal portfolio You know dividends are received the derivatives that they have are rolled upon Like said behaves like a portfolio. It's very tradable. You can buy you can sell quite easily They are similar to exchange-traded derivatives Okay, but where these things are actually buying the physical shares an exchange-traded derivative is more synthetic It's giving you just the exposure to the price without actually purchasing it Which means it doesn't cause market movements, although you could actually maybe argue that it does but not to such a great extent as buying it Exchange-traded derivatives still have that good governance structure I mean, so you will have comfort and security as an investor because they are Exchange-traded so the JSE takes care of you. There's things like margining to reduce credit risk and trade guarantees So it is a safe way to put your money There is lots of liquidity lots of people buying these things especially with the popular contracts But they do lack flexibility. So they will also have there'll be limited exchange-traded derivatives Which means there actually is a third thing that you can do You can do an over-the-counter derivative. So I don't know if you guys have watched this movie the big shot He's talking about the world recession and all these other things this character over here. I forget his name He goes to the banks. Okay, so not to the exchange He goes to the banks and he creates an over-the-counter derivative Okay, this gives him great flexibility in the sense that he can get the exposure to the mortgage-backed securities and He can tailor the the contract to to suit his needs So he could have the custom index custom constituents a custom terms The problem though is buying this type of derivative does give him exposure to counter-party risk If he had bought it with say Lehman Brothers and Lehman Brothers goes bang Then tough like he actually doesn't get the money even though he makes the right call So there is that additional risk with going over-the-counter Because a bank can fail where the JSE can also fail, but they're more protected and they've got more You know stuff going on, but one of the biggest risks worth over-the-counter derivatives is if you make a mistake Okay, and you want to get out of that position. I don't know if you guys saw the movie You know his partners were telling him get out get out. You've you've made the wrong thing You know liquidate the position He actually couldn't because well he could but it would have been very very expensive to try and Switch that contract around by taking the opposite one out he would have drowned himself in fees and So it would be very very expensive to unwind an over-the-counter derivative before it's due Exchange rate of funds if you make a mistake you just take out a counter thing and you can quickly switch out Over-the-counter does not give you that liquidity. So it is quite an interesting Decision and you have to think about what are your needs before determining whether we should go to an exchange traded derivative Over-the-counter derivative or an exchange traded fund But anyway, I'll put the link to this this little website below and you guys feel free to come check it out and You know click on the low volatility one. Maybe should we do that? Let's look at one more Let's look at the low volatility one. This one should perform better than the other ones given the bad Situation. Oh, no, they didn't never mind So anyway, I'll let you guys come to this website and play around with it These are the South African exchange trader funds If you're in America, you will have a more sophisticated market You will have more options and things like that But what is cool about these things is that it does give South Africans a way to purchase into the world Although they are being offered by Deutsche Bank who are in trouble at the moment Currently facing like a 14 billion dollar fund or something huge like that Funnily enough relating to the events that what's happening in this movie So if you want to study break and you want to still study while you're relaxing go watch this movie It's a must-see for all you want to be actually up there But anyway, thanks guys so much for watching and I'll see you guys next time with another video. Cheers