Comparative performance of

Abstract

Exchange traded funds have generated a great deal of interest in markets where they have been introduced including in the South African investment market. In South Africa exchange traded funds are still relatively new and the range available is fairly narrow, however their popularity is growing at a fast rate. Since the introduction of exchange traded funds in South Africa, starting with the listing of the Satrix40 in November 2000, exchange traded funds have emerged as a viable investment alternative to unit trust funds. Given that exchange traded funds are available at low cost, and that they are likely to outperform active funds of similar risk, the question is: would an investor be better off investing in an exchange traded fund than in a unit trust portfolio. The purpose of this research was to compare the performance of an aggregate domestic general equity unit trust fund, to that of the Satrix40, an exchange traded fund, and to determine if an investor would have been better off investing with the aggregate general equity unit trust manager or in the Satrix40. Results from the comparative study of performance indicate that, after costs, the cumulative average abnormal returns of the Satrix40 are significantly more than those for an aggregate general equity unit trust portfolio. This suggests that an investor would have been better off investing with the Satrix40.