Abstract
Exchange-Traded Funds have emerged as a new investment vehicle in the South African investment industry, with the ability to trade the whole market through a single transaction executed on the stock exchange. This empirical study seeks to compare the risk-adjusted performance of portfolios consisting of Exchange-Traded Funds (ETFs) with that of the FTSE/JSE AllShare Index (ALSI) and the South African Multi-Asset Sectors (Low Equity, Medium Equity & High Equity). The ETF-Core portfolios were constructed according to Modern Portfolio Theory (MPT) developed by Harry Markowitz in 1952. Risk-adjusted performance measurement ratios such as the Sharpe ratio, Treynor measure, Sortino ratio, Jensen’s Alpha and Information ratio are employed to assess the performance of ETF-Core portfolios relative to the market. Historical daily data for periods October 2012 to October 2017 was used for the analysis of returns and volatility and monthly data over the same period was used for core performance measurement ratios, descriptive statistics, correlation and positive and negative periods analysis. The study concludes that ETF-Core portfolios performed better than the ALSI and Sector on a risk-adjusted basis across all categories. These findings shed light on the question of whether investors should diversify their investments with ETF portfolios, according to MPT, to generate returns above those of the market.
M.Com. (Finance and Investment Management)