Questions are being raised about the sustainability of South African exchange traded products (ETP), with some providers finding it harder to achieve enough investable funding.

In South Africa, there are as many as 70 ETPs with about R80bn ($6.71bn) under management, which include exchange traded funds (ETFs) and exchange trades notes (ETNs).

Johann Erasmus, Standard Bank’s Head of Global Markets Structuring, said: “Most of them are really small. You have to be very astute about what you do and how you go about it.”

“When you are talking about ETFs, the bulk of assets sit in six or seven funds. My rough estimation is if you have less than R500m in an ETF, you are losing money,” he said.

ETN is an unsecured debt note normally issued by a bank and an ETF fund holds the asset that it tracks.

Standard Bank Group offers Africa Equity Index ETN, Standard Bank Retail Notes as well as eight Commodity-Linker ETNs (gold, silver, platinum, palladium, corn, wheat, WTI oil and copper).

Erasmus said while the ETN has a downside in terms of a higher capital outlay up front, investors do not have to worry about leverage.

Erasmus said Standard Bank’s approach was to start exploring the market in 2010 by launching ETNs, where regulatory approval was fairly straightforward and costs not as high.

“We could learn about what works in the market,” he said.

The bank has also ventured into the ETF space, with three products across the palladium, gold and platinum commodity baskets.

“We were very targeted in our approach and by the end of last year our platinum and palladium funds had in excess of R8bn in assets under management in nine months – our palladium fund is the second biggest in the world already,” said Erasmus.

He expects the stellar growth in assets under management of ETPs to be sustained at close to the 20% mark: “I think it is quite plausible, as about R15bn was added last year.”

Erasmus said the market is attracting more investment than alternative fund types, but is “still small compared to money inflows to active managers”.