The world of finance is continually innovating – creating, adjusting and improving products to cater for the changing needs of investors.

The AMC (actively managed certificate) is a case in point. An AMC is a non interest-paying instrument that pays the investor the performance of a basket of securities that is actively managed by an independent portfolio manager according to a specific investment mandate. AMCs are not new products but are seeing a surge in popularity globally.

‘Investors are searching for a well-regulated, easily accessible, tradeable, cost-effective listed instrument that offers exposure to various underlying assets that might be traditionally difficult to come by for an individual, but which are managed according to an active investment strategy by an investment professional,’ says Adèle Hattingh, Manager of Primary Markets Business Development and Exchange Traded Products at the JSE.

‘Investors therefore rely on professionals and not themselves to manage this strategy, while gaining the benefit of convenience and expertise in a listed product. AMCs allow investors to introduce or enhance an active investment strategy to their investment portfolio,’ she says.

Yet why have AMCs become so popular within the financial industry (six were listed on the JSE in September)? ‘AMCs are listed and traded on the JSE on a daily basis and have liquidity providers that facilitate liquidity. An investor therefore has daily visibility of the AMC’s price and, therefore, its value.Also, it allows an investor to enter or exit his/ her investment position throughout the trading day,’ says Hattingh.

‘In addition, the portfolio being referenced by the AMC can often hold assets that might be traditionally difficult or costly to access on its own. The listed nature of AMCs allows for intraday trading and T+3 settlement. In addition, the client liability management through underlying client record-keeping provided by the Central Securities Depository – Strate – is another benefit that a listed instrument on a regulated exchange such as the JSE offers.

‘As AMCs are not funds, they are not bound by fund-specific regulatory requirements and many of the costs associated with establishing a fund. This includes having more flexibility in terms of portfolio construction, while still adhering to the JSE’s listing requirements.’

Another plus is that AMCs are comprehensively regulated. ‘The JSE has limited the universe of permissible AMC issuers to banks or bank holding companies guaranteed by a bank. The issuer is required to publish a monthly fact sheet, must publish an end-of-day reference portfolio value [RPV] and the publication of an intraday RPV [iRPV] three times a day at predetermined times or portfolio composition file,’ says Hattingh.

‘If the iRPV is published and the underlying portfolio is not published, there are conditions under which the publication of the iRPV will be halted. This must include disclosure that the publication of the iRPV will be halted if 10% of the listed underlying portfolio’s pricing is no longer continuously available on an actively traded public market.

‘The issuer is also required to publish the investment universe of eligible securities, an applicable benchmark for the performance of the portfolio and also the investment theme and applicable sectors that the portfolio will invest in. The issuer must also publish a SENS when any change is made in the bid offer spread, when the liquidity provider is the issuer,’ she says.

‘The portfolio manager responsible for the reference portfolio manager is also a regulated entity, i.e. a Cat 2 FSP, JSE investment services provider or the foreign manager equivalent. In addition, all transactions on the JSE are performed by JSE member firms which are also regulated by the JSE. Investors, liquidity providers and other entities are all required to trade via a member firm on the JSE.’

By Patrick Farrell
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