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Unless you've been living in a cave, you will almost certainly have heard the news about Tesla's meteoric rise in share price in the last year. Elon Musk is quite literally owning the electric car market like a boss right now and there truly doesn't seem to be any viable contenders snapping at his heels.
He reminds me of the crazy inventor dude from the Iron Man movies. He's clearly a brilliant mind and is not afraid to think big. He's also born in South Africa so that must make him a pretty good guy in my book.
If you'd bought one share of Tesla one year ago, it would have cost you around R960 / $60 / £46
If you sold it today, you'd get back around R9,600 / $600 / £460.
Yep, Tesla is what the experts call a tenbagger, it's share price has grown 10-fold in the last year.
Hindsight is 20/20 but anyone who is into personal finance could have spotted an opportunity to invest in Tesla last year and whilst you might not have expected a 1000% return, you would have though 12%+ would have been fairly safe if nothing massive went wrong (like say, a global pandemic).
So why didn't we all buy Tesla?
Because most of us couldn't. It is pretty difficult to buy individual US stocks for the average South African. It's possible, but you need money, you need to be able to send international payments, you need to do complicated forms and applications to companies outside of South Africa. It's not so easy.
EasyEquities does allow you to invest in Tesla and buy partial shares (so you don't need R9,600 / $600 / £460 just for one share) but that also means another share dealing account and a load more forms to fill out.
If only there was another way....well now there is:
Those clever chaps at FNB have created a whole bunch of ETNs (Exchange Traded Notes) in the most popular US stocks and launched them on the JSE.
What does this mean for me?
It means that anyone who has the ability to buy a share (using your bank or a stockbroker) can buy a share in Tesla's success today without changing provider or filling out more forms, and getting certified copies of selfies and the like.
And it's not just Tesla, the current list of FNB ETNs in US stock is:
Alphabet (Google)
Amazon
Apple
Coca Cola
Facebook
McDonalds
Microsoft
Netflix
Tesla
MSCI World Index
Now if that isn't all the cool kids in the playground, show me what is!
And the FNB boffins have been a little bit smarter still. They've listed 2 ETNs for each company. a Quanto & a Compo.
A who and a what? I hear you cry
This is pretty clever:
The Quanto version does not fluctuate with the R:$ exchange rate
The Compo version changes with the R:$ exchange rate
So why would you care about this?
Sometimes, the Rand is weak against the dollar which means if you buy a foreign share in Rands and the Rand strengthens, you lose money because you're effectively holding the share in dollars so the price goes down. If it weakens, the price goes up and you make money. This can mean sometimes you lose money even if the stock is going up, which is bad, very very bad.
By giving you the choice, you can invest any time and make your own decision on how the Rand is performing against the dollar. For example, I just bought a bunch of these ETNs and in my personal opinion (you can do your own homework at www.xe.com), I think the Rand is strong at the moment and is more likely to weaken at some point in the next year. I might be wrong but I'm willing to take the gamble so I bought all my ETNs in the Compo flavour so if I'm right, not only will I benefit from the stock going up, I'll benefit more if the rand weakens.
If it was the other way round and I thought the Rand was weak, I would have bought the Quanto flavour and that would have protected me from losses. It takes a bit of getting your head around but once you get it it's easy to understand.
So regular readers know I always out my money where my mouth is and I've decided to do a little experiment. I sold some of my Sygnia S&P500 ETF which has been doing pretty well and is showing a 24% return in the last 12 months which considering my target is 9.5% has me doing the happy dance at the moment. However, in the name of science, I sold R60,000 / $3,750 / £2,885 of that lovely investment and bought the following FNB ETNs:
Alphabet (Google) - R6,655 / $390 / £300 . - 614 Shares
Amazon - R6,647 / $390 / £300 - 731 Shares
Apple - R13,182 / $775 / £596 - 1,396 Shares
Facebook - R9,628/ $566 / £435 - 1,036 Shares
Microsoft - 6,654 / $390 / $300 - 708 Shares
Tesla - R6.650 / $390 / £300 - 498 Shares
Netflix - R9,635 / $566 / $436 - 1,072 Shares
I would like to tell you that I had some amazing analysis and insight into buying different amounts in certain stocks but the truth is I wasn't concentrating and bought Apple twice by accident and then hit 9 instead of 6 when I was buying Facebook. My SA stockbroker is so expensive it would have cost me a packet to fix it so I decided it must be fate and Apple and Facebook are going to be legendary in 2021. I do wonder how I make it through a day sometimes!
So time will tell if this was a dumb move or not but I intend to run this experiment for a year and see if owning these ETNs in single stocks in the biggest companies in the world is better than simply sticking with an S&P500 ETF which includes them anyway.
Some of you maybe wondering what the difference between an ETF and an ETN is. Well I'm no genius in the matter but my understanding is that an ETN is funded by it's creator (in this case FNB) so if FNB was to go bust (hopefully unlikely, but possible) you would lose all of your money in that ETN. Whereas an ETF is based on the value if it's underlying asset (e.g. Tesla as a company) so if Tesla goes bust you lose all of your money. I may be wrong but that is my understanding, ETNs are therefore a bit more risky than ETFs in my opinion and you should be aware who the issuer is and if they are financially stable.
What also makes these ETNs super interesting is that if you go with the Quanto (Fixed exchange rate version), there are no fees, zero, zip, nada, nil. So if you take a blend of the FAANG (Facebook, Apple,, Amazon, Netflix & Google) stocks you could replicate some pretty popular ETFs like the Sygnia FAANG Plus Equity Fund which charges 0.92% fees with a bit of homework. If you choose the Compo version and gamble on the exchange rate you do get charged a 1% "Tracking Error Margin" which I assume is to protect FNB from losing money and seems fair to me given that they give you a choice. I'm pretty confident that the rand will weaken more than 1% in the next year so I'm paying the fee.
The MSCI World option also has the old synapsis' firing as I own quite a bit of the Sygnia Itrix MSCI World ETF, which has treated me well but the fee is 0.69% which is on the higher end of my fee scale so the prospect of shifting all of that to an ETN at zero fees is highly attractive. I need to do a little more reading to understand the nuances of ETN vs. ETF to make sure I haven't missed anything but at a high level, it looks like an instant win. Over ten years, at a 12% return, removing that 0.69% fee increases my profits by 21%. I really like Sygnia but 21% is a chunk of change.
You may finally be wondering why I didn't buy Coke or Mickey D's. That is because I don't think Coke has much in the way of new tricks up its sleeve e.g. Coke isn't suddenly going to taste amazingly better next year and we're not suddenly going to start paying double for it so whilst I'm sure a long term investment in coke is a good one, I can't get that excited about it for this experiment. With regard to McDonalds, I just don't like them. I don't rate their product, I think their whole concept is tired and outdated and I think they have lost all memory of where they came from which was a Mom & Pop burger stand that produced great food quickly. In my opinion, they're a a massive property company now and I don't invest in property at the moment.
So let's see how it goes and if FNB have come up with a game changing opportunity for the South African investor.
Hopefully this is helpful, either way let me know in the comments and if you're a first time reader and want to know more, subscribe to be the first to hear about new content.
Until next time, keep living.