The JSE like many exchanges over the world and as the name suggests is a place where professional investors (stockbrokers) buy and sell (exchange/trade) ownership of various financial instruments (assets). It is also a registered company JSE Ltd offering services and products to clients being all the listed companies on its boards/indices. The JSE is a regulator and middle man between the buyer and the seller to ensure a conducive environment and systems to enable the buyers and sellers to exchange defined assets in a timely and secure manner. A company can be either listed on the All Share Index (ALSI) or the Alternate Exchange (ALTX) a “listing”, in keeping with the minimal jargon motto effectively means ownership of the company can only be exchanged through the JSE and various legal and financial regulations to be met before listing and while it is listed. Only public companies these are companies carrying the “Limited”/Ltd after the companies registered name are registered on the JSE.

Majority of the leading and well known companies in the country are listed on the ALSI including MTN, Vodacom, BHP Billiton, SAB, ABSA, Discovery,  just to mention a few. Each of these listed companies are allocated a unit price (a value of each share)  which determines the companies economic value, using complex financial formulae and various company specific factors that influence the company’s prospects.

The question now is how do I invest in these listed companies? Easy!! You have

three options:

1. For the budget constrained and entry level investor looking to capitalise on the good returns and liquidity (easily converted to cash) of the asset classes available, is through an Electronically Traded Fund (ETF). Although you don’t directly become a shareholder. However you reap most of the benefits enjoyed by ordinary shareholders. However ETF’s require lower investment entry quantum’s and are more cost effective for the investor.
2. You can invest directly in the listed ALSI or ALTX company, i.e. pay R50 per share for a 100 shares in Company X, becoming a shareholder in Company X and receive all the benefits detailed in the company agreements concerning shareholders. This is done through approaching and instructing a stockbroker, with the stockbroker charging fees for the services rendered to you.
3. The 3^rdoption is also through stock brokers via financial institutions like FNB, Standard Bank, ABSA etc (full service stockbroking), here the stockbroker structures an investment portfolio suitable for your risk profile and financial objectives. This is a value added service normally offered by banks, to qualifying customers.

A quick glossary of some key terms which you might encounter in financial publications, financial reviews and while investing in the JSE.
Asset allocation:An approach of investing a portfolio across numerous assets classes in precise proportions so as to achieve diversification.

Asset class:A broad investment category, such as equities, fixed income, commodities or real estate.

Basket:Another name for a portfolio of equities or other assets.

Benchmark:An alternate name for an index.

Brokerage commission:The fee you pay a stockbroker to buy or sell a listed security such as an ETF.

Capitalisation weighted index:An index or basket of equities where the makeup of each stock is weighted in proportion to its market capitalisation.

Controlled Client: An investor whose funds and uncertificated securities are in the control of a Settlement Agent and whose settlements take place via a CSDP as if the investor’s funds or uncertificated securities were under the control of a Settlement Agent.

CSDP:A person who is licensed as a central securities depository under section 32 of the Securities Services Act, No 36 of 2004.

Dividend: Dividends are generally payments made to owners of a company. These payments can be in the form of cash or the issuance of additional Stock. Dividends are generally used as a way to allow the owners to participate in the profits generated by the company.

Dividend yield: The dividend per share shown as a percentage of the last sale price.

Exchange Traded Funds (ETFs): Exchange Traded Funds (ETFs) are investment funds which are listed on a stock exchange. A ETFs purpose is to track an index. (An index is a statistical measure of a compilation of several shares i.e. the FTSE/JSE Top 40 Companies Index which tracks the performance of the top forty companies listed on the Johannesburg Stock Exchange.)

Expense ratio: The amount, expressed as a percentage of total investment, that shareholders pay annually for mutual and ETF Funds operating expenses and management fees.

Indexing:An investment management strategy in which, the investor aims to match the performance of a market as a whole, rather than selecting particular stocks or assets.
JSE:JSE Limited, a public company duly registered and incorporated with limitedcliability under the company laws of the Republic of South Africa, under registration number 2005/022939/06, and licensed as an exchange under the Securities Services Act, No 36 of 2004.

Large cap:‘Large cap’ is a term used to refer to the largest companies on the major exchanges in the world.

Liquidity:Liquidity means how easy it is to buy and sell a financial instrument for cash without causing any significant change in its price. A very actively traded market, where it’s easy to sell whatever you’re holding for cash, without discounting its price heavily, is said to be a liquid market.

Management fee:The annual fee charged to investors in a fund.

Manager:A company duly incorporated in accordance with the laws of the Republic of South Africa, which is approved to manage investments.

Mid cap:‘Mid cap’ refers to companies below the very largest in the main index of a stock exchange.

Net Asset Value (NAV):The Net Asset Value or NAV is the total value of the fund’s portfolio less itsliabilities i.e. equal to the closing market value of all securities within a portfolio plus all other assets, subtracting all liabilities, and then dividing the result by the total number of shares outstanding. Offering Circular & Portfolio Supplement:The Offering Circular and Portfolio Supplement are documents issued by all ETF as required by law, which discloses the fund’s investment objectives, history,management, fees, holdings, and related information.

Rebalancing: Rebalancing is the action of bringing a portfolio of investments that has deviated away from one’s target index back into line.

Settlement Agent:A CSDP approved in terms of the Applicable Procedures to perform electronic net settlement of both cash and securities on behalf of market participants.

Small cap:‘Small cap’ companies are those whose market valuations rank between the largest 50% and 80% that are publicly traded.

Strate System:The electronic settlement system utilised by the JSE and administered by Strate, which facilitates the electronic clearing and settlement for all transactions concluded on the JSE.

Tracking error:Any divergence between an ETF’s value and the value of the index or benchmark it is attempting to track

by bloogle

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