Satrix RAFI 40 Index Fund
ETF ANALYSIS
Exchange-traded funds are the building blocks of a tax-free savings account (TFSA). This month we look at several different types of funds and select our favourites. ETFs carry low costs and are often well diversified, providing exposure to different equity sectors as well as other asset classes.
The JSE offers 38 non-commodity ETFs, all of which are available on the EasyEquities platform. While having a wide range to choose from is an advantage, the decision of picking the best ETF is not always an easy one. Past performance is one way of seeing what sort of returns funds can generate, but it is usually not any use in understanding how the fund may perform in future. The best strategy is usually to ensure a portfolio is well diversified.
Local equities
There are a range of funds which invest in local equities but we prefer those which track the performance of the top 40 index. We have found them to have better diversification and also able to provide stable and superior returns in the long term. Our favourite is the NewFunds Swix 40 ETF. The fund has been one of the best performers. It’s also reasonably priced (only 35c for every R100 invested is eaten by expenses of running the fund) and has been good at tracking its underlying index. Over the past 12 months the fund returned 4.2%, surpassed only by Ashburton Top 40 and Satrix Swix 40. The returns were, however, below inflation, which averaged 6.22% over the same period.
International equites
Investors looking for offshore exposure have five ETFs from which to choose. Our pick in the segment is the DB x World. The fund invests in the world’s biggest companies listed on 23 developed market stock exchanges, though the US dominates with almost 60% of the fund. In the portfolio you’ll find household names like Apple, Microsoft and General Electric among more than 1,600 companies. Buoyed by the weakening rand, most of the ETFs in this segment have performed well. Db x World recorded the second-best return of 21.2% over the past 12 months, behind the DB x US fund, which exclusively tracks US markets.
Dividend-focused ETFs
While we are not strong proponents of dividend-focused ETFs, of the two available, we prefer the Satrix Divi. The ETF is forward looking, based on projected dividends, as opposed to the CoreShares Dividend Aristocrats ETF which is based on historical performance that may not be repeated in future. Similar to other local equity ETFs, the Satrix Divi has been under pressure, returning 0.76% over the past 12 months.
Property ETFs
In some circles property stocks are regarded as a separate asset class. In line with that argument we also had our pick for the segment. There are a few property-focused ETFs to choose from, but we like the CoreShares PropTRax 10.. Property has been a pretty bright part of the JSE in the past few years with a variety of funds and property management companies listed on the exchange. CoreShares PropTrax Ten performed relatively well, topping the segment with a return of 9.75%.
Diversified funds.
Equities are the highest-risk financial asset. They generally provide the best returns, but can be volatile so they only suit longer-term investors. One way to lessen that risk is to invest in funds that include other asset classes such as bonds and cash. Two funds that do that quite neatly are the NewFunds MAPPS Protect ETF and the NewFunds MAPPS Growth ETF. The funds are designed to meet two different risk appetites with Protect for older savers closer to retirement and Growth for younger savers with a long time horizon. Both funds have a low expense ratio of 0.33%, so you can be assured that they are great value for money. MAPPS Growth returned 4.05% while MAPPs Protect had a return of 4.38% over the past 12 months.
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