ETF Picks to Start 2023🎉

Each month, the investment gurus at Intellidex scan the market to come up with a list of their favorite ETFs. Know more about their top picks here.

• NewFunds S&P GIVI South Africa Top 50 ETF (GIVISA) 

• Sygnia Itrix New China Sectors ETF (SYGCN)
• Satrix MSCI China Feeder (STXCHN)

Bonds and Cash

• Satrix Inflation-Linked Bond (STXILB)

Dividend or Income-focused

• CoreShares S&P SA Dividend Aristocrats ETF (DIVTRX)

Various empirical studies conclude that the bulk of equity returns stem from diversification among broad asset classes rather than from individual stock picking. As such, our grouping is done with a diversified portfolio in mind, ensuring appropriate exposure to different asset classes. First, we group the ETFs according to the three widely recognized asset classes – equities, bonds and cash. We further split equities into geographic groupings, then add a category for equity ETFs with an income theme.

What's in it for EasyVSTRs?

Our picks should provide an investor with a relatively diversified portfolio made up only of ETFs. However, asset allocation is not a one-size-fits-all concept. You need to make sure that weights of different asset classes in your portfolio meet your unique risk-and-return objectives. Multi-asset ETFs, which are already diversified among asset classes, are analyzed as a separate category.

As a rule of thumb, we like ETFs that follow a watertight investment philosophy. They should also be tax smart, which means they should qualify to be in a tax-free savings account. To avoid overconcentration, a good ETF should cap its exposure to a single sector and/or a single counter. While competition among providers is intensifying and ETF costs are coming down, we look at this metric closely and prefer ETFs with low total expense ratios (TERs). An overview of our favorite funds for each category follows.

Domestic equity: NewFunds S&P GIVI South Africa

• From an equities perspective, recent results from some companies in key sectors such as food producers, construction and diversified industrials showed resilience despite ongoing challenges to revenue growth and profitability. Investors with appetite for some risk and long-term returns should be investing in equities, specifically in companies that have attractive medium-term prospects.
  
  
• As a result, we think broad exposure through the NewFunds S&P GIVI South Africa Top 50 ETF (-0.2% in December) would be a good core equity ETF holding. The ETF offers investors a diversified exposure to fifty of the largest JSE-listed stocks selected by intrinsic value and low volatility, at lower costs. It replicates the price performance of the S&P GIVI SA Top 50 Index, an Index which represents the fifty stocks from the S&P GIVI SA composite with the largest intrinsic value and lower volatility, subject to certain constraints such liquidity and market capitalisation of stocks. 

NewFunds S&P GIVI South Africa Top 50 ETF (GIVISA) 

• As mentioned above, the outlook for China in 2023 is positive on the back of easing of Covid-19 restrictions, support for the subdued property market – all with emphasis on growing the economy. Despite rising infections, there is a general positive sentiment regarding growth prospects for Asian markets.
  
  The Hang Seng index (HSI) started off 2023 with gains last seen in the first trading session of a year since 2018 signalling the improved outlook of the Asian giant. As noted by Refinitiv, property and technology stocks supported the index with stocks such as Country Garden, Longfor Group and Cifi Holdings Group amongst the top gainers, on the back of expected policy support from the government. Rallies were also witnessed in stocks such as Alibaba, Tencent, Bilibili, and Baidu.
  
  
• According to Guotai Junan Securities, the Hang Seng Index may lead other major indices in 2023 with a 30% expected return and with further rerates expected in a recovery to its previous level prior to June 2022. On this basis, our picks amongst the foreign ETFs are the Sygnia Itrix New China Sectors ETF (+6.7%) and Satrix MSCI China Feeder (+6.9%).
  
  
• The mandate of the Satrix MSCI China Feeder Portfolio (Satrix MSCI China Feeder ETF) is to track, as closely as possible, the value of the MSCI China Index in ZAR. To replicate the index performance the Satrix MSCI China Feeder ETF invests in the iShares MSCI China UCITS ETF (the underlying fund). With regards to the Sygnia Itrix New China Sectors ETF, its objective is to achieve long-term capital appreciation tracking the performance of the S&P New China Sectors Index. The S&P New China Sectors Index measures the performance of China- and Hong Kong-domiciled companies in consumption- and service-oriented industries. All Chinese share classes, including A-shares and offshore listings, are eligible for inclusion. To achieve this objective, the fund tracks the S&P New China Sectors Index as closely as is practically and feasibly possible by buying the securities that substantially make up the index in similar weightings to the index.

Sygnia Itrix New China Sectors ETF (SYGCN) and Satrix MSCI China Feeder (STXCHN)

• Consequently, in this stagflationary environment our pick is the Satrix ILBI ETF (+1.4%) as this inflation linked bond should provide reasonable and stable returns. The bond tracks the performance of the S&P South Africa Sovereign Inflation-linked Bond 1+ Year Index. This index is a market-value weighted index of South African Rand-denominated inflation-linked securities, which are bonds of which the principal is indexed to the local inflation rate. As such, the security typically guarantees a return above inflation if held to maturity.

Satrix Inflation-Linked Bond (STXILB)

Dividends: CoreShares S&P SA Dividend Aristocrats ETF (DIVTRX)

• As mentioned in our previous newsletter, the CoreShares S&P SA Dividend Aristocrats ETF (-1.2%) remains our pick for this month with the ETF tracking the S&P South Africa Dividend Aristocrats Index. This index represents companies that have increased or maintained stable dividends for the past seven years running. A company that fails to pay a dividend is excluded from the index when the index is reviewed.
  
  
• Investors can benefit from the shares of companies included in this ETF due to their steady track record of dividend payments, which provides consistent income for portfolios. Furthermore, companies which pay out dividends consistently typically have strong fundamentals and despite contending with loadshedding and a generally weak macroeconomic backdrop, ‘SA inc’ has shown some resilience in recent years.
  
  

  CoreShares S&P SA Dividend Aristocrats ETF (DIVTRX)

New to investing

and want to learn more about other ETFs?

Read: Intellidex Analysis: ETF for South African Equities Fans

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Background: Exchange-traded funds (ETFs)