Catch this insight by Intellidex on the South African equity market. This note is on the Ashburton Top 40 ETF, there are a few ETFs covering the JSE Top 40. The Ashburton Top 40 fund boasts the second lowest total
expense ratio (TER) among the four funds that track the FTSE/JSE Top 40 index. This ETF is ideal for investors with a long investment horizon.
Intellidex insight: The FTSE/JSE Top 40 index consists of South Africa’s 40 largest companies, which are inherently mature and stable, making them suitable core portfolio holdings. The fund considers the market capitalisation of all companies listed on the JSE as a tool for both stock selection and weightings. The approach implies that the biggest companies exert more influence on the index’s performance, which somewhat diminishes diversification benefits that ETFs are renowned for.
FTSE/JSE Top 40 index constituents represent about two-thirds of the JSE market capitalisation, down from about 80% a few years ago before SAB Miller was acquired and delisted by Ab Inbev. While Ab Inbev is the largest company by market capitalisation (number of outstanding shares multiplied by price of each share) on the local bourse it does not qualify in the FTSE/JSE index series according to the criteria set out by FTSE Russell, which created and maintains the FTSE/JSE Top 40 and All Share indices. The index is a natural rand-hedge, generating more than 60% of its earnings outside South Africa.
There are four JSE-listed ETFs that mimic the FTSE/JSE Top 40 index. Disregarding their different sponsors, they are identical in most respects. What this means is they compete primarily on costs. The Ashburton Top 40 fund boasts the second lowest total expense ratio (TER) among the four funds that track the FTSE/JSE Top 40 index. Gaining market exposure through the Ashburton Top 40 fund is therefore cost-efficient, plus the fund is eligible in the tax-free wrapper. It rebalances only four times a year which ensures low turnover and minimal trading costs.
Fund description:The Ashburton Top 40 ETF tracks the FTSE/JSE Top 40 Index. The Index consists of the largest 40 companies listed on the JSE, ranked by investable market capitalisation in the All-Share index
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Ashburton Top 40 ETF
Top holdings: The top 10 constituents comprise 64.02% of the fund. Naspers dominates the fund, which reduces diversification benefits. This also poses significant risk to the fund should the stock price dramatically decline.
Suitability: This ETF is ideal for investors with a long investment horizon seeking exposure to largest blue-chip companies listed on the JSE.
Equity investments tend to exhibit higher short-term volatility than other asset classes, so a longer investment horizon gives a portfolio time for returns to accumulate ahead of volatility.
Historical performance:The Ashburton Top 40 ETF fared well compared with its peers. The fund yielded the highest return of 13.37% over the 1- year return and has yielded an average return of not less than 5% returns in the long-run.
Source: http://www.etfsa.co.za/docs/perfsurvey/perform%20survey%20-%20Nov2019.pdf
Fundamentals:With the bulk of fund’s earnings generated offshore, the fund stands to benefit from softening geopolitical tensions between US and China. And while uncertainty remains around Brexit, the election results where Prime Minister Boris Johnson won a parliamentary majority, is a step in the right direction. Locally the economy is struggling but the fund is set to benefit from improved global sentiment.
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Ashburton Top 40 ETF
Fund statistics:
Source: INET and June 2019 fact sheets
Alternatives: The fund has the relatively competitive TER of 0.14%. Three of its competitors are Stanlib Top 40 (TER 0.29%), Sygnia at 0.15% TER and Satrix with the smallest TER of 0.10% among the three.
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Ashburton Top 40 ETF Fact Sheet
Background: Exchange-traded funds (ETFs)
Exchange-traded funds (ETFs) are passively managed investment funds that track the performance of a basket of pre-determined assets. They are traded the same way as shares and the main difference is that whereas one share gives exposure to one company, an ETF gives exposure to numerous companies in a single transaction. ETFs can be traded through your broker in the same way as shares, say, on the Easy Equities platform. In addition, they qualify for the tax-free savings account, where both capital and income gains accumulate tax free.
Benefits of ETFs
- Gain instant exposure to various underlying shares or bonds in one transaction
- They diversify risk because a single ETF holds various shares
- They are cost-effective
- They are liquid – it is usually easy to find a buyer or seller and they trade just like shares
- High transparency through daily published index constituents
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