Catch this insight by Intellidex on the NewFunds MAPPS Growth ETF. The NewFunds MAPPS Growth ETF mimics the total return performance of South African equities and fixed income indices through the MAPPS Growth index. The fund suits a risk-tolerant, longer-term investor.
Intellidex Insight: The NewFunds MAPPS Growth ETF is one of two JSE-listed funds that invests across asset classes – equities, fixed income and cash – to create a balanced portfolio. The NewFunds MAPPS Growth ETFs fund has 74.3% of its assets in equities through the JSE Swix Top 40 index, 20.2% in bonds and 5.5% in cash.
By investing across multiple asset classes that are not perfectly correlated, the NewFunds MAPPS Growth ETF is able to reap the benefits of diversification which single-asset class funds are unable to do. Its asset-class diversification enables it to absorb unanticipated shocks that may be specific to a particular asset class. Notably though, this benefit usually comes at a sacrifice of upside potential as multi-asset funds tend to have lower upside potential when compared to funds focusing on equities only.
First-time investors who are warming up to ETF investments are likely to find this fund interesting. It is also compliant with regulation 28 – legislation which stipulates asset allocation limits of retirement funds – which means one can use it as a retirement investment for the tax benefits.
Fund description: The NewFunds MAPPS Growth mimics the total return performance of South African equities and fixed income indices through the MAPPS Growth index. This index holds equities through indices such as the SWIX 40 Index, nominal bonds through the GOVI Index, inflation-linked bonds through the ILBI Index and cash through allowable money market instruments.
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NewFunds MAPPS Growth ETF
Top Holdings: The top 10 constituents contribute 43.5% of the fund. Notably, the fund is quite heavy in Naspers, which is a common problem with the Swix index. The fund is also a bit heavy in financials and consumer services stocks.
Suitability: The ETF suits a risk-tolerant, longer-term investor. Its heavy allocation to equities makes it a bit riskier than its peer, NewFunds MAPPS Protect ETF, which has more than half of its assets in cash and bonds.
Historical performance: NewFunds MAPPS Growth’s short- and long-term returns lag both equities and bonds, which points to some inefficiencies in its asset allocation. Since the fund allocates the bulk of its assets to bonds and equities and a bit to cash, its returns should theoretically lie within the ballpark of bonds and equities
Macroeconomic outlook: Given its multi-asset exposure, the NewFunds MAPPS Growth ETF is affected by a diverse range of macroeconomic factors. The local economy, which is stuck in a low-growth trap and an imminent credit ratings downgrade, poses the biggest immediate risks to the fund’s performance.
Following an uninspiring performance in the first half of 2019, GDP growth of less than 1% is expected for the full year. Domestic growth is being hampered by numerous factors including load-shedding, distressed state-owned enterprises, weak demand, slow global growth and socio-political tensions. There is need for a speedy implementation of reforms to revive the economy.
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NewFunds MAPPS Growth ETF
Moody’s, the only major ratings agency that still considers SA’s debt to be of investment grade, recently downgraded the outlook on its credit rating from stable to negative, leaving it a step away from junk status. Should Moody’s downgrade SA to junk, it will be bad for bonds as it will push yields up and suppress market prices of bonds. Overseas investors who are not allowed to invest in junk bonds will also be forced to sell their holdings in SA bonds – estimated to be around R200bn.
Internationally, geopolitical uncertainty including Brexit and the US-China trade tensions remains high. A positive aspect is that interest rates in most developed markets are being lowered
Alternatives: The NewFunds MAPPS Protect ETF is another fund that invests in multiple asset classes but is more conservative. It allocates less than 40% of its assets to domestic equities.
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NewFunds MAPPS Growth 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