Catch this insight by Intellidex on the Satrix S&P 500 Feeder ETF. The Satrix S&P 500 Feeder ETF is suitable for investors seeking exposure to the world’s biggest companies. This ETF is suitable for long-term investors.
Intellidex insight: Offshore assets are a critical component of a balanced investment portfolio. The reasons are straight forward. Investing internationally provides diversification and access to companies and industries that you can’t find locally. SA is but a tiny market accounting for a mere 1% of global GDP – offshore investments give investors access to opportunities in the other 99%. Furthermore, the South African markets are facing serious headwinds. The JSE has been moving sideways over the past five years which has seen a lot of SA-focused funds suffering significant losses. And of course, offshore investments hedge your portfolio against rand weakness.
The Satrix S&P 500 ETF is one the five ETFs on the JSE which provide access to the broad US equity market. The S&P 500 index, which is tracked by this fund, is the most widely recognised barometer of US equities performance. It covers more than three quarters of the market capitalisations of listed equities in the US. Also, about a third of S&P 500 companies’ revenue comes from markets outside the US, which is good for diversification.
The Satrix S&P 500 ETF is one of the more cost-efficient funds in this segment. It has an average total expenses ratio of 0.25% which is the second cheapest after the Sygnia Itrix S&P 500, which has a TER of 0.16%.
Fund description: The Satrix S&P 500 Index Feeder ETF tracks the S&P 500 index, which represent the 500 largest US companies. As a feeder fund, the Satrix S&P 500 ETF does not invest directly in underlying assets but rather holds share in another ETF –iShares Core S&P 500 UCITS ETF – which in turn invests in underlying companies.
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Satrix S&P 500 ETF
Top holdings: The top 10 holdings are dominated by technology stocks, with financial and consumers goods companies also represented.
Suitability:The ETF is suitable for investors seeking exposure to the world’s biggest companies, which naturally has a bias towards tech stocks. It is suited to long-term investors because equity investments tend to exhibit higher short-term volatility than other asset classes, so a longer investment horizon gives the portfolio time for returns to accumulate ahead of volatility.
Historical performance:The Satrix S&P 500 Index Feeder ETF has comprehensively outperformed the all share index in its short lifespan.
Fundamentals: We are seeing the following key themes playing out in the markets:
1) Moderate global economic growth: The global economy is expected to remain on a moderate growth path, albeit softer than 2018. The Organisation for Economic Cooperation and Development is forecasting global GDP growth of 2.9% this year and 3% next year. The IMF is a bit more optimistic with projections of 3.2% this year and 3.5% next year, while growth in the US is expected to remain above 2% in both years. Risks include escalating trade tensions between China and the US and the US midterm elections next year which could significantly change the global political and economic landscape.
2) Low inflation: Inflation in most developed markets remains stubbornly low.
3) Downward pressure on interest rates: The US Federal Reserve recently delivered a second consecutive rate cut of 25 basis points on the back of global uncertainties. This follows a big rate cut by the European Central Bank which left the EU’s benchmark rate in negative territory. Locally, the South African Reserve Bank cut its benchmark interest rate in July but left it unchanged in its latest meeting in September.
The global economic growth projections of above 3% bode well for the Sygnia Itrix S&P 500 ETF. It means that its constituents should be able to sustain their strong earnings. The ETF is also likely to be further bolstered by the rand which is expected to weaken against the dollar over the long term.
Alternatives: The fund’s direct alternatives are the Sygnia Itrix S&P 500, with the lowest total expense ratio of 0.16%; the CoreShares S&P 500 ETF (TER 0.39%); and the 1nvest S&P 500 Feeder ETF (TER 0.27%).
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Satrix S&P 500 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