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Intellidex 2019 reviews: Satrix SWIX Top 40 ETF

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intellidex-blog-header-2019

Check out the latest research note on info on ETFs from leading research house Intellidex. EasyEquities is the only place where you will find up to date info on all ETFs. This latest piece is on the Satrix Swix Top 40 ETF, which gives investors exposure to a portfolio of the JSE’s 40 biggest companies. This ETF is ideal for long-term, risk-tolerant investors seeking exposure to large companies with limited exposure to resource stocks. 

The Satrix Swix Top 40 ETF is an index tracker fund that gives investors exposure to a portfolio of the JSE’s 40 biggest companies. ETFs that track the biggest companies on the JSE are popular because they invest in solid, blue-chip companies. An added advantage of Swix funds is that they weight constituents according the JSE register, which down weights dual-listed stocks. This means that while the ETF selects constituents based on their market capitalisation, companies listed on other exchanges as well as the JSE are down weighted according the proportion of the size of the foreign holdings. The higher the percentage held offshore, the lower its weighting in the ETF.

A secondary effect of the Swix formula is that it tends to limit exposure to resources/basic materials, most of which have primary listings on international exchanges. The cherry on top is that this investing method is cost efficient as it minimises costs because the ETF rebalances quarterly and only to reflect changes in the top 40. However, Sygnia Swix ETF has the lowest total expense ratio (TER) among its peers, making it the most sensible to hold since all the four listed Swix funds are similar in most respects. Various studies show that reducing investment management fees (in this case the TER) can significantly increase portfolio returns.

Fund description: The Satrix Swix Top 40 ETF tracks the FTSE/JSE SWIX Top 40 Index which consists of the largest 40 companies listed on the JSE, ranked and weighted by market capitalisation on the South African register.

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Satrix Swix Top 40 ETF

EQU.ZA.STXSWX

Top holdings: The top 10 holdings of this ETF make up 62.2% of the fund. However, the biggest asset, Naspers, constitutes 29.7%, which diminishes the diversification benefits one usually obtains with ETFs.

top 10 holdings-2

Suitability: This ETF is ideal for long-term, risk-tolerant investors seeking exposure to large companies with limited exposure to resource stocks. 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 fund is recovering from an underwhelming one-year performance, having grown 7.28% in June, benefiting from its outsized exposure to Naspers. However, among the top 40 funds, Ashburton Top 40 – which does not use the Swix-weighting methodology – is leading the pack, growing 8.17% in the 12 months to end-June, boosted by gold’s performance.

Historical perfeormance

Source: http://www.etfsa.co.za/docs/perfsurvey/perf_survey_June19.pdf and June 2019 fact sheets

Fundamentals: Equities are driven by both local and global economic activity and, over long periods, provide investors with returns ahead of other investment classes such as bonds and cash. 

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Satrix Swix Top 40 ETF
EQU.ZA.STXSWX

SA’s economy is struggling. The first quarter of the year saw the economy shrink by 3.2%, while weak data readings during Q2 and a worsening fiscus has prompted several analysts and institutions to cut their short- to medium-term economic growth forecasts for SA. The infighting within the governing ANC is driving down business and investor confidence. At Intellidex we have reduced our forecast for this year to 0.6% from 1% while the Reserve Bank’s Monetary Policy Committee has revised to 0.6% from 1.%. However, since the fund has international exposure, the weakening rand will bolster the fund’s foreign earnings, to some extent, countering the poor local earnings.

Although the global economy is coming under pressure in the wake of the US-China trade stand-off, the synchronised monetary easing (lowering interest rates) by important central banks is likely to stave off a recession. Also, while this year’s global economic growth was revised to 3.2% from 3.3% by the International Monetary Fund, it remains comparatively better than the South African outlook. Overall, we believe the Satrix Swix fund will benefit from its international exposure, which should reduce the impact of local weakness.

Fund statistics:

Fund info-3

Alternatives: The funds’ closest peers are the NewFunds Swix 40 (TER 0.37%), Stanlib Swix (TER 0.29%) ETF and Sygnia Swix 40, which has the lowest TER of 0.16%. The differences in performances over time can largely be attributed to differences in their total expense ratios

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Satrix Swix Top 40 ETF Fact Sheet

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

Disclaimer

This research report was issued by Intellidex (Pty) Ltd. Intellidex aims to deliver impartial and objective assessments of securities, companies or other subjects. This document is issued for information purposes only and is not an offer to purchase or sell investments or related financial instruments. Individuals should undertake their own analysis and/or seek professional advice based on their specific needs before purchasing or selling investments. The information contained in this report is based on sources that Intellidex believes to be reliable, but Intellidex makes no representations or warranties regarding the completeness, accuracy or reliability of any information, facts, estimates, forecasts or opinions contained in this document. The information, opinions, estimates, assumptions, target prices and forecasts could change at any time without prior notice. Intellidex is under no obligation to inform any recipient of this document of any such changes. Intellidex, its directors, officers, staff, agents or associates shall have no liability for any loss or damage of any nature arising from the use of this document. 

Remuneration

The opinions or recommendations contained in this report represent the true views of the analyst(s) responsible for preparing the report. The analyst’s remuneration is not affected by the opinions or recommendations contained in this report, although his/her remuneration may be affected by the overall quality of their research, feedback from clients and the financial performance of Intellidex (Pty) Ltd.

Intellidex staff may hold positions in financial instruments or derivatives thereof which are discussed in this document. Trades by staff are subject to Intellidex’s code of conduct which can be obtained by emailing mail@intellidex.coza.

Intellidex may also have, or be seeking to have, a consulting or other professional relationship with the companies mentioned in this report