Catch this insight by Intellidex on the South African equity market. This note is on the Satrix Top 40 ETF, one of the oldest and most popular funds on the JSE. There are a few ETFs covering the JSE Top 40, so take note of this one when comparing between them. This ETF should be considered for high risk-tolerant investors.
Intellidex insight:The Satrix 40 ETF is one of the oldest and most popular funds on the JSE. It has the largest value of assets under management (AUM) and lowest total expense ratio among the four funds that track the FTSE/JSE Top 40 index. A few years ago, the fund sponsors took a decision to cap the fund’s total expense ratio at 0.10%, a feat that it can afford with an AUM of at least R8bn, which is more than five times that of its closest peer. Funds that have the lowest cost ratios are preferable, more so since there is not much separating the four funds that track the FTSE/JSE Top 40 index.
The FTSE/JSE Top 40 index considers the market capitalisation of all companies listed on the JSE. It uses market capitalisation as a tool for both stock selection and weightings. This results in a portfolio with high exposure to companies that dominate the market. However, it means the fund’s performance is more responsive to the price movements of a few big companies, such as Naspers, performs, which offsets one of the biggest benefits of ETFs, diversification. Gaining equity exposure through the Satrix Top 40 is tax-efficient and minimizes costs. The fund can be used as a building block in a long-term investment portfolio.
Fund description:The Satrix Top 40 ETF tracks the FTSE/JSE Top 40 index. The Index consists of the 40 largest companies listed on the JSE, ranked by investable market capitalisation in the All-Share index.
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Satrix Top 40 ETF
Top holdings: The top 10 constituents comprise 63.64% of the fund. Naspers’s high weight diminishes diversification and poses high risk to the fund’s performance should the stock price dramatically decline.
Suitability: This ETF is ideal for high risktolerant investors seeking exposure to the largest blue-chip companies yielding aboveinflation returns over longer periods. 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 Satrix top 40 ETF has managed to return competitive yields over the period reviewed, despite economic conditions. The fund yielded the highest return of 10.79% over the 1-year period. Then kept an average return of not less than 5% returns in its long-run period.
Source: http://www.etfsa.co.za/docs/perfsurvey/perform%20survey%20-%20Nov2019.pdf
Fundamentals: The prospects for this fund are mixed, driven by both the South African economy and international exposure. A slew of recent economic data suggests that the domestic economy is gloomy, characterised by high unemployment, shrinking output and low confidence. We do not see things improving in the short term. However, since the fund generates the bulk of its earnings offshore, easing trade tensions between US and China is a boon for the fund’s future performance.
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Satrix Top 40 ETF
Fund statistics:
Source: INET and June 2019 fact sheets
Alternatives: The fund has a competitive TER of 0.10%. Three of its competitors are 1nvest Top 40 (TER 0.27%), Sygnia with 0.16% TER and Ashburton with the smallest TER of 0.14% among the three.
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Satrix 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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