Catch this insight by Intellidex on one of the most sought after markets in the world the S&P 500, tracking the largest 500 companies in the US. This note is on the Sygnia Itrix S&P 500 ETF. This ETF should be considered by investors with a stomach for risk, and have a long-term investment horizon.
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 Sygnia Itrix S&P 500 ETF is, in our view, the most suited JSE-listed ETF for accessing the broad US equity market. While it applies the same methodology as its peers, it does so at a very low cost of 0.16%. Its peers have total expense ratios of between 0.25% and 0.86%.
About a third of the S&P 500 index’s revenue come from markets outside the US because many of the companies operate globally, so this ETF also provides decent exposure to global, which is good for diversification.
Fund description: The Sygnia Itrix S&P 500 tracks the S&P 500 index, which invests in the largest 500 companies in the US listed stocks and rebalances every quarter. The index captures approximately 80% of available market capitalisation in the US.
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Sygnia Itrix S&P 500 Index Feeder 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.
The ETF has performed extremely well – boosted by a weaker rand – and highlights the weakness of the JSE. Of the 4.5% return over one year, 3.6% was due to the currency effect.
Fundamentals: We are seeing the following key themes playing out in the markets:
- 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 mid-term elections next year which could significantly change the global political and economic landscape.
- Low inflation: Inflation in most developed markets remains stubbornly low
- 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.
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Sygnia Itrix S&P 500 Index Feeder ETF
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.
Fund statistics:
Alternatives: The fund’s direct alternatives are the CoreShares Itrix S&P 500, with a total expense ratio of 0.39%; the Satrix S&P 500 ETF (TER 0.25%); and the Stanlib S&P 500 ETF (TER 0.27%).
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Sygnia Itrix S&P 500 Index Feeder 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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