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Intellidex 2019 reviews: Sygnia ITRIX Top 40 ETF

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Catch this insight by Intellidex on the South African equity market. This note is on the Sygnia Itrix Top 40 ETF. 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 investors with an appetite for above-average risk.

Intellidex insight:The Sygnia Itrix Top 40 ETF is the youngest among four JSE-listed ETFs that track the FTSE/JSE Top 40 index. Consequently, it has the smallest assets under management, but it is competitive with a total expense ratio of just 0.16%. Comparatively, the cheapest fund, the Satrix 40, has a TER of 0.10%.

While the fund achieves its intended factor exposure – allocating more weight to companies with bigger market capitalisation – the methodology results in a concentrated portfolio, dominated by a few companies such as Naspers (including Prosus). More diverse markets such as the S&P 500, where the idea originated from, are not prone to similar shortcomings. However, on a positive note, larger companies tend to be more stable, which makes the fund ideal as an anchor portfolio. Therefore, if you want to gain both local and global exposure in one transaction, the Sygnia Top 40 ETF is a good option. This investing method is tax efficient and minimizes costs.

Fund description: The Sygnia Itrix Top 40 ETF tracks the FTSE/JSE Top 40 Index by investing in the physical index securities.  The Index consists of the largest 40 companies, listed on the JSE, ranked by investable market capitalisation in the All-Share index

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Sygnia Itrix Top 40 ETF

EQU.ZA.SYGT40

Top holdings: The top 10 constituents comprise 62.6% of the fund. Naspers’s high weight diminishes  diversification and poses significant risk to the whole fund should the stock price dramatically decline.

Sygnia Top 40 top 10 holdings

Suitability: Equity investments are considered aggressive and are ideal for investors with an appetite for above-average risk. Equity investments tend to exhibit higher short-term volatility than other asset classes,
a longer investment horizon gives the portfolio time for returns to accumulate ahead of volatility.

Historical performance:The fund saw a growth percentage of 1.8% in the past 6-months to end November and the highest return of 10.6% over the 1-year return. 

Sygnia Top 40 Historical performance

Source: http://www.etfsa.co.za/docs/perfsurvey/perform%20survey%20-%20Nov2019.pdf

Fundamentals: Given the fund’s exposure to both the local and international economy its prospects are mixed. A slew of recent economic data suggests that the domestic economy, which contracted during the third quarter, is under pressure. And the possibility of a sovereign credit ratings downgrade to junk by Moody’s has increased since the trajectory of government finances is worse than initially thought. 


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Sygnia Itrix Top 40 ETF

EQU.ZA.SYGT40

However, the Sygnia Itrix 40 ETF is a natural hedge against the SA economy, with earnings generated offshore. Geopolitical tensions have eased between China and the US following a phase one trade agreement which, in conjunction with easier monetary policy dynamics, should help bolster global economic activity.

Fund statistics:

Sygnia Top 40 Fund performance

Source: INET and June 2019 fact sheets

Alternatives: Satrix Top 40 (TER is 0.10%), Stanlib (TER is 0.27%), and Ashburton (TER is 0.14%).

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Sygnia Itrix Top 40 ETF Fact Sheet

Sygnia top 40 header

 

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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