Catch this insight by Intellidex on the Stanlib S&P 500 Index Feeder. The Stanlib S&P 500 feeder ETF tracks the S&P 500 index, which represents the 500 largest US companies on the New York Stock Exchange. The ETF is suitable for long-term investors seeking exposure to the world’s biggest companies.
Intellidex Insight: Offshore assets are a critical component of a balanced investment portfolio. The reasons are straightforward. 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 Stanlib S&P 500 Index Feeder ETF is one the five ETFs on the JSE that provides access to the broad US equity market. The S&P 500 index, which is tracked by this fund, is a widely recognised barometer of US equities' performance. It covers more than three quarters of the market capitalisation of listed equities in the US. Also, about a third of the S&P 500 revenue come from markets outside the US, which is good for diversification.
The Stanlib S&P 500 ETF is a cost-efficient fund in this segment. It has an average total expense ratio of 0.27%, which is the thirdcheapest after the Satrix S&P 500 ETF (0.25%) and the Sygnia Itrix S&P 500 ETF (0.16%).
Fund description: The Stanlib S&P 500 feeder ETF tracks the S&P 500 index, which represents the 500 largest US companies on the New York Stock Exchange. The fund does not invest directly into the underlying assets but rather holds shares in another ETF – the iShares Core S&P 500 UCITS ETF – which in turn invests in the underlying companies.
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Top Holdings: The Stanlib fund top 10 holdings account for less than a fifth of the overall fund, which is good for diversification. However, it is heavily weighted towards tech stocks, health care and financials. It does not have much representation in utilities, real estate or companies involved in producing and selling raw materials. This means that for investors to get broad diversification among market capitalisation and sectors, it may help
to consider other sector-based investments.
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 Stanlib S&P 500 Index Feeder ETF, in its short lifetime, has comprehensively outperformed the JSE all share index.
Source: https://www.etfsa.co.za/docs/perfsurvey/perform%20survey%20-%20Sept2019.pdf and September 2019 fact sheets
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 in 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 has left it unchanged since.
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The global economic growth projections bode well for the Stanlib fund because it means the US-listed companies it invest in should be able to sustain their strong earnings. The ETF is 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, which has the lowest total expense ratio of 0.16%, as well as the CoreShares S&P 500 ETF (TER 0.39%) and the Satrix S&P 500 ETF (TER 0.25%).
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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