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Intellidex 2020 reviews: ABSA NewFunds TRACI 3 Month ETF

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Catch this insight by Intellidex on the South African equity market. This note is on the ABSA NewFunds TRACI 3 Month ETF. This ETF is ideal for short-term investing when your priority is to protect capital as it avoids the risks typically associated with more volatile asset classes such as shares.

Intellidex insight:The fund offers investors exposure to a portfolio of three-month bank deposits issued by SA’s largest banks. It invests in negotiable certificates of deposits (NCDs) issued by local banks. In theory, this ETF’s risk should be lower than that of bonds, stocks and commodities. That factor, coupled with the fact that it can be traded on the JSE, makes it appealing for conservative investors seeking low-cost and liquid alternatives to traditional cashbased investments such as fixed deposits.

One of the fund’s main benefits is that it is more liquid than a fixed deposit at a bank as you can cash it in at any time. Generally for retail investors, the shortest period you can get when investing cash at a bank is a month. In most instances, retail investors do not have the minimum R1m normally required to invest in negotiable certificates of deposit, so the fund provides exposure to an investment instrument that is usually difficult to attain for retail investors.

Negotiable CDs usually offer higher yields than traditional call deposits or savings accounts. Additionally, the fund’s diversified portfolio reduces the credit risk that unit holders are exposed to. This ETF would work well as the cash tranche within a multi-asset portfolio.

Fund description:The Traci fund mimics the total return of the Barclays/Absa Tradable Cash index (Traci 3-month) which tracks the overnight, three-month SA money market deposit rate.

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ABSA NewFunds TRACI 3 Month ETF

EQU.ZA.NFTRCI

Top holdings:73% of the money market securities in the fund are issued by SA’s highly rated banks, which minimises credit risk.

ABSA TRACI 2020 Top Holdings

Suitability: This ETF is ideal for short-term investing when your priority is to protect capital as it avoids the risks typically associated with more volatile asset classes such as shares.

Historical performance:

Net asset value performance to end-June 2020 (annualised for periods greater than one year)

ABSA TRACI 2020 Historical Performance

Fundamentals: The performance of money market products is influenced by the usual factors that affect bonds: the credit rating of the issuer, the term of the instrument and market interest rates. Like bonds, the price of negotiable CDs varies inversely with market interest rates: when interest rates decline, negotiable CDs prices increase, and vice versa. 

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ABSA NewFunds TRACI 3 Month ETF

EQU.ZA.NFTRCI

 

However, the three-month deposits that underpin the fund are rolled over and adjusted to prevailing interest rates, so the interest rate risk, thus price risk, is small. Therefore, this ETF will deliver a low-risk, reliable return as you are pretty much earning interest on your capital.

Fund statistics:

ABSA TRACI 2020 Fund Statistics

Alternatives: None

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ABSA NewFunds TRACI 3 Month ETF

Traci 2020 June factsheet

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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 EasyEquities 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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Disclaimer

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