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.
Click logo to view
ABSA NewFunds TRACI 3 Month ETF
Top holdings:73% of the money market securities in the fund are issued by SA’s highly rated banks, which minimises credit risk.
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)
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.
Click logo to view
ABSA NewFunds TRACI 3 Month ETF
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:
Alternatives: None
Click below to view
ABSA NewFunds TRACI 3 Month ETF
Compare ETFs on EasyETFs
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
If you thought this blog was interesting, you should also read:
Disclaimer
This research report was issued by Intellidex (Pty) Ltd. Intellidex aims to deliver impartial and objective assessments of securities, companies or other subjects. This document is issued for information purposes only and is not an offer to purchase or sell investments or related financial instruments. Individuals should undertake their own analysis and/or seek professional advice based on their specific needs before purchasing or selling investments. The information contained in this report is based on sources that Intellidex believes to be reliable, but Intellidex makes no representations or warranties regarding the completeness, accuracy or reliability of any information, facts, estimates, forecasts or opinions contained in this document. The information, opinions, estimates, assumptions, target prices and forecasts could change at any time without prior notice. Intellidex is under no obligation to inform any recipient of this document of any such changes. Intellidex, its directors, officers, staff, agents or associates shall have no liability for any loss or damage of any nature arising from the use of this document.
Remuneration
The opinions or recommendations contained in this report represent the true views of the analyst(s) responsible for preparing the report. The analyst’s remuneration is not affected by the opinions or recommendations contained in this report, although his/her remuneration may be affected by the overall quality of their research, feedback from clients and the financial performance of Intellidex (Pty) Ltd.
Intellidex staff may hold positions in financial instruments or derivatives thereof which are discussed in this document. Trades by staff are subject to Intellidex’s code of conduct which can be obtained by emailing mail@intellidex.coza.
Intellidex may also have, or be seeking to have, a consulting or other professional relationship with the companies mentioned in this report.