Catch this insight by Intellidex on the South African equity market. This note is on the Ashburton 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 high risk-tolerant investors.
Intellidex insight:The Ashburton Top 40 Index ETF is an index-based fund that buys securities included in the FTSE/JSE top 40 Index in the same proportion that they are included in the index. This index gives broad market exposure to SA’s biggest companies operating in a wide range of sectors, which inherently ensures investors have a well-diversified and stable portfolio. The index is a natural rand-hedge, generating more than 60% of its earnings outside South Africa. However, the approach implies that the biggest companies exert more influence on the index’s performance, which somewhat diminishes diversification benefits that ETFs are renowned for.
There are four JSE-listed ETFs that mimic the FTSE/JSE Top 40 index. They are identical in most respects, meaning they compete primarily on costs. The Ashburton Top 40 fund boasts the second-lowest total expense ratio (TER) among the four. Gaining market exposure through this fund is therefore cost-efficient, plus the fund is eligible in the tax-free wrapper. It rebalances only four times a year which ensures low turnover and minimal trading costs.
Fund description:The Ashburton Top 40 ETF tracks the FTSE/JSE Top 40 Index through investing in the physical index’s securities. The index consists of the largest 40 companies, listed on the JSE, ranked by investable market capitalisation.
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Ashburton Top 40 ETF
Top holdings:The top 10 companies constitute 64.3% of the fund. The overbearing combined weight of Naspers and Prosus reduces diversification benefits.
Suitability:This ETF is ideal for passive investors with an appetite for risk and seeking exposure to a portfolio of JSE-listed companies with broad market exposure. Equities are inherently riskier than other asset classes, especially in short periods. However, over longer periods have performed better than inflation and other investment asset classes such as bonds and cash.
Historical performance:
Source: http://etfsa.co.za/docs/perfsurvey/perform%20survey%20-%20Jan2020.pdf and January 2020 fact sheet
Fundamentals:Equities are driven by both local and international macroeconomic activity. The recent global outbreak of Covid-19 will incapacitate both the local and global economy. Even without that exogenous shock, the South African economy has been in a downward spiral for the past few years. At Intellidex, we expect the economy to contract by 2.3% this year, a first annual contraction since the 2008 financial crisis. Similarly, the global economy is forecast to record its worst performance since the global financial crisis.
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Ashburton Top 40 ETF
Fund statistics:
Source: iress and January 2020 fact sheets
Alternatives: The fund has a relatively competitive TER of 0.14%. Three of its competitors are 1nvest Top 40 (TER 0.29%), Sygnia (TER 0.15%) and Satrix with the lowest TER of 0.10% among the three
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Ashburton Top 40 ETF Fact Sheet
For more information around ETFs make sure to check out our new ETF site 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 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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