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Intellidex 2020 reviews: Satrix Emerging Markets ETF

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Catch this insight by Intellidex on the South African equity market. This note is on the Satrix MSCI Emerging Markets ETF. The fund’s geographical reach extends to at least 30 countries and gives exposure to global consumer brands such as Samsung, Alibaba and Tencent. This ETF is ideal for long-term investors with a high-risk appetite.

Intellidex insight: If you want to punt on emerging markets, Satrix has a broad-based emerging markets fund to achieve this. An emerging market economy is one with some but not all the features of a developed economy and is increasingly integrating into international markets as it grows.

The Satrix MSCI Emerging Markets Feeder ETF is one of a kind on the JSE. It adds a good growth dimension while diversifying away from SA, which is, of course, also classified as an emerging market and constitutes about 4% of this fund. The fund’s geographical reach extends to at least 30 countries. China, the second-biggest economy in the world, commands the lion’s shareof the fund with 38% -- similar to how the US, the world’s largest economy, dominates developed market funds. Other notable countries include Taiwan, South Korea, India, Brazil, Russia, Thailand, Saudi Arabia, and Malaysia.

The ETF gives exposure to global consumer brands such as Samsung, Alibaba and Tencent. Although emerging market equities carry more risk than developed markets, they have their merits. Emerging countries have demonstrated a distinct path towards development, which is absent in “frontier markets” and they usually have higher growth rates than developed economies. In a portfolio context, this fund is a diversifier, giving exposure to markets that are underrepresented in SA. However, there is risk of overexposure to the Chinese tech giant, Tencent, because Naspers is part of the same index. Naspers’ biggest asset is its Tencent
equity holding.

Furthermore, this is a feeder fund so it does not have direct exposures but gains exposure by investing in another fund. The downside is that such a fund has two layers of fees. In this case, 0.4% plus 0.18% which is the total expense ratio of the underlying fund.

Fund description:The Satrix MSCI Emerging Markets Feeder Portfolio tracks the MSCI Emerging Market Index, which measures the performance of large-, mid- and small-capitalisation stocks across emerging market countries which meet size, liquidity and freefloat criteria. As a feeder fund, it indirectly invests in the benchmark index through the iShares Core MSCI Emerging Markets IMI UCITS ETF.

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Satrix MSCI Emerging Markets ETF

EQU.ZA.STXEMG-2Top holdings:The fund’s top 10 investments account for just over 22% of its total investments. The fund is well diversified, containing more than 2,800 constituents across multiple sectors and economies. The entire market exposure means you do not miss out on potential growth surprises from often overlooked smaller companies.

Satrix Emerging MArkets 2020 Aug Top Holdings

Suitability:Equity prices are volatile, especially in the short term, which may lead to sizeable capital losses
due to the workings of various market variables such as interest rates, political developments or economic cycles. This is more pronounced for emerging markets, so the Satrix MSCI Emerging Markets ETF is ideal for long-term investors with a high-risk appetite.

Historical performance:

Net asset value performance to end-February 2020 and annualised for periods more than one year
in % (note time period precedes Covid-19 impact).

Satrix Emerging Markets 2020 Aug Historical Performamce

Fundamentals: Emerging markets are generally more sensitive to economic and political conditions than developed markets. The Covid-19 outbreak is a reminder of emerging markets’ inherently high volatility. While emerging economies have a higher risk profile, they also promise much higher potential growth than developed economies. Although SA is an emerging economy, its growth trajectory leaves much to be desired and it is likely to remain in a low-growth trap for the foreseeable future.

Satrix Emerging MArkets 2020 Aug Geo Spread

Other risk factors that are accentuated in emerging markets include liquidity risk, currency risk, credit risk and inflation risk.

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Satrix MSCI Emerging Markets ETF

EQU.ZA.STXEMG-2

Fund statistics:

Satrix Emerging MArkets 2020 Aug Fund Statistics

Alternatives: None

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Satrix MSCI Emerging Markets ETF

Satrix 2020 Factsheets Emerging Markets ETF

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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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