Catch this insight by Intellidex on the South African equity market. This note is on the Satrix MSCI World Equity Feeder ETF. With this fund you will gain exposure to about 85% of total equity capitalisation of the 23 most advanced countries, which acts as a hedge against the South African economy and the rand. This ETF is ideal for long-term investors with tolerance for high risk.
Intellidex insight:The Satrix MSCI World ETF is the younger of the two funds that track the MSCI world index on the JSE. While the MSCI World index’s underlying assets are denominated in dollars, South African investors gain easy exposure by paying in rands. What’s more, purchasing the fund does not decrease your hard currency allowance by the central bank. It is Satrix’s responsibility to convert the rand into dollars and acquire the index’s underlying assets. Similarly, when you redeem your investment the fund manager converts your underlying dollar assets into rands. This gives rise to an additional source of return, foreign exchange return. In the past decade, foreign exchange return has been a major source of overall fund return, as the rand
has maintained a losing streak against the greenback. A caution though as it works both ways: if the rand appreciates, it eats into your overall return.
With this fund you will gain exposure to about 85% of total equity capitalisation of the 23 most advanced countries, which acts as a hedge against the South African economy and the rand. This makes the fund attractive as a core long-term holding as it enhances diversification and growth potential. However, there is a concentration in US equities, which constitute 64% of the fund’s investments.
Satrix MSCI World is a feeder fund which means it gains exposure to the MSCI World index indirectly through the iShares Core MSCI World UCITS ETF. Nonetheless, it is cheaper than its Sygnia counterpart. Even if we add another layer of fees incurred by Satrix through this indirect exposure its fees are lower at 0.55%, compared with 0.69% for Sygnia. Furthermore, while Satrix automatically reinvests all dividends, Sygnia distributes biannually.
The fund is also exposed to counterparty risk which entails potential loss due to insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments. This risk, however, is low as the institutions involved are well capitalised.
Fund description:The fund tracks the value of the MSCI World Index in rands by investing in the iShares Core MSCI World UCITS ETF (the underlying fund). The MSCI World Index measures the performance of the large- and mid-cap stocks across developed market countries
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Satrix MSCI World ETF
Source: Intellidex, Satrix
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: political developments, economic news, company earnings and
significant corporate events. This short-term noise means the fund is ideal for long-term investors with
tolerance for high risk.
Fundamentals:Equities are driven by level of economic activity. Unfortunately, the spread of Covid-19 has caught most people unaware and its damage to both the global economy and human life has been extensive. The short-term outlook is dire, but equity investments are long term in nature. We also draw comfort from the incredible response by global fiscal and monetary authorities in their stimulus measures to offset the economic impact of the virus. Furthermore, the rand has blown out and its weakness looks set to persist. As such South African investors would be served better by offshore exposure.
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Satrix MSCI World ETF
Alternatives:Sygnia Itrix MSCI World Index ETF
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Satrix MSCI World ETF Fact Sheet
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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