Catch this insight by Intellidex on the South African equity market. This note is on the Sygnia Swix 40 Index ETF. This fund tracks the FTSE/JSE SWIX 40 Index, which consists of South Africa 40 largest listed companies. This ETF is ideal for passive investors with an appetite for risk and seeking exposure to a portfolio of the biggest JSElisted companies.
Intellidex insight:This fund tracks the FTSE/JSE SWIX 40 Index, which consists of South Africa 40 largest listed companies. The Swix weightings methodology only considers shares held on the South African registry. This means that while the ETF selects constituents based on their market capitalisation, companies listed on other exchanges, as well as the JSE, are downweighted according to the proportion of the size of the foreign holdings. The higher the percentage held offshore, the lower it's weighting in the ETF. In this way, the fund provides a more accurate representation of the broad market owned by South African investors.
Naspers and Prosus have an abnormally high combined weighting in the index – they both hold Chinese Tencent as their biggest asset. Thus, any dramatic fall in their share prices exposes investors to a significant capital loss.
The Sygnia Swix ETF has the lowest total expense ratio (TER) among the four JSE-listed Top 40 Swix funds. This is a low-cost and tax-efficient ETF and could form part of a diversified portfolio. It has some protection against rand depreciation as its constituents boast significant international exposure
Fund description:The Sygnia Swix Top 40 ETF tracks the FTSE/JSE SWIX Top 40 Index, which tracks the largest 40 companies listed on the JSE, ranked and weighted by market capitalisation on the South African register.
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Sygnia Swix 40 ETF
Top holdings: While Naspers and Prosus combined hold an abnormally high weighting, the rest of the investee companies have small weightings and are well-diversified across sectors.
Suitability:This ETF is ideal for passive investors with an appetite for risk and seeking exposure to a portfolio of JSE listed companies. While equities are inherently riskier than other asset classes, especially over short periods, they have historically performed better than inflation and other investment asset classes such as bonds and cash over longer investment horizons.
Historical performance:
The fund's disappointing performance is due to its low composition of mining counters in the FTSE/JSE SWIX Top 40 relative to the FTSE/JSE Top 40. Mining companies led by PGMs have been flying for the past few years.
Source: http://etfsa.co.za/docs/perfsurvey/perform%20survey%20-%20Jan2020.pdf and January 2020 fact sheet
Fundamentals:The prospects for this fund are mixed as it is driven by both South African and international exposure. The South African economy is struggling, and this will be exacerbated by the fast-spreading coronavirus. However, as a welldiversified fund, it acts as a shock absorber in these times of volatility as it benefits from the weak rand through companies that have global operations.
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Sygnia Swix 40 ETF
Fund statistics:
Source: iress and January 2020 fact sheets
Alternatives: The fund’s closest peers are the Satrix Swix (TER: 0.44%) ETF and the 1nvest Swix 40 (TER: 0.29%).
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Sygnia Swix 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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