Catch this insight by Intellidex on the South African equity market. This note is on the Sygnia/Itrix Eurostoxx 50 ETF. This ETF is suitable for investors with long investment horizons and can be used as part of a core strategic allocation in your portfolio.
Intellidex insight: The Sygnia/Itrix Eurostoxx 50 ETF is the only ETF on the JSE that offers easy access to more than 50 blue chip companies on various eurozone stock exchanges in one low-cost transaction. These companies account for 60% of the free-float market capitalisation of the Eurostoxx Total Market Index, which has more than 600 counters.
An integral aspect of ETFs holding international assets is two return components: asset price return and foreign exchange movements. The underlying assets of the Euro Stoxx fund are denoted in euros, so any rand weakness adds a layer of foreign exchange return. Specifically, since the Sygnia Itrix Euro Stoxx 50 ETF listed on the JSE in 2005, all of its return has emanated from the depreciation of the rand against the euro. Therefore, the fund is a great way to hedge against rand weakness.
Similarly, the fund enhances geographical diversification. The fund’s total expense ratio (TER) has remained the same as three years ago when Sygnia took it over from Deutsche, despite promises to lower it. Sygnia has introduced a sliding fee structure based on the amount invested, with the best TER of 0.4% for an investment of at least R100m. But this is not helpful to retail investors who invest small amounts and have to hand over
0.86% of their investment in fees.
Investing in this ETF does not affect any exchange control limits as it is rand-settled
Fund description: The ETF tracks the price and yield performance of the Euro Stoxx 50® Index and pays dividends in June and December.
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Sygnia/Itrix Eurostoxx 50 ETF
Top holdings:Some of the prominent companies in the fund include Total, Louis Vuitton, Linde and Unilever. The biggest holding, ASML Holdings, occupies 6% of the fund. The fund is spread over 10 sectors and countries, which makes it well-diversified.
Suitability: We believe the fund is suitable for investors with long investment horizons who can stomach higher short-term volatility, compared with other asset classes like bonds and cash. The fund can be used as part of a core strategic allocation in your portfolio.
Since inception the fund’s rand return has been underwhelming. The underlying euro return of the fund since its listing in 2005 has been flat with the fund’s total return all coming from the weakening of the rand against the euro.
Net asset value performance to end-June 2020 and annualised for periods more than one year
Fundamentals: European stocks have become one of the most unloved asset classes of the last decade for well-documented reasons. The bloc struggled to find legs coming out of the global financial crisis, compounded by debt crises of various member countries, weak consumer demand, Brexit uncertainty and the tariff trade wars.
More recently Covid-19 threatened to deal a final blow to Europe’s economy but an unprecedented monetary response by the European Central Bank should provide a platform for a decent recovery.
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Sygnia/Itrix Eurostoxx 50 ETF
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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