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3 Holiday ETF Picks

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Intellidex Equity ETF Picks

The holiday season is here ETF INVSTRs and the “Santa Clause Rally” is almost here! This December Intellidex gives us some of their favorite ETF picks across different sectors to kick start your portfolio.

Here are the Intellidex top picks this holiday season:

Domestic Equity

CoreShares Top 50 ETF (CTOP50)

South Africa’s discovery of the Omicron variant is a blow to the local economy’s prospects given the relatively low vaccination rate. In addition, SA’s Q4 real GDP reading faces downward risk due to the prospect of a stricter lockdown and reduced activity in the tourism industry in the wake of international travel bans on Southern Africa.

As a result, we believe that broad exposure to larger-cap shares may be beneficial, as more domestically focussed mid-and small-cap shares are likely to suffer the most pain from SA’s weak economic conditions. The CoreShares Top50 ETF (+4.5% in November) provides investors with less-concentrated exposure to the JSE than its traditional Top40 counterparts.

Also, its capped exposure to the Naspers/ Prosus pair allows for careful exposure to China where regulatory interventions have made investors uneasy. While this is the case, strong returns may await patient investors – in its outlook for 2022, JP Morgan reports that China’s economic and social interventions are designed to foster inclusive growth and to increase the size of its middle class by over 300-million citizens by 2030. This is expected to boost economic activity, corporate earnings, and Chinese shares. The fund has a total expense ratio (TER) of 0.25%.

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Foreign Equity:

Satrix MSCI World ESG Enhanced ETF (STXESG)

On the back of the recent COP26 conference in Glasgow, we retain one of our foreign equity picks from last month. The Satrix MSCI World ESG Enhanced ETF (+4.1%) provides investors with exposure to global equities with an ESG tilt. Data from global energy firm BP shows that in order for the world to reach the net-zero carbon emissions target set by major carbon producing countries (2050), that fossil fuels’ share of the global energy mix would have to decline to 20% from the current level of 80%.

Moreover, research by the International Energy Agency finds that global investment in green energy would have to triple to $2.3tn by 2030 to reach the 2050 target. Over the medium term, we still expect some exposure to fossil fuels to power the world’s energy needs as the transition to renewables continues. However, we expect the investment in renewable energy to benefit Satrix MSCI World ESG Enhanced, which has a TER of 0.33%.

Dividend/ Income:

CoreShares S&P Global Dividend Aristocrats ETF (GLODIV)

In its latest update, the International Monetary Fund forecasts global economic growth of 5.9% in 2021 and 4.9% in 2022. As an extension of the value theme discussed above, our dividend-related choice for investors is the CoreShares S&P Global Dividend Aristocrats ETF (+4.0%). Against the moderate to strong economic growth backdrop where interest rates increase and the market favors value shares, this ETF may add further value to investor portfolios through its income component. The US dominates its country weighting (58%), but it is also heavily invested in the value segment of US equities with 16.9% in industrials and 12.6% in financials. It is, however, expensive with a TER of 0.64%.

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Informed decisions and Outlook

Moving into 2022 and beyond, Intellidex expects the following factors to be the main drivers of global economic activity and investment returns: Covid-19 vaccination levels are given the emergence of Omicron; supply-chain blockages and inflation; central banks reducing asset purchases and increasing interest rates; global progress on renewable energy investment (discussed in the equity section) and China’s regulatory and economic realignment. From an investment perspective, global bank JP Morgan expects the Bank of England to end its asset purchases in 2021 and the US Federal Reserve and the European Central Bank to reduce asset purchases in 2022.

Within equities, rising interest rates are expected to favor “value” over “growth” shares, as the former has higher exposure to the economy and is more cyclical in nature. Sectors that fit the profile include energy, industrials, and financials that especially benefit from rising interest rates. Growth, which performed exceptionally well before and during the pandemic should not see a sell-off but a moderation. However, shares that trade at excessively high valuations may be more susceptible to rising interest rates.

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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

Disclaimer

This research report was issued by Intellidex (Pty) Ltd. Intellidex aims to deliver impartial and objective assessments of securities, companies or other subjects. This document is issued for information purposes only and is not an offer to purchase or sell investments or related financial instruments. Individuals should undertake their own analysis and/or seek professional advice based on their specific needs before purchasing or selling investments. The information contained in this report is based on sources that Intellidex believes to be reliable, but Intellidex makes no representations or warranties regarding the completeness, accuracy or reliability of any information, facts, estimates, forecasts or opinions contained in this document. The information, opinions, estimates, assumptions, target prices and forecasts could change at any time without prior notice. Intellidex is under no obligation to inform any recipient of this document of any such changes. Intellidex, its directors, officers, staff, agents or associates shall have no liability for any loss or damage of any nature arising from the use of this document.

Remuneration

The opinions or recommendations contained in this report represent the true views of the analyst(s) responsible for preparing the report. The analyst’s remuneration is not affected by the opinions or recommendations contained in this report, although his/her remuneration may be affected by the overall quality of their research, feedback from clients and the financial performance of Intellidex (Pty) Ltd.

Intellidex staff may hold positions in financial instruments or derivatives thereof which are discussed in this document. Trades by staff are subject to Intellidex’s code of conduct which can be obtained by emailing mail@intellidex.coza.

Intellidex may also have, or be seeking to have, a consulting or other professional relationship with the companies mentioned in this report.