Research Portal

Intellidex March 2019 local ETF review


 The value of an equally weighted portfolio of non-commodity JSE-listed ETFs climbed 4.26% during February, slightly ahead of Intellidex’s selection of ETFs which gained 3.05%. Funds that track local assets increased 2.59% on average while those that track global markets grew 6.93%. Returns on international funds were boosted by rand weakness. 

While equities have outperformed our expectations so far, we still feel that the chances of a pullback during the year are high. Earnings results and guidance released by most heavyweights outside of the resources sector on the JSE show they are under pressure. We still feel investors should cushion their portfolios by increasing exposure to funds that are concentrated in quality and defensive stocks as well as smart beta ETFs, which are focused on lower volatility and value factors.

The Macroeconomic view

Equities outperformed our expectations with the JSE all share index gaining 3.4%. The trend of large-capitalisation stocks outperforming small- and mid-caps rolled on in February, suggesting that while investors’ risk appetite has increased as reflected by a shift from bonds to equities, they are still cautious.

Perhaps the most positive news released during February was the imports/exports data where SA recorded a surplus trade balance of R17.2bn during December 2018. The unemployment rate ticked down to 27.1% from 27.5% during the third quarter, which is also positive.  On the negative side, retail trade sales and mining output for December contracted 1.4% and 4.8% respectively year on year.SONA-2019

However, more consequential were the State of the Nation Address (SONA) and the national budget. We think the SONA was largely “sentiment positive” with a commitment to continue and accelerate the clean-up. However, we felt it offered nothing to bolster SA ‘s economic growth. The national budget reflected a strong will by the government to contain expenditure under very difficult conditions.  The all-government bond index and the all share index declined soon after the delivery of the budget but recovered to close the month in the positive territory.



ETF featured

We retain the Satrix SA Quality ETF as our pick in this segment. The ETF selects constituent companies using a set of quality metrics, including return on equity, liquidity and leverage. The top 20% of all JSE-listed companies with the highest scores based on those criteria are included in the fund and weighted by market capitalisation but capped at 10% of the fund.


Click logo to view ETF
New Call-to-action 

Empirical evidence shows that portfolios sorted on factors such as profitability and earnings quality generate high risk-adjusted returns relative to a market portfolio. However, the size of the premium varies, depending on the metrics used to calculate the quality score. The Satrix fund is a perfect fit for our 2019 outlook of a volatile equity market. It returned 0.71% during February.

There's plenty more from where that came from. The team at Intellidex have more insights for the month of February. To see more in-depth analysis and market insights (global and local), check out the full note here.


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

If you thought this blog was interesting, you should also read:

Intellidex Reviews:
February 2019 Picks


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.


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.