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Intellidex Reviews May 2019: Other ETFs

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In April the all-share index rose 3.66%, propelled by local retailers (up 10.01%) and banks (up 6.82%) on the back of an anticipated ANC election victory. In an April UBS report, SA-focused stocks were expected to benefit if ANC won the election by at least 55% of the vote.

The Microeconomic view

Little wonder that the best-performing local equity ETFs were NewFunds SA (up 7.84%) and Satrix Fini (up 7.46%), which have huge financial and retail exposure. Swix-weighted funds also did well. The equally weighted portfolio of JSE listed ETFs, excluding commodity ETFs, rose 2.53% while Intellidex’s portfolio was up 2.25%.

However, this month has started on the back foot with top resources stocks shedding 4.63% by close of business on 10 May. With the renewed global trade tensions, market gains since the beginning of the year are under threat.


ETFs featured

We have split the ETFs featured into three broad categories: 

Bonds and Cash:

Bonds should find their way into a well-diversified portfolio due to their risk-diversification attributes. If you are investing for a very short period, usually less than a year, then the NewFunds TRACI 3 Month (up 0.64% in April) is a natural choice because it is least sensitive to sudden adverse interest rate movements. It is like earning interest on your cash at the bank with a minimal possibility of capital loss. 

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Invest NewFunds TRACI 3-Month ETF

You can also park your funds in a money market fund if you’ve a lump sum that you wish to put down as a deposit for big-ticket item purchases like a house or car while you shop around. It’s a better option than putting money in a current account that does not earn interest.

For a longer investment horizon, protecting your investment against inflation is paramount. We maintain our choice of the Satrix ILBI ETF (up 3.37%), has the lowest expense ratio in this category.

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Furthermore, nominal bonds add a unique risk-return dimension that differs from inflation-linked bonds and improves overall portfolio performance. As with equities, investors also need to diversify their bond portfolios internationally. Our choice is the Stanlib Global Bond ETF (down 1.29%), which tracks investment-grade sovereign bonds mostly issued by the US, UK, Japan and selected European countries. The Stanlib Global Bond ETF has the lowest TER. 

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Dividend:

If you rely on your investment income for day-to-day expenses you may want to allocate a portion of your portfolio to ETFs that have a high distribution ratio. Property funds tend to have even higher pay-out ratios. We maintain our choice of the Stanlib SA Property ETF (up 1.07%). The Stanlib fund boasts the lowest TER in the segment. 

For foreign property funds ETFs, the Sygnia Itrix Global Property ETF (up 3.51%) is the cheapest in this category.

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Diversified funds:

If you find the process of diversifying your portfolio daunting, two ETFs can do it for you. They combine equities and bonds to produce a diversified portfolio for two investor archetypes:

Mapps Protect is more conservative, usually suitable for older savers.  
Mapps Growth suits investors with a long-term horizon.
They climbed 3.91% and 5.17% respectively in April. 

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I want to participate in the Satrix Quality IPO I want to participate in the Satrix Quality IPO

There's plenty more from where that came from. The team at Intellidex have more insights for the month of May. 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 
April 2019: Other Picks

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.