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Intellidex ETF Picks

Contrary to popular belief, stocks do move lower but luckily for our INVSTRs, there are ways to mitigate risk within your portfolio when market corrections happen, check it out!

Intellidex’s favorite ETFs

Bonds and Cash funds:

Current inflation trends in major economies have been described as “transitory” rather than permanent. In addition, SA’s inflation rate has remained subdued. However, as the global economic recovery gains momentum, price changes will reflect a more structural change (higher product and wage costs) and lead to rising interest rates.

Satrix ILBI ETF (STXILB)

Investors can take advantage of this through the Satrix ILBI ETF (+1.2%) with a decent TER of 0.25%. The rise in inflation, although gradual will affect inflation-linked bonds that have principal values regularly adjusted by the inflation rate, as calculated using the consumer price index.

Therefore, the principal value rises over time and investors receive a regular interest payment (coupon) which is based on the adjusted principal value. Investors benefit from increasing coupon payments despite fixed coupon rates as the payment rises in line with the inflation-adjusted principal value.

NewFunds TRACI 3 Month ETF (NFTRCI)

For short-term investors with a time horizon of usually less than a year, money market investments are suitable. The NewFunds TRACI ETF (+0.3%) is appropriate in this regard.

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Dividend and Income:

CoreShares DivTrax ETF (DIVTRX)

The gradual reopening of SA’s economy has led to impressive results from some companies – these included sizeable dividend payments. Dividends are useful for income-oriented investors and boost the total return on equity investments. We like CoreShares S&P SA Dividend Aristocrats as a dividend-paying ETF as it adds constituents based on growth in dividends paid over the long-term, rather than on high dividend yields.

Dividend yields can artificially increase when share prices decline – this was a feature of last year’s pandemic-induced decline in the market. The fund (-5.7%) had a 3.6% dividend yield in July. However, fees are quite steep with a TER of 0.54%.

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CoreShares-Div-Trax

Diversified funds:

NewFunds Mapps Protect ETF (MPPSP) and NewFunds Mapps Growth ETF (MAPPSG)

The two ETFs in this section are useful for investors looking for funds that are already diversified. They combine equities and bonds to produce a diversified portfolio for two investor types with different risk appetites. NewFunds Mapps Protect ETF (+0.8%) is more conservative, usually suitable for older savers. NewFunds Mapps Growth ETF (0.0%) suits investors with a longer-term horizon. However, both funds invest in SA-listed assets only and thus lack an offshore allocation.

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Informed decisions

Patience is key as risks are still balanced to the downside. This will enable investors to wait out the recent rise in infections and participate in the continued recovery of the global economy. Diversification, as always, is important. In addition, an offshore allocation is always useful, as any rand depreciation will boost investor returns.

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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.