1nvest S&P 500 Info Tech Feeder ETF
Stock markets across the globe have had a difficult year and the S&P 500 Info Tech Index is no exception. Global fears of a recession in the world’s largest economy have sent the markets to negative territory. The market is bracing for volatility in the short term as Fed chairman Jerome Powell made strong remarks about inflation, stating that the US would “use all tools forcefully for some time” and acknowledging it would inflict some pain, which is the unfortunate result of taming inflation. The dollar has gained significantly on the back of the recent interest rate hikes from the Federal Reserve Bank.
Companies in the index have a global footprint. The dollar strength has made it prohibitively difficult for customers in other countries to purchase products that are priced in dollars, with latest results from Microsoft confirming the difficulty in operating under a stronger dollar.
Apple, the fund’s largest holding, has massive cash on its balance sheet. Following a new US law in 2018, the company has been on an endeavour to return the cash to investors in the form of cash dividends and share buybacks. This reduced the cash on hand to $51.5bn in March 2022 from $100.6bn in March 2019. The CFO expects the cash to reduce to net zero over the next couple of years.
The Fund has delivered an impressive 27.28% since inception (7 Mar 2018); however it is in the red year-to-date. It has a reasonable total investment cost of 0.35% and a low tracking error of 0.60%, suggesting frequent rebalancing to match the underlying index.
The objective of the 1nvest S&P 500 Info Tech Index Feeder ETF is to track the S&P 500 Capped 35/20 Information Technology Index as closely as possible by utilising the Feeder Fund framework.
Fund suitability
- This ETF is ideal for investors seeking broad exposure to the US tech sector. It is suitable for long-term investors who can stomach short-term volatility or losses. The average bear market lasts far shorter than the average bull market, according to the Schwab Center for Financial Research, suggesting that long-term investors are better off staying invested during market volatility.
Fees
- The fund has a total expense ratio of 0.50%.
Top 10 holdings
- The top 10 holdings are dominated by some of the largest tech companies on the S&P 500. The Index measures the performance of stocks from the S&P 500 Index that are within the Global Industry Classification Standard information technology sector and uses capping to ensure diversification among companies within the index.
Analysis of the fund’s strategy
The 1nvest S&P 500 Info Tech Index Feeder ETF tracks the S&P 500 Capped 35/20 Information Technology Index to provide investors with returns, net of fees.
1nvest S&P 500 Info Tech Feeder ETF (JSE:ETF5IT)
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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
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