Satrix MSCI EM ESG Enhanced Feeder ETF
The ETF is designed to maximise exposure to positive environmental, social and governance (ESG) metrics, particularly in emerging markets. Country allocation is tilted towards China, Taiwan, South Korea and India.
JP Morgan Asset Management ranks China very highly for expected stock market returns over the next 10 to 15 years; however, the investor community has been expressing concerns on the sustainability of investing in the country.
The world’s second largest economy does not stack up well on environmental matters as its greenhouse gas emissions exceeded those of the developed market economies combined in 2019. Some of the country’s environmental issues signify that it has a very large population and its economy is dependent on manufacturing. China has ambitions to source about 25% of energy from renewable sources, which is well below the European Union’s 40% target.
RBC Wealth Management asserts that investors are starting to appreciate ESG as a source of earning superior risk- adjusted returns. The asset manager believes companies that pay attention to ESG have a culture of excellence and have much more engaged employees. The underlying MSCI emerging markets index returned an annualised 10.7% over the last decade.
Globally, there is no coordination on how to measure a company on ESG issues as there are differences in rating methodologies and a limited amount of directly comparable ESG data. Moreover, there remain risks on leaving money on the table by avoiding certain companies that do not fit well into the ESG metrics.
The investment objective of the ETF is to provide investors with a total return, taking into account both capital and income returns, which reflects the return of the MSCI EM ESG Enhanced Focus CTB Index. The fund is rebalanced frequently to match the underlying index, as evidenced by the low tracking error of 0.04%. It has a total expense ratio of 0.40%.
Fund suitability
- This ETF is suitable for investors who have an interest in emerging market equity, combined with a desire to invest responsibly.
Fees
- The fund has a total expense ratio of 0.40%.
Top holdings
- The fund is based on the MSCI EM Index, which includes large- and mid-cap emerging market equities that have positive environmental, social and governance characteristics, while exhibiting risk and return characteristics similar to those of the underlying index.
Satrix MSCI EM ESG Enhanced Feeder ETF (JSE:STXEME)
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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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