The FNB Global 1200 Equity Fund of Funds ETF
Equity markets appear to be oversold as most indices are in negative territory, breaching the technical bear market level of 20%. There are several factors weighing on equity and bond markets. In response to stronger and protracted inflation, central banks, except for the Bank of Japan and the People’s Bank of China, are increasing interest rates while minimising bond purchases.
US inflation eased to an annualised 8.3% in August from 8.5% in July, increasing the probability of aggressive hikes. The Fed stated that it would like to see a sustainable and convincing decline in inflation in order to bring interest rate increases to a halt. What’s more concerning for the Fed is the average hourly earnings, which came in at 5.2% in August for the third consecutive month. The Fed would like to see inflation averaging close to 2%. Unemployment is fairly low at 3.7% and has raised concerns from investors that the Fed will perceive that the economy will be able to contend with higher rates. Higher interest rates increase interest payments for households and businesses while lowering valuations and expected earnings for companies.
In line with global markets, the fund finds itself in the red, down 12.74% year-to-date; however, it has performed decently since inception (6 October 2017), returning an annualised 11.93%. It has R1.5bn in assets, which is a sufficient cushion in the case of significant withdrawals. The fund has a total investment cost of 0.51% and a low tracking error of 0.18%.
The exchange-traded fund (ETF) is structured as a fund of funds ETF and achieves efficient tracking by investing in ETFs that reference the seven composite headline regions represented in the S&P Global 1200
Fund suitability
- This ETF is ideal for investors seeking diversified global exposure to global equities. It is suitable for long-term investors who can stomach short-term volatility or losses. In light of the expected slowdown, the fund will offer a diversified exposure to some of world’s well-capitalised sectors.
Analysis of the fund’s strategy
- The FNB Global 1200 Equity Fund of Funds ETF invests in other ETFs to deliver price and capital performance, net of fees
Fees
- The fund has a total expense ratio of 0.46%.
Top Holdings
- The fund tracks the S&P Global 1200 Index, which captures about 70% of the world’s market capitalisation across 30 countries. The fund’s exposure to international equities leaves it liable to risks such as currency, general market conditions and volatility, as well as company-specific, economic and political risk.
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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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