ABSA NewFunds Volatility Managed High Growth Equity
This ETF has delivered -5.67% on a year-to-date (y-t-d) basis as at 30 September 2022, underperforming relative to its benchmark, the NewFunds/Absa Volatility Managed SA High Growth Equity Index. The fund has seen pressure in companies such as Vodacom and Capitec while Gold Fields remained relatively flat, with British American Tobacco having improved on a y-t-d basis.
Vodacom is embarking on a pilot project with Eskom intended on aiding the company to procure all its power needs across operations from independent power producers (IPPs) by 2025. With demand exceeding supply and resulting in ongoing load-shedding, Eskom is reaching out to the private sector for additional capacity which, if successful, would provide a pathway for other private sector players to explore in becoming less reliant on the grid. Given the challenges of load-shedding facing the country, it is unsurprising that some companies have already invested in energy sources independent of Eskom. For instance, Gold Field’s 40-50MW plant went online recently, just as stage 6 load-shedding was implemented in South Africa.
The portfolio tracks and replicates the NewFunds/Absa Volatility Managed SA High Growth Equity Index, an index which enables investors to have exposure to a universe of 15 liquid, JSE listed equity securities selected on a 70/30 factor specification to momentum and low volatility characteristics demonstrated in their performance. The ETF comprises both equities and cash proportionally determined by the risk management process, namely the concurrent target volatility control mechanism and drawdown management process. Its three-year tracking error (the standard deviation of ETF returns minus benchmark returns) of 0.47% suggests that any given return deviation from the benchmark may be an additional 0.47% higher or lower. This tracking error is better than its peer, NewFunds Volatility Managed Defensive Equity ETF, calculated at 1.13% as at 30 September 2022.
Fund suitability
- The target volatility control mechanism aims to increase the proportion allocated to equity securities during periods of low volatility and, in turn, increases the proportion allocated to cash during periods of high volatility. This fund is suitable for investors keen to benefit from diversification both in terms sector and country weightings as noted above. The focus on high growth also implies high risk, therefore making it suitable for investors willing to take on such risks in potential return for higher rewards.
Fees
- The fund has a total Investment cost of 1.15%.
Top Holdings
- The fund has British America Tobacco and Clicks as its top two stocks. With regards to top sector weightings, the fund has 31.8% in Financials, 29.61% in Consumer NonCyclicals and 13.31% in Basic Materials. Investment by country has the most weighting in South Africa (SA) at 79.54% followed by the UK at 13.84%.
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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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