ABSA NewFunds Volatility Managed Moderate Equity
This ETF has delivered -3.55% 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 Moderate Equity Index which was at -0.10%. The fund has seen pressure in companies such as Vodacom and Capitec while Gold Fields remained relatively flat, with British American Tobacco (BAT) having improved on a year-to-date basis.
Geneos Wealth Management Inc lowered its stake in BAT by 18.1% during the second quarter with the institutional investor owning 6,010 shares after offloading 1,329 during the period, as it noted in its disclosure to the Securities and Exchange Commission (SEC). There have also been changes from other institutions in BAT holdings. GQG Partners LLC raised its shares by 91.3% in the period to now own 29,035,870 shares. Capital International Investors also increased its holdings by 12.6% in the first quarter to own 9,449,045 shares while Bank of America raised its shareholding by 20.0% to own 7,132,011 shares. BlackRock Inc upped its holding by 11.6% to own 5,624,861 shares and Arrowstreet Capital raised its stake in BAT by 8.6% to own 4,311,628 shares. According to Refinitiv, hedge funds and other institutional investors own 6.70% of the company’s stock.
The fund tracks and replicates the NewFunds/Absa Volatility Managed SA Moderate Equity Index. This index allows investors to gain full market exposure to a universe of 25 liquid, JSE-listed equity securities selected on a 50/50 factor specification to momentum and low volatility characteristics demonstrated in their performance. The fund consists of both equity securities and cash (assets in liquid form), the proportion of which is determined by the risk management process (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 0.33% suggests that any given return deviation from the benchmark may be an additional 0.33% higher or lower. This tracking error is better than both its peer, NewFunds Volatility Managed Defensive Equity ETF (1.13%) and NewFunds Volatility Managed High Growth Equity ETF (0.47%) 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. The financial sector may benefit from the current hiking of interest rates by the reserve bank to curb inflation. Furthermore, the defensive nature of consumer non-cyclicals offers growth over the long-term for investors. However, due to the prevailing inflationary pressures, the short term will likely result in increased volatility in both SA and the UK.
Fees
- The fund has a total investment cost of 0.92%.
Top Holdings
- The fund has cash as its top holding while BAT and Gold Fields are the top two stocks. With regards to top sector weightings, the fund has 22.43% in Consumer Non-Cyclicals, 20.14% in Financials and 9.26% in Basic Materials. Investment by country has the most weighting in South Africa at 82.12% followed by the UK at 11.99%.
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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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