Top Fund Picks for November

Intellidex ETF Picks

Each month the investment gurus at Intellidex scan the market to come up with a list of their favorite ETFs.

• Domestic equities - Absa NewFunds Low Volatility (NFEVOL) and Satrix FINI (STXFIN) ETFs
  
• International equities - Satrix Global Infrastructure (STXIFR) and Sygnia Itrix S&P 1200 ESG (SYGESG) ETFs
  
• Bonds and cash - Absa NewFunds ILBI (STXILB)
  
• Dividend or income-focused - CoreShares S&P Global Dividend Aristocrats ETF (GLODIV)

Various empirical studies conclude that the bulk of equity returns stem from diversification among broad asset classes rather than from individual stock picking. As such, our grouping is done with a diversified portfolio in mind, ensuring appropriate exposure to different asset classes. First, we group the ETFs according to the three widely recognised asset classes – equities, bonds and cash. We further split equities into geographic groupings, then add a category for equity ETFs with an income theme.

What's in it for EasyVSTRs?

Our picks should provide an investor with a relatively diversified portfolio made up only of ETFs. However, asset allocation is not a one-size-fits-all concept. You need to make sure that weights of different asset classes in your portfolio meet your unique risk-and-return objectives. Multi-asset ETFs, which are already diversified among asset classes, are analysed as a separate category.

As a rule of thumb, we like ETFs that follow a watertight investment philosophy. They should also be tax smart, which means they should qualify to be in a tax-free savings account. To avoid overconcentration, a good ETF should cap its exposure to a single sector and/or a single counter. While competition among providers is intensifying and ETF costs are coming down, we look at this metric closely and prefer ETFs with low total expense ratios (TERs). An overview of our favourite funds for each category follows.

Domestic equity

Absa NewFunds Low Volatility (NFEVOL) 

• As volatility persists, we advocate for low volatility ETFs such as the Absa NewFunds Low Volatility ETF (+8.7%).
  
  
• The fund is one of the few who have yielded positive returns year-to-date. It invests in 20 highly liquid stocks that exhibit low volatility and low correlation with the overall market. It is relatively costly though, coming a Total Expense Ratio (TER) of 0.50%.
  
  
• The ETF consists of defensive sectors such as healthcare, consumer goods and telecoms. Some of the stocks within these sectors are attractive at current valuations. The fund has a fairly low net asset value of R124m.

Satrix FINI (STXFIN) 

We expect inflation to persist until supply chain disruptions and the war in Ukraine are resolved. These challenges will require more than monetary and fiscal policy to resolve. As a result, we favour the Satrix FINI ETF (+11.5%).

• The underlying index consists mainly of financial companies. Financials such as banks and insurers stand to gain from a rising interest rate environment because they generally have a sizeable amount of cash on their balance sheets or are able to lend to customers at higher interest rates. The fund comes at a reasonable TER of 0.43% and it is the only one of its kind which invests solely in financials. While sentiment is quite bearish on SA, our banking and insurance sectors rank as one of the best by global standards due to their respective safety and soundness.
• The ETF has returned an impressive 11.2% year-to-date and is well capitalised with a net asset value of R980m.

Absa NewFunds Low Volatility (NFEVOL) and Satrix FINI (STXFIN) ETFs

Foreign equity

Satrix Global Infrastructure (STXIFR) 

While stock markets have had to contend with minimal to negative returns year-to-date, one of the key areas that remain on the rise is infrastructure. President Joe Biden and former president Donald Trump have approved major infrastructure programmes in recent years. The global infrastructure market was valued at $2.2bn in 2021 and was forecast to reach $3.4bn by 2027, according to Mordor Intelligence. ETFs are a good access point to investments in the sector.

This brings us to our first offshore ETF pick which is the Satrix Global Infrastructure (STXIFR) ETF (+4.0%).

• Launched in September 2021, the fund has yielded a return of 7.8%, with a relatively high TER of 0.77%.
  
  
• It has a specific focus on worldwide companies involved in core infrastructure activities, including development, ownership, operation, operation, management and maintenance of structures

Sygnia Itrix S&P 1200 ESG (SYGESG) ETFs

While the sell-off has been protracted, we believe it has resulted in price dislocations and opened room for investors to pick up stocks at attractive prices, which brings us to our second pick which is the Sygnia Itrix S&P Global 1200 ESG ETF (7.8%).

• Sentiment is quite bearish on developed markets, especially in Europe as the region is experiencing extreme price pressures as a result of its dependence on Russian oil and gas supplies.
• What’s exciting about this ETF is that it holds stocks that meet a sustainability criterion. ESG ETFs have seen net inflows of $4.5 billion through the end of May, according to data from Trackinsight. There have been over 25 new global ESG ETFs that have launched so far this year, with climate change and carbon transition remaining a popular theme. These funds are aimed at taking advantage of investment pledges made by asset managers and governments to reduce carbon emissions. For example, President Biden signed the Inflation Reduction Bill into law in August 2022. The bill directs about $370bn towards producing clean energy. The fund comes at a low TER of 0.36%, which is attractive for an offshore fund. 

Satrix Global Infrastructure (STXIFR) and Sygnia Itrix S&P 1200 ESG (SYGESG) ETFs

• We continue to favour SA bonds as they pay a premium for being rated as sub-investment grade. The Satrix ILBI (-1.6%) is compelling in the current inflationary environment.
  
  
• It has the lowest TER (0.25%) in its class and a net asset value of about R500m. Inflation has been a cause for concern for monetary policy officials, businesses and consumers alike locally and internationally as it eats into purchasing power, profit margins and disposable incomes. A small economy such as SA is always vulnerable to inflationary pressures that feed through the volatile exchange rate. It is necessary for investors to pay attention to the growth of their investments along with the inflation rate.
  
  
• Inflation-linked bonds are designed to help protect investors from inflation. These bonds are indexed to inflation so that the principal and interest payments fluctuate with the rate of inflation. They offer additional benefits in a broader portfolio context. Headline inflation eased slightly to 7.5% year-on-year in September, from 7.6% in August.
  

Dividends: CoreShares S&P Global Dividend Aristocrats ETF (GLODIV)

• As we did last month, we still advocate for the CoreShares S&P Global Dividend Aristocrats ETF (+0.7%). The fund is up 5.2% year-to-date and has risen 7.8% over the last three years.
  
  
• It is suitable for investors who rely on regular income from investments.
  
  
• The underlying index is in the red year-to-date and has significant weighting to consumer staples, financials and energy. It invests in high dividend-paying companies.
  
  
• Dividend stocks yield capital returns in addition to regular income, which makes them less volatile than the overall market. Because of their lower volatility, dividend stocks often appeal to investors looking for lower-risk investments, especially those in or nearing retirement.

New to investing

and want to learn more about other ETFs?

Read: Intellidex Analysis: Sygnia Itrix MSCI US

Compare ETFs on EasyETFs

Background: Exchange-traded funds (ETFs)