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Top Fund Picks for November

Written by EasyETFs | 10-Nov-2022 22:00:00

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)
How did we come up with top picks?

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


Bonds and cash: Absa NewFunds ILBI (STXILB)
  • 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.

                                                                          Absa NewFunds ILBI (STXILB)

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.

                                                         CoreShares S&P Global Dividend Aristocrats ETF (GLODIV)

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)

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

Disclaimer

This research report was issued by Intellidex (Pty) Ltd. Intellidex aims to deliver impartial and objective assessments of securities, companies or other subjects. This document is issued for information purposes only and is not an offer to purchase or sell investments or related financial instruments. Individuals should undertake their own analysis and/or seek professional advice based on their specific needs before purchasing or selling investments. The information contained in this report is based on sources that Intellidex believes to be reliable, but Intellidex makes no representations or warranties regarding the completeness, accuracy or reliability of any information, facts, estimates, forecasts or opinions contained in this document. The information, opinions, estimates, assumptions, target prices and forecasts could change at any time without prior notice. Intellidex is under no obligation to inform any recipient of this document of any such changes. Intellidex, its directors, officers, staff, agents or associates shall have no liability for any loss or damage of any nature arising from the use of this document.

Remuneration

The opinions or recommendations contained in this report represent the true views of the analyst(s) responsible for preparing the report. The analyst’s remuneration is not affected by the opinions or recommendations contained in this report, although his/her remuneration may be affected by the overall quality of their research, feedback from clients and the financial performance of Intellidex (Pty) Ltd.

Intellidex staff may hold positions in financial instruments or derivatives thereof which are discussed in this document. Trades by staff are subject to Intellidex’s code of conduct which can be obtained by emailing mail@intellidex.coza.

Intellidex may also have, or be seeking to have, a consulting or other professional relationship with the companies mentioned in this report.