SA catches ETF bug
Recently two new Satrix exchange-traded funds (ETFs) listed on the JSE, giving investors further low-cost opportunities to invest in South African companies. This brings to five the number of Satrix funds available to investors and the number of ETFs listed on the JSE to nine.
ETFs are basically index trackers and can be applied to any index in the world.
They comprise an entire index, or basket of shares, structured so they can trade as a single share that can be bought through a stockbroker. Satrix offers exposure to the FTSE/JSE Top 40 index, -financial index and industrial index.
Of the two new Satrix funds, Satrix Resi tracks the top 20 resource stocks that make up the resources index, or Resi 20, and the Satrix Swix 40 tracks a shareholder-weighted Top 40 index that reduces the exposure to resource stocks among South Africa’s 40 largest listed companies.
Satrix’s sister product Itrix offers local investors the opportunity to invest in the FTSE 100 and EuroStoxx 50, the 50 largest European stocks, through its two ETFs listed on the JSE.
The idea behind ETFs is that you can access blue chip companies for a fraction of the cost of purchasing individual shares.
By buying the ETF through a broker you only pay brokerage for one security compared to buying 20 to 30 individual shares for the same diversification and exposure.
For example, Satrix Resi will give investors an opportunity to benefit directly from the surge in resource shares, which has seen the resource index rise 41% since September on the back of continued demand for commodities.
On the flip side, Satrix Swix 40 has been developed as a result of demand for exposure to the biggest South African listed companies with a lower weighting to resources.
Owing to the sheer magnitude of resource companies such as Anglo American, unweighted resource stocks make up about 40% of the performance of the Top 40 index.
While this can be to investors’ benefit in a commodity boom, resources are notoriously cyclical and the Swix 40 has been designed with a re-weighting of the Top 40 index with foreign shareholdings reduced and cross holdings and strategic holdings adjusted.
“The impact is to reduce the weightings of dual-listed, mainly resource, stocks in the Top 40 by about half, reducing the volatility and smoothing out performance over time,” says Mike Brown, manager of Satrix Managers.
ETFs are big business internationally with global pension fund managers investing about 50% of their cash in 420 ETFs listed globally, which account for more than $360-billion of investments.
Locally, it has taken a while for the popularity of investing in ETFs to take off.
However, the past year has shown enormous growth and at present there are 30 000 investors in Satrix.
Last year the volume of shares traded in Satrix 40, which tracks the JSE Top 40 index, jumped by 156%, making it one of the most liquid and highly traded stocks on the JSE.
Satrix 40 is currently attracting more than R1-billion in trades each month.
Satrix Resi raised R54,77-million during the initial public offering prior to listing and Satrix Swix 40 raised R68,27-million.