The latest unit trust figures show that tracker or passive funds have outperformed the actively managed funds over the past two years. With so much investment choice out there and concerns over the impact of costs in a low-inflation environment, investors looking for a simple equity investment with low costs could consider an index tracking fund such as the JSE’s Satrix securities.
Basically, a Satrix Security is an exchange-traded fund; a basket of shares that passively tracks an underlying index and is itself listed on the JSE. It gives you the same exposure and dividend income as if you had individually bought each underlying share. For example, Satrix 40 tracks the largest 40 shares on the JSE. To have exposure to all those shares individually would be a minimum R200 000 investment as most brokers advise that you invest a minimum of R5 000 per share for cost efficiency.
The other three main index trackers are Satrix Fini, Satrix Indi and Satrix Resi. As their names suggest, they track the financial index, industrial index and resource index respectively. So, if you wanted to, you could create an overweight position in industrials, financials or resources.
There has been some criticism that the point of offering uncomplicated, diversified exposure to equities has been undermined by these additional offerings, but it will appeal to investors who like to have a sector bias but still want diversification across that sector.
One of the failings of the Satrix 40 was that it tended to be heavily in favour of rand-hedge stocks, particularly mining and dual-listed companies, as these dominate the JSE in size. So if commodities were not performing well relative to the shares geared to the domestic economy, Satrix 40 would be weighed down.
Satrix recently launched Satrix Swix Top 40. This index downweights the shares in the Top 40 index held by non-South African shareholders. This reduces the net weightings of resources and dual-listed stocks and increases the weightings of financial, industrial and telecommunications shares, relative to the Top 40 Index. This index is regarded by South African asset managers as a better benchmark for the performance of the local South African equity market.Â
Of course, this index could lag its big brother when the rand tumbles and should be seen as a proxy for the domestic market.
Because Satrix can be bought through a stockbroker, it is also the ideal place to build up your investment until you have enough money to buy individual shares. Satrix also provides an investment plan if you wish to purchase the shares through a debit order.
The good and the bad
The major positive of Satrix is that it is a relatively low-cost entry providing a diversified exposure to equities. However, if bought through a stockbroker the normal fees will apply. For smaller lump sums, this may make it less cost-effective. Online brokers charge a minimum fee of between R90 and R100 and then there is marketable securities tax of 0,25% and Strate fees. In total, the minimum fee would be in the region of R120.
Satrix charges no annual management fee but your broker broker might have a monthly administration fee on your account.
Satrix offers an investment plan. A lump-sum investment attracts a 0,35% upfront fee and the fee on a debit order is also 0,35% plus an additional R3,50. A R5 000 investment would attract a charge of R18. However, there is an annual management fee of 1%. So, on a R5 000 investment you would pay R50 a year.
The negative is that Satrix cannot provide active asset allocation and should be seen as a long-term investment or as a portion of your overall investment.