‘No scrip lending income has accrued to the management company’
IN YOUR ISSUE of 12 April you published a report headlined “It’s been a three-year party”. It looked at costs in the investment industry. A good part of that report appears to be directed to comments that the costs associated with investing in the Satrix exchange-traded funds are appreciably higher than they really are.
“What does Satrix really cost?” was a separate report, for instance, committed to one asset manager’s attempts to restate the Satrix cost structure. Also, a number of references were made in the report to imply that the performance of the Satrix 40 is seemingly different to what it really is.
The performance and cost structures of Satrix are a matter of public record. We’re included in a number of surveys of performance of collective investments and our accounts (as publicly listed securities) are freely available. They can be viewed and downloaded on the Satrix website, www.satrix.co.za, under the “Financial info” button, click on “Satrix Financial Statements”. They are the audited accounts prepared to the standards required for listed companies on the JSE, conform to IFRS and all expenses are fully disclosed.
It was with some surprise, therefore, that we find that the Satrix policy of full disclosure isn’t taken advantage of and your report contains a number of inaccuracies. Those fall under the following broad categories: Benchmarks: The report indicates that Satrix 40 has underperformed the FTSE/JSE total return Top 40 index. That may well be true, because it is not the mandate of Satrix to track the total return index. A total return index implies that all dividends are reinvested on the day they’re announced and remain invested to infinity.
The compounded effect of that capitalisation of dividends, and the fact that the FTSE/JSE calculates the total return index totally devoid of costs, makes a total return index an elusive target and, as far as I’m aware, no equity invested collective investment scheme targets a total return index as its benchmark.
Like Satrix, they pay out dividends to investors on a regular basis, quarterly in the case of Satrix, and even if those dividends are reinvested, timing differences and the costs associated with such transactions mean that a product that distributes its income will always suffer relative to an automatic reinvestment in a total return index.
Stating, as you do in your report, that Satrix 40 underperforms the total return index is like saying that “Sunderland had a bad year in the English Premier football division”. Of course, it did; it doesn’t play in the Premier Division! Comparing a product such as Satrix 40 to an index that it isn’t mandated to track is an exercise in “intellectual slipperiness” that doesn’t bear further comment. Satrix performance: The Quarterly Unit Trust Survey, which compares the performance of most registered collective investment schemes, shows the following performance for Satrix 40:
The performance figures quoted above are from an independent source; they include the reinvestment of dividends, both for the index and for Satrix 40. But the benchmark is the Top 40 capital value index, plus dividends, and not a total return index.
Satrix 40 clearly doesn’t underperform its benchmark by the wide margin implied in your report. To the extent that it doesn’t match the benchmark, that can be accounted for by a 1%/year fee that’s charged against Satrix in compiling the performance statistics.
The 1% fee relates to an administration fee charged by the company that administers
We live in hope that other unit
trusts will include their distribution costs in compiling their performance data but we’re
not holding our breath.
the Satrix Investment Plan. That company has nothing to do with Satrix and the fee isn’t earned by Satrix but by the administrator.
Similarly, we believe that the average retail investor would pay a brokerage charge of 1% in buying Satrix 40 through a stockbroker. So we’ve opted to include that 1%
Taking issue with our report. Mike Brown