A closer look at the Satrix MSCI World Equity Index Feeder Fund
This rand-denominated investment allows you to earn the returns of leading indices at a low cost.
the Satrix MSCI World Equity Index Feeder Fund is a rand-denominated feeder fund that gives you 100% offshore exposure. This underlying unit trust (Sanlam World Equity Tracker Fund) tracks the MSCI World (DM) Equity Index, which consists of more than 1 600 stocks across 23 developed markets. The largest exposure is to the US (59%), Japan (9%), UK (7%), France (4%) and Canada (4%).
Johann Hugo, portfolio manager at Satrix, says: “The ‘parent fund’ tracks its benchmark through an optimisation process, whereby we use between 850 and 900 shares to represent the total index of more than 1 600 shares.”
This MSCI World Index is well diversified, with no single share having a higher weight than 1.7%. The underlying fund invests in some of the most recognised listed companies in the world such as Apple, Facebook, Amazon, Nestlé and Johnson & Johnson, giving you true First World exposure.
Choosing where to invest your capital offshore can be difficult as there are many styles, mandates, regions and funds to choose from. The Satrix MSCI World Equity Index Feeder Fund is biased towards the largest economies around the globe in US dollars, which are mostly developed markets. “But as a South African, the bulk of the rest of your portfolio is probably invested in South African assets through your retirement fund and property,” says Hugo. “This means you’re already enjoying significant emerging-market exposure through these assets. In fact, some developed market exposure may be exactly what you need to diversify your overall portfolio.”
Further, a portfolio that tracks an index is a very cost-effective way to invest as the annual asset management fees are a lot lower than those of actively managed funds. Foreign exchange tax clearance is also not required. The reason for this is that this fund is a randdenominated fund and that the client is not physically repatriating money, but that Satrix is using its own foreign allowance capacity to buy into the dollar-denominated Sanlam World Equity Tracker fund.
The rate at which money flows into/out of this portfolio can mostly be linked to the directional movement of the rand. “The total assets of the fund recently managed to break through the billion rand mark,” says Hugo.
Why would you choose this fund?
SA contributes (probably less than) 1% to global GDP. This is a staggeringly low number when considering exposing 100% of your capital to it. South African companies are for the most part excellently run, but we have little or no exposure to so many global growth industries, both emerging and established.
Over time, share prices rise because companies grow their earnings. Currently, in the SA economy, the consumer and the rand are struggling. This makes growing earnings – and hence share prices – tricky. The net result is muted stock market performance going forward and low growth for your wealth.
Add to this rand depreciation. The rand has historically depreciated against developed market currencies at a rate of 6% per annum. But 2015 shocked most when it depreciated 30%. In hard currency dollar, pound or euro terms your money is being devalued even faster than you think.
Further, many active fund managers struggle to outperform the index over time. The ones who do are also very difficult to identify upfront. Therefore investing in the index means you get the market return of this global index at a low cost without having to choose the next winning manager.
What is a feeder fund?
A feeder fund is a portfolio that, apart from assets in liquid form, invests in a single portfolio of a collective investment scheme, which levies its own charges and which could result in a higher fee structure for the feeder fund. The Satrix MSCI World Equity Index Feeder Fund invests in the dollar-based Sanlam World Equity Tracker Fund listed on the Irish Stock Exchange.
If you invest in rand-denominated investment options or other feeder funds, your investment and currency exposure is foreign, but you invest in rand and get paid out in rand. Therefore your money does not physically leave South Africa but your capital has all the benefits of being invested offshore including capitalising on rand depreciation, should there be any.
Johann Hugo Portfolio manager at Satrix