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.

Finweek English Edition - - FUNDFOCUS - A reg­is­tered and ap­proved Man­ager in Col­lec­tive In­vest­ment Schemes in Se­cu­ri­ties. Col­lec­tive in­vest­ment schemes are gen­er­ally medium- to longterm in­vest­ments. Past per­for­mance is not nec­es­sar­ily a guide to fu­ture per­for­mance, and that the value of in­vestm

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

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