2016’s top per­form­ers

Smart in­dex prod­ucts sig­nif­i­cantly out­per­formed the FTSE/JSE All Share In­dex last year.

Finweek English Edition - - MAR­KET PLACE - Ed­i­to­rial@fin­week.co.za

in 2016 there was a resur­gence in the re­sources sec­tor on the JSE af­ter un­der­per­for­mance over the pre­vi­ous few years and an in­crease in com­mod­ity prices. This per­for­mance was also re­flected in the in­dex-track­ing funds, where re­source funds fared rel­a­tively well for the year.

The top-per­form­ing ex­change­traded fund (ETF) of the last year was NewFunds S&P Givi Resi, which had a re­turn of 34.89% for the year (in­clud­ing the rein­vest­ment of div­i­dends).

This is ac­cord­ing to et­fSA.co.za’s Per­for­mance Sur­vey for the pe­riod ended 30 De­cem­ber 2016, which mea­sures to­tal in­vest­ment re­turns for all 71 JSE-listed ETFs/ETNs (ex­change­traded notes) and 24 in­dex-track­ing unit trusts for pe­ri­ods of one month to 10 years. (See top ta­ble on the right.)


The past year was a dis­rup­tion from the pre­vi­ous five years as the ma­jor in­dices failed to pro­duce strong in­vest­ment re­turns, says Mike Brown, manag­ing di­rec­tor of et­fSA.co.za.

The FTSE/JSE All Share In­dex (Alsi) de­liv­ered a to­tal re­turn per­for­mance (with div­i­dends rein­vested) of 2.4%. The Top40 In­dex recorded a neg­a­tive re­turn of 1.83% for 2016 and in­dus­trial shares fared even worse.

The best per­form­ing main sec­tors last year were re­sources (the FTSE/JSE RESI 10 In­dex rose by 27.7%) and SA fixed in­ter­est bonds (up by 14.4%), says Brown.

Ac­cord­ing to Brown the best­per­form­ing in­dex-tracker funds in 2016 were prod­ucts which fo­cused not on mar­ket cap­i­tal­i­sa­tion and high liq­uid­ity, but Smart Beta ETFs, which use other risk fac­tors like value, div­i­dends, volatil­ity and fun­da­men­tal in­dex­a­tion to search for pock­ets of value.

With Smart Beta ETFs, the com­pil­ers of in­dices look to fac­tor or risk cri­te­ria to se­lect shares that pro­vide ac­cess to a par­tic­u­lar type or style of in­vest­ment, says Brown. This can be fun­da­men­tal or in­trin­sic anal­y­sis or coun­ters which of­fer spe­cific value, or in­vest­ments based on a se­lec­tive cri­te­ria, such as high div­i­dend pay­ments, low or high volatil­ity, etc.

The in­vest­ment per­for­mance of smart in­dex prod­ucts in 2016 shows in­vest­ment re­turns of over 20% to 34% for the year, com­pared with a to­tal re­turn of 2.4% for the Alsi.

The best-per­form­ing smart in­dex prod­ucts for 2016 are shown in the mid­dle ta­ble along­side.

Ac­cord­ing to Brown the best­per­form­ing in­dex-track­ing ETFs and pas­sive unit trusts over the three and five year pe­ri­ods show a sig­nif­i­cant out­per­for­mance rel­a­tive to the Alsi. The top sec­tors were off­shore in­vest­ments, which ben­e­fit from the JSE list­ing of to­tally for­eign-based in­ward in­vest­ment ETFs/ETNs, listed prop­erty in­dices and se­lected JSE Sec­tors, like in­dus­tri­als and fi­nan­cials, rather than the broad ap­proach of an All Share or Top40 In­dex.

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