You can’t go wrong but could go further than SA’s favourite ETF
JSE’s oldest listed ETF has produced average annual return of just over 13% since 2000
● South African investors again chose the Satrix 40 ETF as their favourite exchange traded fund and it therefore claimed the People’s Choice award at this week’s annual South African Listed Tracker Awards (Salta).
This ETF, turning 20 later this year, is the oldest of the 78 ETFs now listed on the JSE.
It received almost a third of the votes, with investors saying it had made them a lot of money and paid for the likes of overseas holidays, said Mike Brown, the managing director of ETF platform etfSA.
Tracking the JSE’s top 40 index through this ETF has served investors well, as it has had an average annual return of just over 13% a year since its launch in December 2000.
The Satrix 40 didn’t deliver the best performance from an equity ETF over any of the periods for which Salta awards were made — but the best performers are typically ETFs that track sectors or commodities that are at the top of their market cycle.
The leading local equity ETF over the past 10 years to the end of December, for example, was Satrix’s Indi ETF, which tracks shares in the industrial sector of the JSE, and over three years it was Satrix’s Resi ETF, which tracks resources shares.
Over five years, what is known as a factor ETF, Absa’s Newfunds Momentum ETF, had the best-performing strategy, investing in shares identified as ones whose prices were trending up and harnessing what is known as the momentum factor in the market.
ETFs like the Satrix 40, which tracks the largest shares on the JSE, are also provided by 1nvest (in the Stanlib stable), Ashburton, CoreShares and Sygnia.
The 1nvest Top40 fund collected the Salta for being the most efficient in tracking the index at this year’s awards, sponsored by the JSE, Refinitiv, Profile Data and etfSA.
The top 40 index is a local investment but it also gives you exposure to global economies because a lot of the large stocks like Naspers and the resource companies have strong exposures to these economies, Yusuf Wadee, the head of exchange traded products at Satrix, says.
Swix top 40 index
If you prefer to keep your local investment local, you can track the shareholder weighted or Swix top 40 index, which reduces exposure to shares listed on both the JSE and another exchange, Wehmeyer Ferreira, the chief operating officer at 1nvest, says.
CoreShares’ S&P Top50 ETF gives you exposure to 10 more shares than the top 40, with the maximum weighting of any of these shares capped at 10%, said Gareth Stobie, the MD of CoreShares.
Investing in an index like the top40, as the Satrix 40’s fund fact sheet shows, can at times mean your returns will show a loss of more than 8% over a year or a gain of more than 30%.
This means you need to be willing to invest for a longer period — as you would be when investing for a child’s education or for retirement — in order to get good long-term average returns, Wadee says.
Both he and Ferreira say a top 40 ETF remains a good choice for the core of your port folio, but if you want to reduce your investment risk you should diversify beyond a single ETF. Brown says most investors have at least two or three ETFs.
Stobie says many investors in SA had a home bias in their investments and when investing discretionary money should look to get the diversification that other markets can offer.
Some global market exposure makes sense as the rand is always on the wrong side of the dollar, Wadee says.
It can be difficult to allocate investments between countries, which makes a global ETF that tracks the MSCI world index good, unless you have strong views about which markets around the world are likely to perform better than others, Ferreira says.
Self-regulates
The index self-regulates by reducing exposure to countries that are not performing well.
CoreShares and Satrix both have ETFs that track the broad US market through the S&P500 index.
Stobie hoped investors would vote its S&P500 ETF as the people’s choice because it is a classic fund that gives you exposure in rands to the world’s greatest companies listed in the large-cap sector of the US stock market.
The CoreShares S&P500 ETF has a threeyear history to the end of December, over which time it has returned more than 14% a year for investors, according to the ETFSA survey.
Ferreira says if your ETF investment is a discretionary one that complements other investments, you should ask yourself what you do not have exposure to in your portfolio.
He says a niche investment in your portfolio could be in an ETF like the 1nvest S&P500 Info Tech Index Feeder ETF, which gives you exposure to global technology shares.
Last year to December, this ETF returned more than 44%, according to the ETFSA survey.
Sygnia asked its investors to vote for its Sygnia Itrix 4th Industrial Revolution ETF, which offers exposure to companies that would develop the world going forward, says Steven Empedocles, the head of indexation at Sygnia.
The index does not track shares chosen on their weight in the market but tracks an index put together by US-based Kensho Technologies that analyses “big data” to identify and rank up-and-coming tech sectors.
This made it a forward-looking investment with much broader exposure to tech stocks than a market-weighted index dominated by Facebook, Apple, Amazon, Netflix and Google, he says.
This ETF returned 16.89% in its first year to December last year, the ETFSA survey shows.
Brown says it was the fourth-most popular ETF in the People’s Choice award.
Stobie says that as global equity markets sold off because of coronavirus fears it is not a bad time to invest, though there is still some uncertainly around.
Wadee says that whether you choose a local equity or a global equity market ETF, the recent market losses make it a “super interesting” time to buy.
Local ETFs tracking the likes of the financial index and listed property index are trading at massive discounts and you have to ask how much lower they can go, he says.
You need to be willing to invest for a longer period