*This content is brought to you by Satrix
By Helena Conradie*
You’ve read all you can about index tracking funds. You’ve made the decision to invest. You log on to www.satrix.co.za…and there your implementation crumbles as you’re faced with … too many choices.
Yes, this is true. Satrix has 9 ETFs and 14 unit trust funds to choose from. This can make decisions difficult, but they all serve a purpose. Let’s break the decision down into 3 user-friendly steps.
- Index tracking Unit Trust (UT) or Exchange Traded Fund (ETF)?
Both vehicles track indices. There is no difference in the underlying portfolio of an ETF or UT which tracks the same index. Both will fully replicate that index by holding all the shares in the index in exactly the same weights as the index. Both vehicles are regulated by the Collective Investment Schemes Control Act (CISCA) for your safety. Both are transparent (you know what is in them) and both are liquid (you can get your money back within a few days should you decide to sell). The ETF is listed on the JSE, trades like any other share and is priced continuously throughout the trading day. The UT on the other hand is priced once a day. Note that if you’re a long term investor this pricing frequency should not matter to you.
The cost of the ETF and UT product is virtually the same, however additional access costs will make a difference to the total costs. To make an informed decision on costs, review the cost of any platform, linked investment service provider (LISP), online trading facility or stockbroking account and add this to the product cost. In addition the cost of a financial advisor must be considered, if you use one.
You can invest in Satrix ETFs very easily using our online platform www.SatrixNOW.co.za – the good news is we’re working hard to get our UTs there too.
- Why so many funds?
If you read our previous BizNews article Satrix shares…why do you invest anyway?, you’ll now understand the various asset classes and the returns and risk they carry. We understand that not all investors are alike and so we’ve provided distinct products for distinct needs.
Most index tracking funds are equity portfolios, which invest in shares listed on the JSE or global stock markets. Satrix also has two balanced funds, which are a combination of several asset classes, which through diversification bring down the risk of the overall portfolio.
We also have sector specific indices which track narrower slices (if you like) of the JSE like property, industrial shares, financial shares or resource shares.
For global investing, you could consider the Satrix MSCI World Equity Index Feeder Fund, a UT which invests across 23 developed equity markets. (And watch this space – we are about to launch three more global ETF options).
Conservative investors or investors with short investment time horizons should look at our fixed interest options – as the name suggests, these funds literally pay interest – Satrix Money Market, Satrix Bond and Satrix Inflation-linked bond index funds.
- So how do I choose a fund?
Each of the Satrix equity funds is a different combination of listed shares which is set up to deliver an outcome. For example, if you invest in the Satrix Top 40, you’re investing in the 40 largest companies on the JSE, by investable market capitalisation.
In complete contrast to that, you could invest in the Satrix Dividend Plus product – this index fund includes 30 companies that are expected to pay the best normal dividends over the following 12 months. If dividends are important to you, you’d consider this fund. If you’re just wanting broad-spectrum exposure to the South African stock market, then a Satrix Top 40 fund is appropriate.
Examples are always the best way to illustrate a concept, so let’s look at two.
Portfolio example 1* – I want broad market exposure and am willing to take on more risk. This means a 100% equity fund in order to “OWN THE MARKET”
Portfolio example 2* – I want a more balanced portfolio where I combine asset classes to limit volatility.
*The tables above are for illustrative purposes only. Independent professional financial advice should be sought before making investment decisions.
An explanation of each fund – where it is invested and which index it tracks is available at https://www.satrix.co.za/products . You’ll also be able to view performance.
Investing across asset classes
If choosing a single asset class or product is too overwhelming, then consider Satrix’s multi-asset or balanced funds which are diversified portfolios investing across several asset classes including equities, property, cash, bonds and offshore investments in a single fund. By diversifying your investments, you lower the risk of some of the higher risk asset classes in the fund allowing a moderate or conservative investor to find a fund which suits their risk profile. The Satrix Balanced Index Fund and the Satrix Low Equity Balanced Index Fund are Regulation 28 compliant which means they are suitable to be used for retirement savings too.
Remember that investing in index funds works best when you use the funds that cover broad segments of the stock and bond markets as building blocks to create a diversified portfolio that matches your risk profile—and that you’ll stick with through good markets and bad. Investing is always long term and a well-constructed, carefully thought through portfolio will help you to benefit from all that indexing has to offer.
As Seth Godin said – “In a world where we have too many choices and too little time, the obvious thing to do is just ignore stuff.”
I urge you not to.
As always and till next time, #JUSTSTART.
*Helena Conradie is CEO of SATRIX
*Satrix Managers (RF) (Pty) Ltd is an authorised Financial Services Provider and a registered and approved Manager in Collective Investment Schemes in Securities and an authorised financial services provider in terms of the FAIS Act. The information in this article does not constitute financial advice as contemplated in terms of the Financial Advisory and Intermediary Services Act. Use or rely on this information at your own risk. Independent professional financial advice should always be sought before making an investment decision. Collective investment schemes are generally medium- to long-term investments. Unit Trusts and ETFs the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to it being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The index, the applicable tracking error and the portfolio performance relative to the index can be viewed on the ETF Minimum Disclosure Document and/or on the Satrix website.
