Satrix DIVI
BackgroundSatrix listed a great new addition to its family of Satrix products in late-August 2007. The Satrix Dividend provides a means of investing in a portfolio of companies paying higher than average dividends on the JSE.
The Satrix Divi portfolio will invest in the FTSE/JSE Dividend Plus Index. This consists of 30 companies, selected from the JSE Top 40 and Mid-Cap indices, that are expected to pay the best normal dividends over the forthcoming year. The unique features the Satrix Divi offers, are:
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It will appeal to investors seeking a high income portfolio on the JSE. |
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It holds the promise of outperformance, as the high dividend paying component companies in the Satrix Divi are likely to re-rated relative to the rest of the market. |
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The Satrix Divi will have a low correlation with other indices on the JSE and accordingly, it provides an ideal product for diversifying investment portfolios. |
The high yield nature of the Satrix Divi provides a defensive investment for the risk averse investor.
About Satrix Dividend Plus (Satrix Divi)The new Satrix Divi tracks the FTSE/JSE Dividend Plus Index, similar to the way other Satrix products, track main FTSE/JSE indices. The Satrix Divi portfolio consists of the 30 shares on the Dividend Plus Index, held in exactly the same weighting they constitute in the index calculations made by FTSE/JSE. In this way, the Satrix Divi will exactly replicate the performance of this index.
All dividends received from the constituent companies in the Dividend Plus index, will be distributed by Satrix to investors at the end of each quarter. In this way, Satrix will provide the capital return of the index, as well as the dividend yield, associated with this index.
The Satrix Divi commenced trading at a price of R1,27 per security (100th of the Dividend Plus index level) and should receive an annual dividend yield of around 4,5 percent.
Similar to other products in the Satrix family, the Satrix Divi is a listed security (Exchange Traded Fund) and its JSE code is STXDIV. In addition, Satrix Divi is registered as a Collective Investment Scheme with the Financial Services Board (FSB). The Satrix products are therefore registered and fall under the legislative control and regulation of both the JSE and the FSB, providing peace of mind for investors.
The Satrix Divi, similar to other Satrix ETFs, will be an open-ended fund and will provide physical delivery of baskets of index component stocks to investors, who wish to subscribe for or redeem large amounts in the product. Such physical swap transactions take place at the daily Net Asset Value (NAV) value of the Dividend Plus portfolio. The NAV includes the value of the index and any dividends or other income (net of costs) in the Satrix Dividend portfolio. As Satrix exactly replicates the constituent components of the index, this physical swap characteristic of all listed ETFs, ensures very accurate tracking of the index.
The Satrix Divi is expected to continue in the tradition of very low total expense ratios and actual expense ratios, making Satrix amongst the lowest cost Exchange Traded Funds.
Details on the FTSE/JSE Dividend Plus IndexFTSE/JSE launched the new Dividend Plus Index in August 2006. The Dividend Plus is a yield weighted index designed to select and measure the performance of the higher yielding shares on the JSE.
The index selects the top 30 high yield instruments based on a one year forecast dividend yield. The consensus forecast of stockmarket analysts, from both the buy and sell side of the industry, is collected in the McGregor BFA Survey. The analysts provide forecasts purely based on cash dividends, therefore excluding special dividends, capital reductions and capital repayments.
The index universe consists of companies in the FTSE JSE Top 40 and FTSE/JSE Mid-Cap indices, excluding property companies. Shares included in the Dividend Plus Index should be sufficiently liquid to enable the entire portfolio to trade by R50 million per day.
The selection of the 30 shares in this portfolio is based on forecasted dividend yield rather than market capitalisation and price, which is the method normally used in index construction.
The index is reviewed at least twice annually in June and December. Any additions and deletion to the index will only be done at the twice yearly review, except in the case where corporate actions occur, such as terminations or mergers. In which case, the FTSE/JSE maintains a reserve list of the five highest ranking shares, sorted by forecasted dividends, and the next highest ranking share replaces one which falls out of the index.
In order to reduce index constituent changes, a maximum of 5 additions and 5 deletions are allowed at each review. Since its listing in late August 2006, the Dividend Plus Index has appreciated by some 37 percent. The JSE code is J259.
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% of Portfolio |
| Basic Materials |
7,89 |
| Industrials |
19,36 |
| Telecommunications |
7,59 |
| Financial Services |
39,89 |
| Construction Services |
22.51 |
| Consumer Goods |
2,54 |
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Dividend IndexationDividend based products have become particularly popular in international markets. Reasons for this include:
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Dividends and their growth provide a strong theoretical basis for the value of individual stocks and portfolios of stocks. |
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Dividends have historically provided the major part of the US stockmarkets real return. For instance, a study by Professor Jeremy Siegel, of the Wharton School found that from 1926 to 2004, reinvestment of dividends accounted for 96% of the stockmarkets return after inflation. |
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Dividends tend to offer more protection in bear markets, particularly if investors buy more shares with reinvested dividends. |
Cash dividends are an objective measure of a company's value and profitability and is subject to limited manipulation by accounting methods.
Satrix Divi - Performance IssuesThe Satrix Divi, which is a passive index tracking portfolio, based on the highest sustainable dividend yielding products on the JSE Top 40 and Mid-Cap share universe, looks an exciting product for adding both income as well as capital returns to the investment options available to stockmarket and unit trust investors.
The attached graph shows the historical return of the FTSE/JSE Dividend Plus Index compared with the FTSE/JSE All Share Index. The Dividend Plus index has comfortably outperformed the All Share Index over the 5 year period for which data is available.
The Satrix Divi looks to provide an excellent means of seeking alternative alpha (or performance); to diversify portfolios; to seek higher yields; and to provide a new asset class.
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| (Sept to Sept)** (per annum) |
STXDIVI Fund** |
DIVI Performance (total return) |
| 1 year return |
33,33% |
33,11% |
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| Fund established April 2006. Returns calculated for lump sum investments. All dividends reinvested. |
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Details on the IPOThe capital raising exercise in the Satrix Divi IPO raised R224,7 million from just over 5500 individual investors. The number of investors participating in the IPO makes it one of the most widely supported listings in recent times.
Since the listing, the Satrix Divi securities have seen strong support from investors and additional units have had to be created to meet general market demand.