Satrix RAFI 40

Satrix has launched its seventh Exchange Traded Fund (ETF) on 16 October 2008. One of the unique features of this portfolio is the tracking of a fundamental index™ , the FTSE/JSE RAFI 40 Index. This index weights the underlying constituents using four fundamental factors, rather than pure market capitalisation. These four factors are dividends, cash flow, sales and book value. Secondly, Satrix RAFI 40 will track the total return version of the FTSE/JSE RAFI 40 index, measuring the total return of the underlying index by combining the capital performance plus the reinvestment of income of the constituent companies in the index. All dividends received will be immediately reinvested on behalf of investors.

What makes Satrix RAFI 40 different?
Most stock market indices are calculated using the market capitalisation method. Stocks qualify for inclusion in the index based on the market value of the underlying company. Using fundamental indexation methodology™ developed by Research Affiliates LLC, the index diverge from the traditional price based market capitalisation weighted design and instead derives its constituent weights from company fundamentals. The methodology uses the following factors to derive each constituent index weight.

1.	Sales represent the company sales averaged over the prior five years.
2.	Cash flow is the company cash flow averaged over the prior five years, defined as operating income plus depreciation.
3.	Book value represents the company book value at the review date.
4.	Dividend is the total dividend distributions averaged over the last five years, including both special and regular dividends paid in cash.

Outlined below are a number of the additional features of the FTSE/JSE RAFI 40 index:

1.	Fundamental weighting aims to not increase exposure to high P/E stocks during episodes of unsustainable P/E (Price Earnings) expansion. It therefore aims to avoid over-exposure to the more overvalued stocks.
2.	Stocks are liquidity screened to ensure the index is tradable.
3.	The index is calculated in accordance with the Industry Classification Benchmark (ICB), a global standard developed in partnership between FTSE Group and Dow Jones Indices.
4.	The index is managed according to a transparent and public set of index rules, and overseen by an independent committee of leading market professionals. The committee ensures that the rules are correctly applied and adhered to. Regular index reviews are conducted to ensure that a continuous and accurate representation of the market is maintained.

Tracking the total return version of this index would mean reinvesting any dividends declared by a constituent company in the total return index (TRI) immediately upon receipt of such dividend. The amount reinvested would be announced from time to time.

What is fundamental indexation™?
Fundamental Indexation is simply changing the basis for weighting the stock in an index. Companies are weighted by market capitalisation, which can lead to an overweighting of overvalued companies and an underweighting of undervalued ones. Fundamental indices focus on metrics such as sales, making it easier to identify the most undervalued companies.

The process starts with the selection of the company universes. The universe of companies is each ranked by the fundamental measures (book value, cash flow, sales and dividends) of the company size. A composite fundamental value is given to each company by taking the average weighting of each fundamental measure. The companies are then ranked in descending order of their RAFI fundamental values. The weights in the indices are set proportional to their fundamental values.

Outlined below are the components of the Satrix RAFI portfolio as at 30 November 2009, based on using the methodology described above.

COMPONENTS OF THE SATRIX RAFI PORTFOLIO (as at 30 November 2009)

% of Portfolio

Oil & Gas

3,98

Basic materials

35,78

Industrials

9,09

Telecommunications

5,24

Financial Services

30,99

Construction Services

3,25

Consumer Goods

11,62

Cash

0,05