FUND FOCUS

ABOUT THE SATRIX QUALITY SOUTH AFRICA ETF

Article by Satrix Investments

We're giving you the INSIDE TRACK


HOW WELL DO YOU KNOW THE SATRIX QUALITY SA ETF?

The Satrix Quality South Africa ETF tracks the S&P Quality South Africa Index, which is designed to include high-quality stocks in the South African market by a quality score. By so doing it provides investors with an opportunity to invest in high-quality companies. You may be wondering why some companies are classified as quality companies whilst others aren’t. Let’s look into that.


WHAT MAKES FOR A GOOD QUALITY COMPANY?

Quality companies have demonstrated the ability to generate profit over time, are financially sound and have good management teams. In order to assess which are the best quality companies listed on the JSE, a quality score is calculated for each one.

This quality score is calculated based on a company’s:

• Return on equity

• Accruals ratio

• Financial leverage ratio

The top 20% of the S&P South Africa composite universe with the highest aggregate quality scores then forms the constituents of the S&P Quality South Africa index.

Ranking companies by a score (whether it be for quality, momentum or value) is known as factor investing. A factor is a specific characteristic which drives performance. This is also known as smart beta investing.


WHICH COMPANIES ARE CURRENTLY IN THE INDEX?

The chart below shows the sector allocation of the S&P South Africa Quality Index as at 31 January 2018:

The S&P South Africa Quality index is reviewed twice a year in June and December and currently has 26 constituents. This is when we will apply the index changes to the portfolio as well.

The Top 10 as at 31 January 2018 are shown below:


HOW HAS THE INDEX PERFORMED?

The graph below shows how the S&P Quality South Africa index performed against broad market indices over time:

Satrix has two products tracking the S&P Quality South Africa index - a unit trust (launched Aug 2015) and an ETF (launched Sep 2017). The Satrix S&P Quality Index fund (unit trust) was the top performing fund in the South African EQ General category during 2017. While it had no exposure to Naspers during 2017, which was a drag on its performance, this was more than made up by overweight positions in Mr Price, Kumba Iron Ore and Capitec Bank. Steinhoff was another big source of outperformance, as it was dropped from the index in the June 2017 rebalance.


WHO SHOULD INVEST IN THIS ETF?

The Satrix Quality South Africa ETF gives you 100% exposure to listed equities. This makes it a high-risk proposition for investors who understand that investing in the stock market means that you will experience volatility. Anyone who is needing long-term capital growth should consider this ETF as part of their portfolio.

As with all equity investments, you need at least a 5 year time horizon to invest in this fund because markets are volatile over shorter time frames.

The Satrix Quality South Africa ETF can act as a standalone investment or form part of a basket of ETFs, giving you varying exposure to different equity indices or other asset classes.

It is also available as an option in your tax-free savings account.


HOW MUCH DOES IT COST? 

This ETF has an annual management fee of 0.35% + VAT.

It was launched in September 2017 and its TER will be calculated after 12 months.


Click to view product page



POSTED : 2 MARCH 2018

Read more in Fund Focus