FUND FOCUS

NEW! SATRIX QUALITY SOUTH AFRICA ETF

Article by Satrix Investments

Invest in quality South African companies

The Satrix Quality South Africa ETF provides investors with exposure to high quality companies on the JSE.

This ETF tracks the S&P Quality South Africa index, which is designed to include high quality stocks in the South African market by quality score.


What makes for a good quality company?

You may have heard about smart beta or factor investing. A factor (such as value, momentum or quality) is a characteristic which drives performance. Companies which display a quality factor 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, a quality score is calculated.

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.

 

Which companies are currently in the index?

The S&P South Africa Quality index is reviewed twice a year in June and December and currently has 24 constituents. Each constituent's weight is capped at 10%.

Sector breakdown as at 31 July 2017

Understanding the role of quality in your portfolio

Compounding returns is essential to achieving long-term outperformance, and to this end, downside protection is important. How well an equity portfolio performs during down markets (relative to broad benchmarks) is very often a determining factor in whether the portfolio outperforms the benchmark over the long run. By investing in quality companies which tend to be more sustainable in difficult markets, the focus is on downside protection which increases the probability of superior long-term risk-adjusted returns.

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

Risk Profile: HIGH

Investing in equities is high risk. By investing in equities you increase the probability of higher returns, but you also introduce volatility into your portfolio in the short to medium term. Equity investing should always be viewed as long term.


Find out more about how to participate in the Initial Public Offering which opens on Friday 1 September 2017. 

View the Fund Information Sheet for the Satrix Quality South Africa ETF.

POSTED : 1 SEPTEMBER 2017

Read more in Fund Focus