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Satrix unpacked

Aug 06 2012 07:50

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A Fin24 user writes:

I am a 33-year-old woman, recently married, self-employed, with no children.

Currently my only investments are a retirement annuity and some unit trusts in the Stanlib Value Fund. I've heard a lot about Satrix unit trusts recently. I have about R500 per month to spend on unit trusts, and I'm happy for them to sit there for several years. I have two questions about buying Satrix:

1. There are seven different Satrix funds available - how do I choose between them (or any unit trust, for that matter); what figures are you supposed to compare and look at?

I usually compare the five-year charts, but there are so many numbers floating around when you look at a unit trust, I'm not sure which is supposed to be the acid test. When comparing to the standard Satrix 40, the Divi, Indi and Rafi look good - or am I reading it wrong?

2. Should I buy direct through the Satrix Investment Platform on the Satrix website, or find a broker - what will cost less in fees, considering I'll only be investing R500 per month?

Brett Landman, CEO of Satrix Managers, answers:

Before I respond to the query, please note that Satrix is an investment product provider.

As such, we do not render financial advice and therefore cannot advise whether the Satrix exchange-traded funds (ETFs) are suitable for the investor's financial needs, nor which of the Satrix ETFs the user should choose to invest in.

Satrix securities can be acquired, like any other listed share, through a stockbroker or online trading account.

If the investor does not have a stockbroker or online trading account access to the Satrix, ETFs can be obtained through an investment platform like the Satrix Investment Plan (which can obviously also be used by investor with a stockbroker or online trading account).

The decision whether to buy through a stockbroker/online trading account or the Satrix Investment plan should be determined by the client's specific requirements and the different costs applicable to each method of acquisition.

Each method of acquisition offers different functionality and they have different cost structures.

The investor would accordingly have to compare the different functionalities and cost structures applicable to each to arrive at the decision appropriate for their needs.

For example, the Satrix Investment Plan offers a monthly debit order facility whereas a stockbroker or online trading account does not generally offer this functionality.

The brokerage charge applicable to the Satrix Investment Plan is also likely to be significantly lower, at 0.10% (excluding VAT,) than the brokerage charged by a stockbroker/online trading account (although an annual administration fee is applicable to the Satrix Investment Plan).

On the other hand, the Satrix Investment Plan cannot facilitate features such as stop orders available through a stockbroker or online trading account.

Given the size of the users proposed monthly amount and the requirement to invest by way of a monthly debit order, and without offering any advice or recommendation, the Satrix Investment plan may be most suitable for the user's needs.         

The seven Satrix ETFs offer different types of equity exposure (determined by the equity index being tracked or replicated by the applicable Satrix ETF).

A direct comparison between the various Satrix ETFs by looking at the past performance only of each (which is not indicative of future performance) is accordingly not strictly appropriate in determining which of the Satrix ETFs to acquire.

If an investor is looking for diversified equity exposure in company and sector terms, they should look at the Satrix 40, Satrix Rafi, Satrix Divi or Satrix Swix ETFs. The Satrix 40, the most popular and largest Satrix ETF, offers exposure to the top 40 blue chip stocks on the JSE by market capitalisation.

Although offering diversified exposure in company and sector terms, given the size of the resource stocks on the JSE the Satrix 40 ETF has a resource bias (which is however reflective of the South African economy).

Satrix SWIX offers exposure to the same 40 shares held by the Satrix 40 ETF but with a lower weighting to resources (because of the index calculation methodology down weighting foreign shareholding of dual listed stocks which are predominantly the resource counters).

Satrix Divi tracks an index (the FTSE/JSE Dividend Plus index) that is calculated with reference to one year forecast dividends rather than market capitalisations (as in the case of the Satrix 40).

The selection universe of the stocks held by the Satrix Divi ETF is the FTSE/JSE Top 40 index and the FTSE/JSE mid-cap indices (excluding real estate).

The Satrix Divi ETF accordingly also offers diversified exposure in company and sector terms (but a lower weighting in resource stocks and a greater weighting in financial and industrial stocks).

The fund holds 30 different stocks included with reference to their one year forecast dividends (the shares with the highest forecast yield are included).

The different index construction methodologies, and therefore the different holdings and weightings in each of the funds, offers lower correlations in performance and allows investors to diversify their passive holdings (which reduces risk).

The funds will perform differently over various time periods and in different market conditions. The Satrix Divi, for example, has performed exceptionally well in the market conditions experienced over the past three years (it shares held in its portfolio have defensive qualities), as has the Satrix Rafi ETF.  

The Satrix Rafi tracks the FTSE/JSE Rafi 40 index, which is not a market capitalisation weighted index but rather looks at company metrics or fundamental factors (sales, cash flow, book value and dividends).

Once again the different calculation methodologies result in the portfolio holding stocks in different weightings to the market cap weighted Satrix 40 thereby offering diversification through lower correlations in performance.

However, like Satrix 40, the Satrix Rafi ETF offers exposure to a diversified portfolio of shares in company and sector terms. The index tracked by the Satrix Rafi ETF is designed to perform well.

The Satrix Rafi is also a total return ETF, which means that the distributions that it pays out are not paid to investors in cash but are immediately reinvested back in the portfolio to enhance long-term growth.

All of the Satrix ETFs, other than Satrix Rafi ETF, pay out any distributions on a quarterly basis (comprising the dividends received from the underlying shares, interest and any other income that has accrued to the portfolio in the preceding quarter).             

The Satrix Fini, Satrix Indi and Satrix Resi ETFs on the other hand offer sector specific equity exposure (although diversified in company terms).

These ETFs are accordingly appropriate if the investor wants direct exposure to a specific industry sector, but which offers diversification by holding a portfolio of shares, thereby mitigating the risk of holding single stocks.

Each of these sector ETFs holds the largest stocks in the applicable sector by market capitalisation.

 - Fin24 


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investing  |  satrix  |  money
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