NewFunds MAPPS Growth ETF
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Suitability: The NewFunds MAPPS Growth and MAPPS Protect ETFs are the only listed exchange-traded funds on the JSE that provide exposure to a diversified mix of asset classes in one portfolio. That makes them a good option for investors looking for diversified portfolios that could form the core of an investment strategy.
Other than these two ETFs, investors wanting to create a diversified portfolio have three options. The first is to buy unit trusts. This method is likely to be more expensive than ETFs because the majority of such funds are actively managed. Investors could also build their own mixed-asset portfolios, but that requires time and expertise. The third option is to invest in different single-asset class ETFs, but again this is unlikely to yield an optimal solution.
NewFunds’ multi-asset ETFs address the weaknesses of the above methods. They bundle the various asset classes into a single investment, sparing investors the administrative burden in a cost-efficient way. MAPPS Growth, our focus here, is designed to provide greater exposure to domestic equities, making it more suitable for younger investors who are willing to accept higher variability of returns in the short term in exchange for the prospect of better returns over the long term. The fund’s asset allocation complies with pension regulations so it can also be used to supplement retirement savings. With a dividend yield of 3.4% we think it is also suitable for income seekers.
What it does: NewFunds MAPPS Growth replicates the total return performance of South African equities through the SWIX 40 index. It replicates nominal bonds through the GOVI index and inflation-linked bonds through ILBI index. The cash component is held in hard cash or allowable money market instruments. The portfolio targets the following asset allocation: equities 75%; nominal bonds 10%; inflation-linked bonds 10%; and cash 5%. It may however deviate from that between rebalancing periods that are done on a quarterly basis.
Advantages: The main attraction of this ETF is that it provides an inexpensive way of accessing a well-diversified portfolio. It is diversified across asset classes and is further diversified through the underlying investments in a range of securities within each asset class.
The Swix top 40 index adjusts the regular JSE top 40 index to eliminate foreign holdings and cross-holdings of the constituent companies. Because of that, the weightings of constituents in the MAPPS Growth portfolio are fairly even when compared to the JSE top 40 index.
Risk: Because of its diversity the ETF is considered to carry moderate risk over the medium to long term. The value of the ETF will rise and fall, tracking the underlying securities and as such investors’ capital is not protected. In our study of the local ETF market, we found that these multi-asset ETFs were more volatile than some of the single-asset class ETFs.
Fees: Despite having to track over 63 securities, which makes it one the most diversified of funds, MAPPS Growth has a reasonable total expense ratio. It charges an average of 33c/year for every R100 invested.
Historical performance: MAPPS Growth’s historical performance has been solid, outperforming a number of single-asset class ETFs.
Alternatives: For more conservative investors, especially those nearing retirement, the NewFunds MAPPS Protect ETF might be a good alternative. MAPPS Protect allocates 40% to domestic equities, 15% to SA government bonds, 35% to SA inflation-linked bonds and 10% to cash. With this ETF, bonds have a much higher contribution, which reduces volatility in the overall portfolio.
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