NewFunds S&P GIVI SA Industrial 25

Mayo Twala
By Mayo Twala October 5, 2016 11:43

Suitability: This is the third specialist fund, and invests solely in industrials.

Industrials are much broader than the other two sectors and cover a range of disparate industries which do not respond uniformly to the same set of external factors such as interest rates or commodity prices. That lowers the risk profile of industrial sector funds. Whereas financials and resources are suited to more active investors wanting to take bets on the prospects of specific segments of the economy, industrials suit a semi-active investor who can tolerate the volatility of equities.

Absa’s NewFunds S&P GIVI SA Industrial 25 ETF is one of two JSE-listed ETFs that give you exposure to the industrial sector. The other is the Satrix INDI. The NewFunds ETF selects industrial companies assessed to have the highest “intrinsic value” with low volatility while the Satrix INDI selects the biggest companies based on market capitalisation (share price multiplied by the number of shares issued).

What it does: The NewFunds S&P GIVI SA Industrial 25 ETF replicates the price performance of the S&P GIVI SA Industrials Index, which represents 25 industrial stocks with the highest intrinsic value and lowest volatility, subject to certain liquidity constraints. “Intrinsic value” is defined as the book value of the company adjusted for future earnings prospects derived from consensus forecasts of financial analysts.

It rebalances the fund and pays dividends every quarter. If your trading account is held in a tax-free savings account, the dividend is untaxed.

Advantages: The fund construction approach provides potential for the ETF to outperform its benchmark.

Disadvantages: The fund weights its constituents by intrinsic value (defined above) so its performance differs quite considerably from the Indi25 index. However, its peer fund, Satrix INDI, uses the same weighting approach as the performance benchmark. In practice this means there is less diversity in NewFunds relative to Satrix.

Risk: As with all equity investments, the fund is more volatile than other asset classes such as bonds and cash, but a relatively higher return should compensate for the elevated risk over time.

Fees: The annualised total expense ratio is 0.13%. This excludes brokerage and transactional costs.

Historical performance: The fund’s performance depends on the method used to invest. A lump-sum investment closely mimics the index performance. However, investing through regular instalments usually lags the performance of the index, according to historical evidence, and the pattern is apparent in other ETFs too. This supports the need to invest for longer periods when it comes to equities. The performance described in the table below is for a lump-sum investment.

Note that the NewFunds ETF uses the FTSE/JSE Industrial 25 index for benchmarking its performance, even though it tracks its own S&P GIVI SA Industrials Index. This is the reason for the big disparity between the ETF’s returns and that of the Indi25 in the table below.

newfunds-sp-givi-sa-industrial-25Alternatives: We have covered its closest peer, the Satrix INDI, in some sections of this note. This ETF is weighted according to market capitalisation but excludes locked-in shares such as those held by promoters, founders and governments.

Mayo Twala
By Mayo Twala October 5, 2016 11:43

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