NewFunds S&P GIVI SA TOP 50

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Suitability: A variation of the top 40 funds, this ETF, as the name implies, invests in the 50 biggest companies on the JSE. However, it introduces an element of fundamental analysis, by using forecasts of future earnings, then selecting those companies that appear to be trading below the value implied by those forecasts, while also screening for low volatility. The end-product is a highly diversified fund with low volatility, so it suits investors with a low appetite for risk.

What it does: From its inception to June 2015, this ETF, issued by Absa, tracked the eRAFI Overall SA Index which was made up of the top 40 SA companies ranked by fundamental valuation metrics. After the eRAFI was discontinued, the fund started tracking the S&P GIVI SA Top 50, which represents the top 50 stocks from the S&P GIVI (Global Intrinsic Value Index) SA composite index of general equities. The approach selects the stocks assessed to have the best prospects and lowest volatility, subject to certain liquidity constraints. NewFunds, the manager of the index, calculates the intrinsic value as the book value of the company, adjusted for future earnings prospects derived from the consensus forecasts of financial analysts.

Advantages: With a portfolio of 52 companies that operate across the various sectors of the economy, the NewFunds S&P GIVI SA Top 50 is one of the more diversified pure equity ETFs on the market. Additionally, the intrinsic value weighting it uses has advantages for constructing a portfolio over the market-cap approach. Because the fund gives more weight to counters that have lower volatility, it also reduces the return variability.

Historical performance: The fund’s performance depends on how you choose to invest – through a single lump-sum payment or regular instalments. A lump-sum investment mimics the index performance more closely and the performance report in the table below is for a lump-sum investment. The change in the underlying index starting from 1 June 2015 from eRAFI to S&P GIVI SA Top 50 resulted in drastic changes to the portfolio’s constituents. Most resource stocks were screened out of the top 10, which ended up being dominated by consumer stocks. Because of this, the fund’s historical performance may not have much bearing on its future performance.