NewFunds TRACI 3 Month ETF
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Suitability: This ETF is a low-risk, cash-based investment portfolio. It would suit investors who want to avoid the risks typically associated with more volatile asset classes such as shares and want to protect their capital as a priority. The NewFunds Traci is the only listed ETF in SA to invest in the money market. It aims to give investors exposure to a portfolio of three-month bank deposits issued by SA’s largest banks. In theory, the ETF’s risk should be lower than that of bonds, stocks and commodities. This feature, coupled with the fact that it can be traded on the JSE, makes it appealing for conservative investors seeking low-cost and liquid alternatives to traditional cash-based investments such as fixed deposits. This ETF would work well as the cash tranche within a multi-asset portfolio.
What it does: The Traci fund tracks the total return version of the Barclays/Absa Tradable Cash index (Traci 3-month). The index is constructed to track the overnight, three-month SA money market deposit rate. The TRACI index measures the mark-to-market value (quoted price in an active market) of the income earned from rolling a 3-month money market deposit on a monthly basis. Interest received is reinvested into the fund so as to increase the net asset value of each unit.
Advantages: The ETF is a good option for retail investors who might not have the R1m normally required to invest in negotiable certificates of deposit. Negotiable CDs usually offer higher yields than traditional call deposits or savings accounts. Additionally, the fund’s diversified portfolio reduces the credit risk that unit holders are exposed to. Absa acts as a market maker, making it easy for unit holders to buy or sell the ETF.
Risk: Due to the fact that an investment in a negotiable certificate of deposit must be in multiples of R1m, The ETF will, from time to time have residual cash. Such residual cash will be invested in a lower-return call deposit account, reducing the fund’s ability to closely track its benchmark. While default on NCDs is very rare, they still have credit risk.
Fees: NewFunds Traci charges about 20c/year for every R100 invested in the fund making it the cheapest fund on the market with a 0.2% total expense ratio.
Historical performance: The fund has performed well over the past three years, outperforming some bond and equity ETFs.
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