AFKI Market Journal: 5 Best-Performing South African ETFs

AFKI Market Journal: 5 Best-Performing South African ETFs

Pioneered in Canada, exchange-traded funds first made an appearance on the Johannesburg Stock Exchange in 2000; approximately 40 of them can now be traded there.

Exchange-traded funds (ETFs) are little baskets of many stocks that can be bought and sold like the stock of a single company. They typically have very low management fees because they track a set index, so they’ve become quite popular among investors who want to diversify their portfolios cheaply and quickly.

Which ones have treated investors the best?

Here are the five top South African performers over the past five years.

5. Satrix SWIX Top 40 Portfolio
Annualized US$ Return (5-Year): 19.3%

The Satrix SWIX invests in the 40 largest companies on the Johannesburg Stock Exchange, but it does so with a twist. Instead of weighting the portfolio according to total market capitalization, this exchange-traded fund first subtracts foreign-owned shares from the market cap before assigning each company’s weight. This effectively reduces the importance of mining companies and those stocks that are also listed on other exchanges, both of which tend to have high levels of foreign ownership.

Why wouldn’t you want to be invested in companies with high foreign ownership? Well, foreign investors tend to be a bit flaky. They’re more influenced by happenings in their home country, and typically don’t invest for the long-term. As a result, these stocks are generally more volatile. So reducing their weighting results in more stable performance.

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As of the end of September, Naspers, MTN Group, and Sasol were the exchange-traded fund’s largest holdings, representing nearly 30 percent of the entire fund.

4. Satrix FINI 15
Annualized US$ Return (5-Year): 20.5%

This exchange-traded fund holds the Johannesburg Stock Exchange’s 15 largest financial stocks. This group includes banks, insurance companies, and real estate firms. All of these sectors have enjoyed strong earnings growth in the past five years as more South Africans become integrated into the formal financial system.

The FINI exchange-traded fund’s heaviest allocations are to Standard Bank, Old Mutual, and Firstrand, which together account for just shy of 46 percent of the portfolio.

It presently yields 3.1 percent and carries a 0.75-percent expense ratio for investments of 100,000 rand or less.

3. Satrix DIVI Plus
Annualized US$ Return (5-Year): 20.8%

Do you like dividend stocks? Then this is the exchange-traded fund for you. The managers of the Satrix DIVI Plus track an index that selects the 30 South African large and mid-caps that analysts believe will pay the best dividends during the next year.

It currently yields 4.17 percent with African Bank Investments, JD Group, and Lewis Holdings taking up the largest weights in the portfolio. Together they comprise 19 percent of the fund.

As an added bonus, the expense ratio is just 0.65 percent – a fraction of what you would pay for most actively managed funds.

2. Proptrax SAPY
Annualized US$ Return (5-Year): 20.8%

The only exchange-traded fund that managed to break Satrix’s stranglehold on the top performers’ list is run by little Grindrod Bank. Its Proptrax SAPY fund invests in the Johannesburg Stock Exchange’s 25-largest real estate companies.

With large holdings in Growthpoint Properties, Redefine Properties, and Hyprop, the fund’s primary exposure is to commercial real estate, a sector that’s benefited greatly from the growth of retail over the past five years. With the South African consumer under pressure, the next five years may not be as kind.

Proptrax’s expense ratio is the highest on this list at 0.86 percent, but it boasts a historical yield of 6.77 percent.

1. Satrix INDI 25
Annualized US$ Return (5-Year): 27.0%

Far and away the best-performing South African exchange-traded fund over the past five years, the Satrix INDI 25 invests in the 25 largest industrial stocks listed on the Johannesburg Stock Exchange.

It holds no mining, resource, or financial stocks. As such, you’d think it would be a pretty pure play on the South African manufacturing sector. In reality, however, the portfolio is quite heavily exposed to five huge multinationals; luxury goods company Richemont, brewer SABMiller, new media conglomerate Naspers, wireless giant MTN, and British American Tobacco.

Together, these companies account for about 70 percent of the portfolio. So, diversification isn’t its strong point, but if global markets continue to recover, this fund stands to do well.

Ryan Hoover is an investment analyst with Africa Capital Group and the founder of InvestingInAfrica.net. Contact him at ryan@investinginafrica.net.