Grindrod Bank launches ‘smart beta’ ETFs
09 April 2014 | Investments | ETF's (Exchange Traded Funds) | Gareth Stobie, Grinrod Bank
Grindrod Bank has launched two additional low-cost equity exchange traded funds (ETFs) under the exclusive licence of S&P Dow Jones Indices, with whom Grindrod Bank has recently aligned. The ETFs will list on the JSE on 14 April 2014.
The Grindrod S&P SA Low Volatility ETF and the S&P SA Dividend Aristocrats ETF are both based on ‘smart beta’ themes, which have proven to be very successful abroad. These themes apply investment strategies that do not use conventional market capitalisation weights which, at times, have delivered sub-optimal returns by overweighting overvalued stocks and underweighting undervalued ones.
The Low Volatility ETF (share code LVLTRX) will track the 40 least volatile stocks on the JSE. "Low volatility strategies present a conservative or low-risk approach to equity investing, but the performance figures tend to remarkably outperform higher-risk equity strategies,” said Gareth Stobie, Grindrod Bank’s head of capital markets. "This is a common phenomenon around the world.”
According to Stobie, the Low Volatility Index returned 27.7% per annum, while the FTSE/JSE Shareholder Weighted Index (SWIX) returned 24.9% on a back-tested basis for the five years to 28 February 2014. In addition, the returns of the Low Volatility Index were more than 34% less volatile than those of the SWIX.
The Grindrod Dividend Aristocrats ETF (share code DIVTRX) will track companies that have achieved consistent or growing dividend streams over the past five years. "The merits of ‘dividend investing’ are well founded,” said Stobie. "One of the key benefits is access to companies that have a proven ability to generate cash.”
He said the ETF will aim to provide a reliable dividend income and will differ from conventional dividend indices that do not have the same historical quality filter. On a back-tested basis for the five years to 28 February 2014, the Dividend Aristocrats Index returned 25.9% per annum, compared to returns of 22.9% per annum from the FTSE/JSE Dividend Plus Index. Whilst not a primary goal, the former return was also achieved at lower volatility.
The universe of stocks for both ETFs will continually be screened for appropriate initial market capitalisation and liquidity. Both ETFs, which form part of Grindrod Bank’s growing GTrax suite of ETFs, have been launched with a low service charge of 0.4% (ex VAT). Investors can access these ETFs through stock brokers, financial advisors, online brokers and certain investment platforms.
"If South African investors follow their overseas counterparts, the ETFs will prove to be highly popular,” said Stobie. State Street’s SPDR S&P International Dividend ETF (SDY) that tracks the S&P High Yield Dividend Aristocrats Index in the US has over $47-bn in assets under management, whilst Invesco Powershares manages one of the largest Low Volatility ETFs (SPLV) with $3.7-bn in assets under management. "This speaks of the significant investor appeal for such strategies.”
