New Satrix funds: now own more of the market

Helena Conradie, CEO of Satrix.

Satrix, a pioneer in the index-tracking space, is launching two exciting new exchange traded funds (ETFs), now making it possible to invest in property and inflation-linked bonds alongside your equity ETF portfolio. Says Helena Conradie, CEO of Satrix, ‘We are always looking at ways in which we can expand our offering and these additions make it easy for investors to also own the property and inflation-linked bond (ILB) markets.’

Property offers an attractive yield

Other than the diversification benefits that property offers, historically SA property has offered an attractive yield and strong capital appreciation over the long term. In fact, listed property has been the best performing SA asset class over the past 10 years. This asset class has long acted as a hybrid investment, having both the qualities of bonds (fixed income streams from rent) and equities (stocks are listed, which allows for capital growth linked to earnings growth). A large component of this asset class’s total return is the yield, which is underpinned by strong dividend growth.

Investors now have access to property through the Satrix Property ETF

The Satrix Property ETF will track the performance of the S&P SA Composite Property Capped Index, which invests in all companies in the S&P SA Composite Index that are classified as property companies. This is a market capitalization weighted index, which means the exposure to these companies are proportionate to their size in terms of share price times the number of shares in issue. However, the capping methodology applied means no single stock may represent more than 10% of the index at each rebalancing date – the size of an individual holding is capped to prevent undue concentration risk. The rebalancing takes place quarterly in March, June, September and December.

This index offers exposure to SA and UK property

The constituent companies are either investing in physical real estate assets or in companies that derive more than 60% of their total revenue from activities related to real estate. As at 31 December 2016 the top three holdings in the S&P SA Composite Property Capped Index were Redefine, Resilient and Growthpoint. Currently there are 15 companies included in the index. Real estate operating companies make up about half of the index and retail, diversified and office REITs the remainder. Three-quarters of the companies operate in South Africa and the rest in the United Kingdom, making this index attractive to investors wanting exposure to SA property stocks, as well as those stocks domiciled in the UK.

With inflation-linked bonds your money keeps its value

Inflation-linked bonds are designed to help protect investors from the negative impact of inflation by linking the bond’s principal and interest payments to inflation. By investing in inflation-linked bonds investors receive an annuity stream that is hedged against inflation. Similar to adding property to your equity ETFs, holding bonds in your portfolio will also give you additional diversification benefits, which may mitigate against stock market volatility.

The Satrix ILB ETF protects against inflation

The Satrix ILB ETF will track the S&P South Africa Sovereign Inflation-linked Bond 1+ Year Index, providing investors with a hedge against inflation. The S&P South Africa Sovereign Inflation-linked Bond 1+ Year Index is a market-value weighted index, which will track the performance of South African inflation-linked bonds. The constituents must have a minimum outstanding debt of R1 billion and a maturity greater than 1 year. The S&P South Africa Sovereign Inflation-Linked Bond 1+ Year Index has provided strong risk-adjusted returns relative to traditional SA asset classes over the past 10 years.

No brokerage fees when taking up the IPO

Investors have the opportunity to be the first to invest in these new ETFs in the initial public offering (IPO), which opened on Tuesday, 7 February. Those taking up the IPO are in a fortunate position in that they will pay no brokerage fees on their initial investment and will participate in the performance of the ETFs from the first day they trade on the Johannesburg Stock Exchange (JSE).

The anticipated date of listing on the JSE is Friday, 24 February 2017.