Absa Capital, Plexus launch South Africa’s first sector eRAFI™ Exchange Traded Funds
Industrial 25, Resource 20 and Financial 15 eRAFI™ to list on 15 June
In yet a further innovation for the local Exchange Traded Fund (ETF) market Absa Capital, in partnership with local investment manager Plexus Asset Management, today announced that they will be listing South Africa’s first sector ETFs based on the groundbreaking eRAFI™ methodology thatweights shares based on fundamental valuation metrics.
Three new ETFs – eRAFI™ SA Industrial 25, eRAFI™ SA Resource 20 and eRAFI™ SA Financial 15 -will simultaneously list on the JSE on June 15th. So far R67mhas been raised in total for the three new ETFs.
This issuance follows the successful JSE listing last year of South Africa’s first eRAFI™ ETF by Absa Capital, South Africa’s leading originator of ETFs, also in partnership with Plexus Asset Management.
Dr Vladimir Nedeljkovic, Head of ETFs and Index Products at Absa Capital, said that sector ETFs will allow institutional and private investors to invest in the best companies in the industrial, resources and financial sectors at a very low cost based on proven valuation criteria.
“Stocks are weighted on six measure of economic value: book equity value; cash flow; sales; gross dividends; net operating assets; and the debt coverage ratio. Portfolios are rebalanced quarterly.
According to Nedeljkovic by avoiding the inherent valuation bias of capitalisation weighting of other ETFs, eRAFI™ strategies over the long run outperform market capitalisation weighted index strategies, at lower risk levels.
Paul Stewart, Managing Director of Plexus Asset Management who hold the eRAFITM licence in SA, believes that the eRAFI™ methodology is rapidly growing in popularity across the world because of the advantages fundamental index trackers have over traditional methods of indexing.
“The eRAFI™ methodology overcomes the inherent problems with the market capitalisation method of indexing in that it overweights stocks that are overvalued in the market and underweights stocks that are undervalued – the opposite of good investment practice,” said Stewart.
Stewart also noted that private and institutional investors - especially pension funds - are increasingly warming up to the advantages of passive index trackers.
“We expect that there will be a proliferation in both the number of ETFs listed on the JSE as well as the amount of money invested in these products over the next few years and we want to ensure South Africans have access to the best international products and thinking,” said Nedeljkovic.
All eRAFITM ETFs are open ended, structured as portfolios within NewFunds Collective Investment they are listed on the JSE and can be traded anytime during normal trading hours.
