Nedbank capital’s new weighted EFT brings balance to top40 investment.

It is widely accepted by investors that one of the most convenient ways of exposing a portfolio to South Africa’s most prominent listed blue chip companies is via a fund or vehicle that invests in the FTSE/JSE Top40 Index.

Unfortunately, this Index is heavily skewed towards listed companies in the resources sector, so instead of owning a diversified portfolio of shares, Top40 Index investors often inadvertently find themselves over-exposed to a few large South African mining companies.

To address this, and offer investors an easy means of effectively balancing their blue chip exposure across all the companies and sectors making up the Top 40 Index, Nedbank Capital now offers the BettaBeta Equally Weighted Top40 Exchange Traded Fund (ETF). This new offering will be available as from 24 February with the actual listing date being 25 March 2010.

According to Nerina Visser, Head of Beta Solutions at Nedbank Capital, while the BettaBeta ETF offers the same cost effective investment solution as other ETFs, and supplements returns on investment via quarterly dividends on all underlying shares, the true beauty of the fund is its ability to offer investors equal exposure to SA’s top blue chip shares.

‘While it is true that most Top40 Index funds do afford investors exposure to SA’s leading listed blue chip organisations,’ explains Visser, ‘the composition of the Top40 Index means that almost 50% of these organisations fall within the resources sector - and almost 75% of that resources exposure comprises the shares of just three companies!’

The weighted nature of the BettaBeta Equally Weighted Top40 Exchange Traded Fund effectively addresses this imbalance, by more equally spreading the exposure ratio of investments across the 40 shares comprising the FTSE/JSE Top40 Index. Investors in Nedbank Capital’s BettaBeta ETF therefore enjoy a higher relative exposure to companies in the financial and industrial sector, while still being invested, albeit at a lower overall exposure, to the resources companies in the index.

Visser explains that this more balanced weighting introduces an element of greater risk management into the investment vehicle, without sacrificing potential returns or preventing exposure to any of the Top40 shares.

‘The BettaBeta Equally Weighted Top40 Index is independently calculated by the FTSE/JSE,’ Visser explains, ‘and for the year to February 2010, this index has outperformed the FTSE/JSE Top40 Index - and perhaps as importantly, it has done so at a lower overall level of risk.’

According to Visser, this weighted, lower risk, approach makes the BettaBeta Equally Weighted Top40 ETF a particularly useful means by which pension or provident funds can access passive Top40 Index exposure that suits their more balanced mandates and benchmarks.

She also points to the BettaBeta Equally Weighted Top40 ETF as a useful vehicle by which asset managers with a strong stock-specific bet can hedge their funds via an equally-weighted product, rather than a market capitalization-based index.