Two of the more popular local bond ETFs have changed from total return to paying out the distributions.
Total return is when any distribution (dividend or interest) is reinvested automatically by the issuer and instead of receiving the payout, each unit increases in value instead.
Payout eans holders will receive the full payout in cash in their investment account.
STXGOV by Satrix
The change is effective with the distribution announced on 26 July to be paid out in August.
Distributions will be quarterly paid in May, July (late July or early August), November and February.
NFGOVI by Absa NewFunds
The change went into effect in April.
Distributions will be quarterly paid in May, July (late July or early August), November and February.
Our thoughts
While we prefer the RSA Retail Savings Bonds for local bond exposure (if you buy in primary market and hold until maturity you get your capital back plus guaranteed yield), but you can’t include these savings bonds in tax-free accounts. So certainly these two ETFs have a place in a portfolio.
That said, I do like the distributions being paid out as dividends and income. Reinvesting distributions is great in theory, but it becomes a tax admin nightmare.
ETF blog
At Just One Lap, we are big fans of passive investment using ETFs. In this weekly blog, we discuss ETFs on the local market and the factors you need to consider when choosing an ETF. If you have wondered how one ETF differs from another, this is where you can find out. We explain which index each ETF tracks, what type of portfolio could benefit from holding each ETF, and how the costs will affect your bottom line.