ETF: Understanding the Ashburton MidCap ETF

In ETF Blog, Latest by Kristia van Heerden

RMB MidCap ETFWhen we originally featured this ETF in February 2016, mining companies freshly out of the Top 40 dominated this index. Back then there was no overlap between the two indices, but these days some of the companies at the bottom of the Top 40 is also at the top of the MidCap.

Tip: Still unclear about what an index is or what it has to do with an ETF? We explain everything here.

What is the Ashburton MidCap ETF?

A change in the methodology of the Top 40 index is responsible for this overlap. The MidCap still invests in companies 41 to 100 of the JSE by market capitalisation. A combined MidCap and Top 40 holdings will still give you exposure to the 100 biggest shares on the JSE, providing you keep an eye on the weighting of duplicates.

Just like the Satrix 40, this ETF is weighted by market capitalisation. More of your money will be invested in the bigger companies in this index. If you buy R100 of this ETF, nearly R40 will be invested in 10 companies, leaving the rest to be invested in the 50 other companies.

The companies in the Ashburton MidCap ETF are involved in everything from mining, healthcare and insurance to clothing. That’s good for you, because if one part of the economy doesn’t do very well, you are still invested in companies that stay strong. Better still, you can buy this ETF in your tax-free savings account.

Expert opinion: Keith McLachlan

Every week we ask an independent expert to explain what differentiates the featured ETF from all others, what limitations to be aware of and what type of portfolio would most benefit from holding the featured ETF. This week, AlphaWealth’s Keith McLahlan, who happens to be a MidCap expert, talks to us about the Ashburton MidCap ETF.

What differentiates the Ashburton MidCap ETF from other ETF products?

The vast majority of equity ETFs are constructed out of a universe that includes the Top 40 (i.e. blue chip) stocks and, sometimes, the Top 60 stocks on the JSE. The Ashburton MidCap ETF, on the other hand, tracks the FTSE/JSE Mid Cap Index, which is the next 60 biggest stocks after the Top 40 stocks. What that essentially means is that this ETF tracks the South African mid cap index, that offers the investor unique underlying exposures in potentially fast growing smaller cap companies.

What limitations should investors be aware of?

Because the Mid Cap Index is a size-based index, it is subservient to the Top 40 Index. As a stock drops in the Top 40 Index and does worse and worse, it can eventually fall into the MidCap Index, as it has gotten too small for the Top 40.

Alternatively, a stock in the MidCap Index that is doing really well may become too big and move into the Top 40. In both of these cases (often occurring simultaneously, as the Top 40 can only have 40 stocks in it) the MidCap Index will lose a “winner” and gain a “loser”.

The “loser” that falls into this index will start with a large weighting in the index, because when the stock falls out of the Top 40, it is becomes the stock with (amongst) the largest market cap(s) in the MidCap Index. You can have the opposite of the Survivorship Bias occurring in the short- to medium-term, introducing volatility, risk and downside to the product.

For example, during 2015 as a lot of resource stocks fell out of the Top 40, into the MidCap Index, and then carried on falling further, dragging this index downwards. While this can always play into your hands (i.e. they bounce), the real risk here is the churn of the MidCap Index’s constituents and, therefore, the Ashburton MidCap ETF can sometimes introduce unexpected risks due to changes in its underlying.

What type of portfolio would benefit from holding the Ashburton MidCap ETF?

A long-term investor with an eye for long-term capital appreciation despite short-term volatility.

ETF name Ashburton MidCap ETF
ETF issuer Ashburton
Issue date 15 August 2012
Total investment charges 0.9%
ETF benchmark FTSE/ JSE MidCap Index.
Tax-free savings account? Yes, can be included.
ETF major holdings Clicks, Netcare, Gold Fields, Foschini, Spar, AVI Ltd, Truworths, Imperial Holdings, Life Healthcare Group, Exxaro. View the full list here.
Market cap* R389m
Performance* 1 year -6.6%

3 year +3.4%

5 year: +23.3%

Dividends 3.73%
What we like This ETF invests your money into companies that do a variety of different things, which protects your money if only one part of the economy is doing poorly.

* 14 August 2018

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