Emerging markets are appealing investment destinations due to their high growth potential. Investors are willing to tolerate greater volatility for the sake of higher potential returns. As South African investors who invest locally, we get some of that upside built in when we invest in a local Top 40. However, as we discussed in this post, a lot of locally-listed companies actually earn their keep outside of our borders.
In this JSE Power Hour, Simon makes an investment case for local companies. He discusses 10 South African shares he has his eye on. Luckily for ETF investors, the Ashburton Midcap (ASHMID) can get us tax-free exposure to some of these companies.
The Ashburton Mid Cap ETF invests in JSE-listed companies that are large enough to have an impact on the all-share index, but not big enough to crack the Top 40. Starting at company 41, it catches companies that recently fell out of the Top 40 – not great news if that happens to be Steinhoff*.
However, it also capitalises on the upwards trajectory of rising stars on the stock market. The 60 companies are weighted by market capitalisation, giving bigger companies more opportunity to shine.
Since this ETF has a stronger local presence, a quick glance at the constituent list will reveal many familiar names. Among the 60 constituents are Clicks, Netcare, PicknPay, Pioneer Foods, Spar, Foschini and Truworths. Financial companies and consumer services make up the bulk of the ETF, at over 50%.
The ETF also includes a number of resource stocks, with basic materials making up just over 14% of the ETF. While mining companies have been performing really well recently, their cyclical nature means they’re not ideal for investors who prefer stability. The ETF pays dividends and interest quarterly.
While ASHMID is a great option for those hoping to capitalise on the South African growth story, it is quite expensive at a total investment cost (TIC) of 0.88%. Playing catcher for companies that fall out of the Top 40 also means investors can expect a bumpy ride on this one. Make sure you know what you’re in for before buying this ETF.
* Steinhoff weighting is very small right down at the bottom of this ETF.
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