The South African economy was built on resources. While we haven’t been a resource economy for a long time, the beginning of 2016 saw an uptick in the resources industry due to the strong performance of gold. In the two years since, this little ETF is probably the only one on the fat, sluggish market that can boast a turnaround. That said, the dividend yield isn’t quite as robust as we remember.
TIP: Unlike most of the other ETFs we’ve covered so far, it’s important to note that this ETF only invests in 10 companies that are all in the same industry. Being invested in just one industry could be risky. We explain why here.
This ETF invests in the mining industry, paper and Sasol. You get exposure to 10 companies. The ETF is weighted by market capitalisation, similar to the Satrix 40, which means it has a higher number of shares in bigger companies. However, the size of each company is limited in the index, theoretically preventing in from becoming top heavy and falling on its face. Sadly, the cap is 30%, so if you don’t like BHP Billiton, sorry for you. It’s also worth remembering that some the big companies in this ETF are represented in the Top 40 index. Holding both could result in over-exposure to companies that are very cyclical by nature. It’s probably best not to combine the two.
While the mining industry is very cyclical and a labour dispute at BHP Billiton can do serious damage to this ETF, an almost 20% exposure to Sasol could count in your favour if the oil price suddenly goes through the roof. Hopefully that makes you feel slightly better about how much you’re paying for petrol.
While you’re not allowed to invest in a single resource or share within your tax-free savings vehicle, this ETF is allowed. If you are hopeful that the mining sector’s good fortune will continue for another decade, this ETF is worth your consideration.
Weekly expert: Eugene Chemaly
Each week, we ask an industry expert to help us understand the benefits and limitations of our featured ETF. This week, Afrifocus’ Eugene Chemaly tells us more about the Satrix Resi ETF. He also explains what type of portfolio could benefit from holding this ETF.
What sets the Satrix Resi ETF apart from other ETFs?
The Satrix Resi gives the investor exposure to a specific asset class – resources. It’s a cheap and simple way to give your portfolio an affordable mix of resource. Its purpose is to track as closely as possible the value of the FTSE/JSE Capped Resource 10 index. It pays out all the dividends received from companies to investors every quarter.
What limitations should investors be aware of?
Investing in the Satrix Resi gives you the performance of ten companies. However, three of the companies account for roughly 72% of the portfolio’s weighting. These are BHP Billiton, Anglo American and Sasol. Investors need to be aware that it’s not very diversified.
The Satrix Resi does an excellent job at tracking the returns of its underlying index. However investors should take note that the resource sector has cycles and this performance could change dramatically in the long term. Investors should be willing to invest over a long time period and be able to bear large price swings.
What type of portfolio would benefit most from holding this ETF?
This ETF is great for investors who have little or no exposure to the resource sector and are willing to hold the Satrix Resi for the long term. This type of investor will have the benefit of added diversification and could reduce their overall risk profile.
Unpacking the Satrix Resi ETF
|ETF name||Satrix Resi ETF|
|Issue date||11 April 2006|
|ETF benchmark||FTSE/JSE Capped Resources 10 Index|
|Tax-free savings account||Investment allowed|
|ETF major holdings||BHP Billiton, Anglo American, Sasol Limited, Mondi, Sappi, Anglogold Ashanti, Mondi, Exxaro Resources, Glencore, Anglo American, Gold Fields|
|Performance (excluding dividends)*||1 year +25.3%
3 year +42.7%
5 year -8.2%
10 year +12.8%
|What we like||You can receive the quarterly dividend from this ETF tax-free from within your tax-free savings account.|
Click here to meet the Just One Lap team at one of our live, free events.