This week, we find out what makes the Stanlib SWIX 40 ETF unique. Like many other local products, this ETF invests in the 40 biggest companies listed on the JSE. Unlike other top 40 ETFs, however, this ETF doesn’t just invest more in bigger companies (the market capitalisation method that the Satrix Top40 ETF uses) or an equal amount in every share (the equally-weighted method, used by CSEW40). The Stanlib SWIX 40 ETF invests in companies based on how many of this company’s shares are available in the market.
TIP: Issuing shares is a way for companies to raise money. We explain how that works here.
To understand what makes this ETF different, it’s important to understand that each share issued entitles the shareholder to a vote. The more shares you have, the more votes you have.
When a company issues shares, not all of the shares go to individual shareholders. Some shares may also be sold to other companies. Because companies generally have more money than individual shareholders, they tend to buy huge chunks of shares at a time. Their shares also give them the right to vote on how a company is run. Companies buy shares in other companies who can help them make money, so they tend to hold them for a very long time. These shares aren’t available for sale on the stock exchange to ordinary people.
The Stanlib SWIX 40 ETF invests in companies based on the amount of shares available to ordinary shareholders in South Africa. When you subtract the amount of shares held by other companies and foreign shareholders, the weighting of companies start to look different than that of an ordinary top 40 ETF, even though both invest in the same group of companies.
This methodology also prevents investors from being exposed to the decisions of the management of a company twice. If one big top 40 company holds a large amount of shares in another top 40 company, the votes held by one company can influence the business decisions of another company.
Weekly expert – Keith McLachlan
Each week, an independent industry expert helps us understand our featured ETF better. This week, our friend Keith McLachlan from AlphaWealth explains the ins and outs of the Stanlib SWIX 40.
What sets the Stanlib Swix apart from other ETFs?
This ETF provides an investor exposure to more liquid, locally-listed shares on the JSE. This is essentially the top 40 index re-weighted towards local free float. What this means is that larger, offshore listed companies, like British American Tobacco and Glencore that has small local free-floats have much smaller weightings in this ETF than the more liquid, local companies, like Naspers, MTN and Sasol.
What limitations should investors be aware of?
As a basket of shares, the underlying holdings change over time, but the index methodology remains the same. Despite the predominance towards local liquidity for a weighting, Naspers currently dominates this ETF. This is an example of where the market cap, local free-float weighting rules of SWIX can lead to some fairly overweight positions. Also, in theory, this index will have lower rand hedge stocks in it than the traditional Top 40 Index. It (once again, theoretically) plays into a strong local market.
What type of portfolio would most benefit from holding this ETF?
An investor with a long-term time horizon wanting a diverse basket of large, liquidity equities that should outperform during periods of rand strength.
Unpacking the Stanlib SWIX 40 ETF
|ETF name||Stanlib SWIX 40|
|ETF JSE code||STANSX|
|Issue date||18 Oct 2010|
|ETF benchmark||SWIX Top 40 index|
|Tax-free savings account||Investment allowed|
|ETF major holdings||Naspers, Sasol, Standard Bank Group, FirstRand Limited, MTN Group, British American Tobacco, Anglo American, Sanlam, Barclays Bank, Remgro|
|Performance||1 year -1.4%
3 year +8.1%
5 year +27.6%
|What we like||This ETF is a higher-risk ETF for people who want to have a lot of exposure to the South African market.|
*29 March 2016
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