Diversification is the best way to manage risk in investing. Holding different types of assets across various industries and regions ensures some of your money remains unaffected if something bad happens to one part of your investment. ETFs are often invested in a number of different companies, but most invest in a single asset class. The NewFunds MAPPS Growth ETF is one of only two ETFs available that invests not only in different companies, but also different asset classes.
TIP: Diversification is a way to protect your money. We explain it all here.
First things first: an asset is something you own that will earn you money in the future. In the real world assets are your brain, buildings and businesses. In the world of finance, assets are shares, bonds, cash, gold and other financial instruments and investments. Most ETFs are invested in only one asset class: shares. Although ETFs are already diversified because they invest in many different companies, if the stock market is struggling, ETFs will also struggle.
The MAPPS Growth ETF is invested in shares, government bonds and cash. More than 70% of this ETF is invested in the FTSE/JSE Top 40 Shareholder Weighted Index. While this index tracks the same companies as the Top 40 Index by market capitalisation, it only counts shares available to South African investors. Shares owned by other companies don’t affect the company’s weighting in the index.
Nearly 20% of the ETF is invested in government bonds. As we explain here, bonds are a way for the government to borrow money. They are often considered a safer investment because investors know exactly how much money they will make from bonds.
The rest of the money remains in cash, which ensures that almost 7% of your investment will remain untouched if something catastrophic happens to the share market or if the government can’t meet its debt obligations.
By diversifying not only your exposure to certain companies, but also to certain asset classes, this ETF aims to deliver a smoother ride.
Weekly expert: Craig Gradidge
This week, Craig Gradidge, co-founder of Gradidge-Mahura Investments, tells us what makes this ETF special, what investors should be cautious of and who will most benefit from investing in the MAPPS Growth ETF.
What sets the MAPPS Growth ETF apart from other ETFs?
The main differentiator is that the ETF invests in a number of asset classes and not just one asset class. Most ETFs tend to track a single index which represents an asset class. This ETF tracks a number of indices within the one fund. There are a number of other ETF issuers such as Satrix and Sygnia that also offer multi asset class ETFs. The MAPPS Growth ETF does have a longer track record though, having launched in 2011.
The indices that the fund tracks are:
• Top 40 Shareholder Weighted Total Return Index – SWIX40 (Equities): 75%
• SA Government Bond Total Return Index – GOVI (Bonds): 10%
• Barclays/ABSA SA Government Inflation Linked Bond Total Return Index – ILBI (Inflation Linked Bonds): 10%
• Cash: 5% (no index)
What limitations should investors be aware of?
There are two key limitations. Firstly, the fund invests only in South African assets. Investors in this product will need to ensure that they have offshore exposure in their portfolio via another investment. There is some rand hedge exposure given the inclusion of Naspers and British American Tobacco in the portfolio, but no direct offshore exposure.
Secondly, the portfolio has limited listed property exposure, with just over 3% of the fund comprising property counters. A number of these rank quite low in the index and could fall off in future, resulting in even lower exposure. Research suggests that long-term investors have a minimum 15%-21% listed property exposure over time, depending on their return objective.
What type of portfolio would benefit most from holding this ETF?
This portfolio is suited to the growth investor looking for a South Africa-only exposure across the main asset classes. It is a high risk portfolio given its 75% exposure to equities, so it is suited to a growth-oriented portfolio. The fund complies with Regulation 28 and can be used in retirement products that can accommodate ETFs as part of the underlying investment portfolio.
Unpacking the Newfunds MAPPS Growth ETF
|ETF name||Newfunds MAPPS Growth ETF|
|ETF JSE code||MAPPSG|
|ETF issuer||NewFunds CIS|
|Issue date||25 May 2011|
|ETF benchmark||MAPPS™ Growth Index|
|Tax-free savings account||Investment allowed|
|ETF major holdings||Equity 75%|
Fixed income 19.5%
|Performance||1 year +21.2%|
3 year +15.9%
5 year +32.1%
|What we like||This ETF takes all the guesswork out of asset allocation. It gives you exposure to different asset classes with minimum effort for the investor.|
*As at close 18 May 2021