Environmental, social and governance (ESG) factors are all the rage lately, and correctly so in my view. We had new ESG ETFs from Satrix (World and emerging markets) and Sygnia (Global 1200 ESG) and now Satrix is taking it a step further. They are responding to the ‘social’ part of ESG with an inclusive and diverse ETF.
“Inclusion and diversity are tracked against a range of metrics including gender diversity of the total workforce and board; percentage of employees with disabilities; BEE score; existence of policies on, for instance, mental health and HIV/AIDS; flexible working hours and day care services.”
Why does it matter?
People are immensely creative – ignoring 3/4 of them is a waste of talent. Know your market, employ the best and recognise innovation. In other words, inclusivity and diversity makes for a better and so more profitable business.
“Deloitte survey found that Fortune 500 Companies believed diverse workforces were six times more likely to be innovative, six times more likely to be able to anticipate change, and twice as likely to meet or exceed financial targets.”
The new Satrix ETF will be launching in August with a target TER of 0.46% using the Refinitiv Satrix South Africa Inclusion & Diversity Index. This index tracks JSE listed stocks based on four pillars.
The four pillars
- People development
- Avoiding negative news and controversies.
The thirty companies that score top on these four pillars are included in the ETF.
Below are the top 10 companies scored on the first two of these pillars – inclusivity and diversity.
The 30 companies included are then weighted according to free float and liquidity, after which the top 10 holdings are as follows:
The sector breakdown is heavily weighted towards financials, and that makes sense.
The listing is expected on 11 August 2021 with the code STXID. It will be available on all platforms and can be included in a tax-free account. Dividends will be paid quarterly and target TER is 0.46%.
I like this concept very much and I’m a big fan ESG. The question is if it will deliver returns. Or is it just being too smart overall? My absolute preference is for vanilla ETFs – with no smartness in them. Further ESG is still a relatively new concept and we have no clear and widely accepted definition of the terms.
Below is an interview I did last month with Siyabulela Nomoyi, a quantitative portfolio manager at Satrix, on this new EFT.
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