The FINI is weighted by market capitalisation and currently offers 57.26% exposure to banks. South Africa’s banking sector is admired the world over for its efficiency and fairness. This ETF is a great way to capitalise on the sector’s reputation. However, investors who already hold top 40 positions should be weary of over-exposure to the sector. The biggest holdings in the Satrix FINI also represent a significant holding in the top 10 constituents of the top 40 index.
Holding this ETF might offer some opportunities to capitalise on the greater competition in the sector in the long term. With a slew of new banks offering alternatives to the Big Four, holders of this ETF would automatically benefit from the growth of new listed banks once they become big enough to be included in the index. New players will likely contribute to the performance of this sector-specific index in a more meaningful way than the top 40 due to the smaller number of constituents.
The generous 3.5% dividend yield over the past 12 months might make this a tempting choice for an income-generating portfolio, subject as always to 20% dividend withholding tax. It is important to remember that a sector-specific ETF is likely to be more susceptible to volatility during certain periods. It’s advisable to buy this ETF as part of an overall ETF strategy which includes broad-market exposure to reduce sector-specific risks.
Weekly expert: Petri Redelinghuys
Herenya Capital’s Petri Redelinghuys is no stranger to this site. This week we ask Petri to help us understand the Satrix FINI.
What sets this ETF apart from other, similar ETFs?
This ETF was one of the first movers in the ETF space and therefore probably has the longest track record for following the FTSE/JSE FINANCIAL 15 (J212) index. The purpose of this ETF, like all others really, is to passively track the index it is mirroring. The index itself, being the Financial 15 index, is made up of the 15 biggest financial companies in South Africa and includes companies from the banking, insurance and property sectors. The ETF includes an almost 17% allocation in Standard Bank, a 7.5% allocation in Old Mutual and a 5% allocation in Growthpoint. These are not the only stocks that the ETF is invested in, but it shows that the ETF itself if rather diversified in terms of the types of companies it is invested in. South Africa is blessed with a very well developed financial sector which often acts as a barometer for our overall attractiveness to offshore investors. In other words, when things go really well in South Africa, offshore investors pile investments into our financial sector first, before starting to invest in other sectors. Conversely when things go pear-shaped, this particular sector is often the first to feel the pain. Exposure to this ETF allows investors to gain access to the best developed sector in our economy.
What limitations should investors be aware of?
Although the Satrix FINI was the first mover, it is definitely not the cheapest as there are other ETF providers that mirror the same index at lower costs. Nonetheless, this ETF is a decent entry point into the entire financial sector. Investors should be aware though that the ETF, due to the underlying stocks it holds, is very sensitive to both the rand and overall sentiment toward South Africa. In other words, if the rand weakens, this ETF will weaken alongside it. Also, if there is general macro negativity toward emerging markets, this ETF might come under pressure. On the flip side, a strong rand is good for this ETF and any positivity toward South African in particular and emerging markets overall tends to push this ETF higher.
What type of portfolio would benefit most from holding this ETF?
Any diversified long-term locally focused portfolio should have at least a 10% allocation (max 25%) to the financial sector. As always, too much concentration in one sector is risky and therefore investors should be aware if they hold a property ETF there might be some overlap in terms of holdings. It would be prudent to compare the allocations of individual stocks within this ETF to any property ETFs that you might have, just to ensure that you don’t accidentally end up being overweight property. Long-term investors would do well to accumulate some Satrix FINI each month though, as the real power of investing (as we know) lies in compounding returns.
Unpacking the Satrix FINI ETF
|ETF name||Satrix FINI|
|Issue date||8 February 2002|
|ETF benchmark||FTSE/JSE Financial 15 index|
|Tax-free savings account||Investment allowed|
|ETF major holdings||View the full list here|
|Performance||1 year +0.6%
3 year +18.6%
5 year +24.3%
10 year +196.7%
|What we like||South Africa’s financial services sector is respected the world over. This ETF is an easy way to capitalise on that reputation.|
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