In a joint media release, Absa and Sanlam announced their intention to “combine their investment management businesses”.

For Exchange Traded Fund (ETF) investors the key point is;

As part of the transaction, Satrix, a subsidiary of Sanlam Investment Holdings, will acquire the exchange traded funds (ETF) business of Absa’s NewFunds (excluding its commodity ETF business).

This raises some questions and maybe concerns from some holding NewFund.

NewFunds has some very small funds that Satrix may decide too close. The two that stand out are the NewFunds MAPPS Growth & Protect. We at Just One Lap really like these funds but with less than R50million of assets each, they’re hardly viable so they may be on the chopping block. The NewFunds Shariah Top 40 is also fairly small but being a niche fund may survive?

Duplications

We may see some cleaning up of duplicating ETFs and If Satrix does decide to close any fund that you hold you will be paid out the net asset value as cash when it happens and this will be announced well ahead of time.

• NewFunds Equity Momentum* and Satrix Momentum are both being momentum albeit with different methodologies. But it wouldn’t make sense to keep both so I imagine one will go and with the NewFunds having some R370m of assets and 10x bigger than the Satrix product, maybe the Satrix one goes.
• Both also have local bond ETFs tracking respectively the SA Government Bond Index and S&P South Africa Sovereign Bond 1+ Year Index. They’re not identical but pretty close and the NewFunds GOVI is almost R3billion in size and by a long way the larger fund.
• There is also an inflation-linked bond ETF issued by both with the Satrix one being about 3x larger.

Branding

In time I imagine the Absa NewFunds will be rebranded to Satrix funds. This process is easy enough and does not require approval from holders of the ETFs as it’ll just be a name change, not a methodology change.

TERs

The total expense ratios (TERs) may change, but looking across the range of the two providers they’re more or less in sync so I think not any quick changes here and certainly, I would not expect any TER increases.

Importantly Absa is keeping the commodity ETFs, including the hugely popular NewGold. What is not mentioned in the release is the NewWave currency ETNs that track US$, Euro and Sterling as well as some NewWave commodity ETNs. I suspect all will remain with Absa.

The date of the transaction was not announced as certain suspensive conditions need to be meet but the release said it is expected to happen in the first half of 2022.

Assuming the transaction goes ahead Satrix will acquire some R5billion of assets from NewFunds taking the Satrix total to over R37billion and easing them further into top position with Sygnia just behind with assets of just under R30billion. (These are June 2021 figures).

Ultimately it is sad to lose an ETF issuer and Absa NewFunds had some innovative products but a maturing industry is likely to see mergers and closures.

Simon

At Just One Lap, we are big fans of passive investment using ETFs. In this weekly blog, we discuss ETFs on the local market and the factors you need to consider when choosing an ETF. If you have wondered how one ETF differs from another, this is where you can find out. We explain which index each ETF tracks, what type of portfolio could benefit from holding each ETF, and how the costs will affect your bottom line.