ETFs locally were still a novelty, but this one was even more so as it was a smart beta ETF. Smart beta would become very ‘exciting’ before pretty much disappearing from the scene. But the RAFI has endured, and now it is being changed.
What RAFI actually is
RAFI stands for Research Affiliates Fundamental Index and came out of a 2005 paper by Arnott, Hsu & Moore titled “Fundamental Indexation”, published in the Financial Analysts Journal.
Their idea was simple and compelling. Share prices have errors in pricing, and a market cap weighted index would then be buying more of the overpriced and less of the cheaper shares. The fix would be to rather weight companies by ‘economic footprint’ using fundamentals such as sales, cash flow, book value and dividends.
Now, there have been many rebuttals of this theory, but I bought some Satrix RAFI in the IPO and it has done very well, easily beating the Top40, which is exactly what it wanted to do.
SATRAF vs. STX40 January 2010 – August 2026
| STXRAF | STX40 (TOP 40) | RAFI ADVANTAGE | |
|---|---|---|---|
| 1 year | 39.41% | 27.17% | +12.24% |
| 3 years | 20.03% | 18.82% | +1.21% |
| 5 years | 17.50% | 15.56% | +1.94% |
| 10 years | 12.50% | 11.76% |
What is changing
Satrix is now changing the underlying index they use for the ETF from the FTSE/JSE RAFI 40 (J260) to the RAFI Fundamental Select South Africa 40. The change was approved by holders by ballot and is already in effect.
The changes look just fine. In fact, some make a lot of sense, for example using dividends and share buybacks rather than just dividends. But some changes may be less great.
| FTSE/JSE RAFI 40 (J260) — OLD | RAFI FUNDAMENTAL SELECT SA 40 — NEW | |
|---|---|---|
| Universe | FTSE/JSE All Share | RAFI Global Equity Investable Universe, SA-traded |
| Index owner | FTSE Russell / JSE | RAFI Indices LLC |
| Calculation agent | FTSE Russell | Solactive AG |
| Sales measure | Raw 5-yr average sales | Sales × equity-to-assets (leverage penalty) |
| Cash flow | Operating CF, 5-yr avg | Operating CF + R&D, 5-yr avg |
| Shareholder returns | Dividends only | Dividends + buybacks |
| Book value | Last year-end book | Book + research capital (intangibles) |
| Rebalance | Once a year, single date | Four tranches, one rebalanced each quarter |
| Cap | 10% | 10% |
| TER / TIC | 0.50% / 0.58% |
Concentration goes up
The Top10 was 58.0%, it will now be 65.5%, with the top 4 (BHP Group, Glencore, Anglo American and British American Tobacco) at 38.5%. That’s a lot.
The gold miners are gone
The change also markedly down weights gold miners. Sibanye Stillwater, Gold Fields and AngloGold Ashanti were around 20%; now none are even in the top 10. If the precious metal miner tilt was important to you, note that it is now pretty much gone.
And then the biggie: performance
The table below is from Satrix’s workings for the period ending September 2025, and the RAFI wins, but only just and only over the long term.
| NEW (SIMULATED) | OLD (LIVE) | GAP | |
|---|---|---|---|
| YTD | 25.04% | 40.89% | −15.9% |
| 1 year | 18.46% | 34.08% | −15.6% |
| 3 years | 16.01% | 21.96% | −6.0% |
| 5 years | 20.17% | 22.41% | −2.2% |
| 10 years | 13.96% | 13.27% |
So now what?
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ETF blog
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.
