Which SA Inc. ETFs are best for this face ripping rally?

Simon BrownETF Blog, Latest



Tuesday saw the biggest single day rally on the JSE since president Cyril Ramaphosa took over from Jacob Zuma on valentines day back in 2018. This weeks rally was on the back of the GNU (actually just a coalition) that was finalised late on Friday.

Now make no mistake there are risks to this rally continuing with the newly appointed GNU is squarely what’s driving us higher. We have global sentiment moving our way as JP Morgan upgrade us from under weight to over weight and early indications of the data show foreign buying of our equities and bonds after years of selling (a stronger Rand tells us this as well). This trend could continue for a while (years?) as more global fund managers now start taking a serious look at our market.

Importantly this will not be a straight line and policy change is a slow process. That said there are some easy wins, for example we’re approaching 90 days of no load shedding, something that has been a massive cost to retailers in particular.

So how do we best catch this rally?

Well the Top40 works and there are plenty of ETFs listed here. But the issue is that it also has a bunch of miners and dual listed stocks and Rand strength will take off some of the shine. But this also makes it a bit of a hedge in that if things start to wobble and the Rand weakens that’ll help hold up the index.

The Fini15 had the wildest Tuesday and it is pretty much all SA Inc with only a few partly or purely offshore (Nepi Rockcastle at 4.7% the top fully offshore). The benefit here is that the stocks are large caps and so foreigners can get in as there is liquidity. Small caps really are not for the large fund managers as they’re just too small. Here the ETF is the Satrix Fini15 (JSE code: STXFIN).

The Midcap ETF from FNB is one I like as it is chock full of SA Inc. But again liquidity may dampen it a bit, but there is very little miner weighting and even fewer dual listed so the stronger Rand won’t impact much at all.

The Satrix Indi (JSE code: STXIND) is also full of dual listed and offshore with Naspers & Prosus at over 32% while Richemont* sneaks in at 7.9%. So a lot that is not SA Inc, but again a bit of a hedge.

There are of course other local ETF. The Satrix Divi+ is certainly one, but again a lot of resource stocks as they’ve been paying all the dividends.

How am I playing this?

I hold lots of STX40 (some nice it’s IPO in December 2000) and am happy. The Fini15 I have been bearish on for the year and I was right, until the last month or so. I’ll look for an entry here in my tax-free account, but no rush as I have plenty of individual stock exposure to SA Inc (you can see my portfolio here).

A last important point. This rally will be rocky and could ultimately fail. But for now it is real and based on a fundamental shift that is real and has real potential. So don’t get shaken out at the first sign of things not working, if this works it’s a multi-year rally and Tuesday was just day one. Change is a process and a slow process at that. It is not an overnight event even though the rally from Tuesday seems to suggest otherwise.

Simon Brown

* I hold ungeared positions.

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.