Investors who invest in Satrix’s Capped All Share ETF, which is due to list on the JSE on 10 November, will pay no in-fund fees until the end of May next year.
The new ETF, which will bring Satrix’s suite of ETFs to 23, aims to replicate the performance of the FTSE/JSE Capped All Share Index (CAPI), which caps the weighting of each share at 10%.
“The CAPI has delivered a more stable return profile due to improved diversification and capping limits, which means there is lower overall concentration risk and additional upside potential from mid- and small-cap counters. The result has been strong and consistent performance relative to other actively managed South African general equity unit trust funds over time,” said Nico Katzke, the head of portfolio solutions at Satrix.
Satrix is punting the CAPI ETF as the first ETF to give investors exposure to a broad range of large-, mid- and small-cap stocks – an investment universe of about 143 shares.
Katzke said the inclusion of mid- and small-cap shares has diversification and return benefits for investors.
Although the CAPI ETF provides investors with exposure to mid- and small-cap shares that are excluded from the Top 40 Index, the bulk of their exposure is still to the large-cap shares in the Top 40, Katzke said.
The CAPI’s approximate large-, mid- and small-cap weightings are:
- Large-cap: about 75% (about 26 companies) – compared to the Top 40’s current 86%;
- Mid-cap: between 15% and 20% (about 55 companies); and
- Small-cap: between 3% and 5% (about 60 companies).
Katzke said the Top 40 and the CAPI have similar sector weightings. The key difference is that the CAPI has a much bigger exposure to listed property.
He said the sector breakdown of the CAPI ETF was:
- About 40% to 45% to the major industrial counters, including companies such as Naspers/Prosus, MTN, Vodacom, Shoprite and Clicks;
- About 30% to resources – such as BHP, Sasol and Anglo – that provided rand-hedging opportunities;
- About 20% financials, such as Capitec, FirstRand, Sanlam and Standard Bank; and
- About 3.5% to listed property – Satrix believes there is still some upside in this sector globally.
Katzke said there was more diversification potential among small-cap stocks.
A comparison of the correlation between returns in the large-, mid- and small-cap sectors over rolling 12-month periods over the past 10 years showed the return correlation was about 20% to 30% for large-caps, but well below 10% for small-caps.
He said this was probably because large-caps are dominated by multi-national companies, many of which derive their earnings offshore. Although this was good from a rand-hedge perspective, it also means that changes in global sentiment and activity affect these stocks directly and in a similar way. On the other hand, the returns of small-caps were derived mainly from company-specific information.
He said a comparison of average returns over rolling 12-month periods over 10 years showed that small-caps have a much broader return profile – and with more upside potential – than large- and mid-caps.
And contrary to expectations, small-caps, on the whole, have been less volatile than large-caps and mid-caps, based on a comparison over 12-month rolling periods over the past 10 years.
“We think the combination of higher diversification and higher potential upside, but not necessarily at the cost of higher portfolio volatility, is adding tremendous value to your portfolios,” Katzke said.
The initial public offering of the CAPI closed on 29 October.
The in-fund fee waiver will apply to new and existing Satrix clients who switch into the CAPI ETF. However, brokerage fees will apply.
After 1 June 2022, the targeted total expense ratio will be 0.25%.
