Building your portfolio when cash is scarce

Money Matters

A monthly newsletter focusing on personal finances - and how to continually improve these - through dealing with issues that the average salary owner has full control over.



Building your portfolio when cash is scarce
Date: 01 May 2009

Even when our finances are under strain, we cannot afford to lose sight of our long-term investment goals. That’s why Money Matters continues its look this month at investment options that do not demand a large capital outlay. Exchange Traded Funds are one great way to build up an investment portfolio without huge outlays of cash.

 

Exchange Traded Funds (ETFs)
Over 15 years ago the first ETF in the world was launched in Canada, but ETFs are relatively recent additions to the South African investment market with the first ETF, the Satrix 40, being launched in 2000.

 

As the name indicates, Exchange Traded Funds are funds that are traded on the securities exchange. An ETF is a single entity which is listed on the securities exchange and basically tracks an exchange index. A share index is a measure of the performance of a selection of shares. By investing in an ETF, you gain diversified investment exposure to companies listed on the JSE.

 

For example, the Satrix 40 tracks the performance of the 40 largest JSE-listed companies (measured in terms of market capitalisation). This means that by investing in the Satrix 40 ETF, you are investing in the 40 largest companies on the JSE without having to purchase individual shares in each of these top 40 companies. So, investing in an ETF enables you to buy a single JSE-listed security that gives you the same return as you would receive if you purchased shares in each of the companies making up the particular index.

 

Other benefits of ETFs include:
Lower investment costs: The investment costs of ETFs tend to be lower than those of other collective investments, as they are not actively managed investments.
Tradeability: ETFs can be traded (bought and sold) on the JSE during the exchange's normal trading hours.
Affordability: As with unit trust funds, you can invest a lump sum or a regular monthly amount in an ETF. The ETFs currently listed on the JSE require a minimum investment amount of R300 a month or a lump sum of R1000 (with the exception of the Investec Zshares Exchange Traded Funds, which are in a different league, requiring lump sums of R10 000).
Ease of purchase: Application can be made online by visiting the relevant websites (see below).

 

Briefly, the ETFs available on the JSE are:

 

SATRIX
Visit their website at www.satrix.co.za
Satrix Top40: Top 40 listed companies index
Satrix Indi25: Top 25 listed industrial companies index
Satrix Fini15: Top 15 listed financial companies index
Satrix Swix Top 40: Less volatile Basket of Top 40 Shares
Satrix Resi 20: Major 20 resource companies listed on the JSE
Satrix Divi: Top 30 companies paying higher than average dividends
Satrix Rafi 40: RAFI 40 index selects companies on the basis of an indexing method that utilises various fundamental accounting measures for choosing the constituent companies in the index, rather than the more traditional market capitalization method. 

 

ABSA Capital Exchange Traded Funds
Visit www.absacapitaletfs.com
ABSA NewRand Exchange Traded Fund: The NewRand Index is an equity index comprising 10 rand hedge shares selected from the FTSE/JSE Africa TOP 40 Index.
ABSA NewGold Exchange Traded Fund: NewGold Gold Bullion Debentures are securities backed by gold bullion, listed on and traded through the JSE.
eRAFI™ Overall SA: The eRAFI ETF methodology weights shares based on fundamental valuation metrics – sales, cash flow, book price and dividends as well as two additional filters – rather than traditional market capitalisation.
NewSA: The NewSA ETF (NewSA) is the first investment product in South Africa that enables investors to recognise and invest in transformation and broad-based black economic empowerment (B-BBEE) in South African companies.
NewSA Top 40: NewFunds Shari’ah Top 40 ETF is the first Shari’ah-compliant equity ETF in South Africa. Shari’ah Top 40 ETF is a low-cost, transparent and accessible investment product that supports the growing demand for Islamic investment products in the South African market.


db x-trackers Exchange Traded Funds (Itrix)
db x-trackers invest in offshore funds. They are an initiative of the Johannesburg Stock Exchange and Deutsche Bank. Visit www.financial-advice.co.za. Under “Investments” in the left-hand column, click on “db x-trackers funds”. They are an ideal option if you want to have some offshore exposure. There are several db x-trackers funds:

 

• DJ EURO STOXX 50 Index ETF
• FTSE®100 Index ETF
• MSCI USA Index ETF
• MSCI Japan Index ETF
• MSCI World Index ETF
• DJ EURO STOXX 50 Index ETF
• FTSE®100 Index ETF
• MSCI USA Index ETF
• MSCI Japan Index ETF
• MSCI World Index ETF

 

Investec Zshares Exchange Traded Funds
Visit www.zshares.co.za
• Zshares RandPlay
• Zshares RandHedge
• Zshares GOVI

 

If you’d like to take part in this investment class but think you cannot afford it, simply cancel your pay TV subscription, and hey presto, you’ll have R300 to invest in an ETF every month. And you’ll also have more time in the evenings, which you can use to read about creating wealth. That’s our advice, anyway!