What Satrix product is right for me?

This podcast is brought to you by Satrix, a leading provider of passive investment products in South Africa.

Satrix offers a variety of unit trusts and ETFs with different stock market and asset class exposures. Understanding which one does what is important before you invest. This podcast will help to demystify the choices.

Tim Modise is with Candice Paine of Satrix. The last time we spoke about the difference between Satrix Unit Trusts and Satrix ETF but the question is what is the right Satrix product for me, given that there’s a variety to choose from? Welcome Candice.

Thanks Tim, yes, there absolutely is a variety to choose from. Currently there are seven ETFs available and 11 Unit Trusts, and I’d like to refer listeners to the previous podcast, where we spoke about the difference between an ETF and a Unit Trust – just to put their minds at rest about those different investment vehicles. Then it comes down to which fund do you actually choose because each of the funds are tracking a different underlying index. This very much depends on the view that you may have of the market or the risk profile of you, as an investor.

There are various equity portfolios, which only invest in shares listed on the JSE. There are two balanced funds, which are a combination of all asset classes, and what they do there is bring down the risk of the overall portfolio. Then we also have specific INDIs that are tracked like a property unit trust, a bond a unit trust, and our offshore MSCI World Tracker Equity Fund.

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Now again, what factors should you take into consideration when you are deciding which product to go with?

Always time and what risk you can take on, so depending on the time that you have available and the risk that you can take on. Most of Satrix products are equity-based investments, which means you need to be invested for a minimum of five years or more. You do not save for a holiday in three months time in a Satrix product.

So how do you go about choosing a product? Each of the equity investments is a different combination of shares on the Stock Exchange that is trying to meet a different end. For example, if you invest in the Satrix Top 40 Index, you’re investing in the 40 largest companies, my market capitalisation on the Stock Exchange.

In complete contrast to that, if you are investing in the Satrix Dividend Plus Index Fund – this index includes 30 companies from the Top 40 and the Mid Cap Index and what it’s looking at there is expected normal dividends that are going to be paid over the forthcoming years. If dividends are important to you and income is important to you, you’d probably be looking at something like the Dividend Plus Fund. If you’re just wanting a broad-spectrum exposure to the South African Stock Market then you’re looking at something like the Top 40 Index Fund.

Just continuing with that, let’s go back to the Multi Asset one – that sector there, the balanced and low equity – if you can make a comparison for me.

The balanced funds were largely setup for Pension Fund investors, so if you are saving for retirement in a Pension Fund vehicle that would be your Pension Fund, your preservation fund, your retirement annuity. You are subject to something called Regulation 28, which is set out by the Government and it limits the equity exposure that you can have in a particular fund because equity (if you recall), is the security that brings risk into your portfolio.

What the Satrix Balanced Index Fund does – it caps your equity exposure at 70%. That is your offshore and your local equity exposure. Similarly, for your Satrix Low Equity Balanced Fund. It caps your equity exposure at 35%, offshore and local, so what you’re doing there is really truncating the risk in the portfolio, specifically for Pension Fund investors but it’s not exclusively for Pension Fund investors.

If you find that 100% equity market investment is too risky for you, you should be considering one of those two Multi-Asset Class portfolios.

And if you can compare property versus bond?

Property is a hybrid security, so it lies somewhere between a listed equity and a bond. The reason being is that the rental income that you receive is similar to the interest income that you’d receive from a bond but listed property is listed on the Stock Exchange, so it is subject to the demand and sell relationship that happens with equities, on the Stock Exchange.

Property, over the last couple of years in South Africa, has been an excellent place to be but it brings in volatility. Where your bond investment is slightly lower risk but you’re probably going to get a lower return, depending on the duration of the bond that you’ve bought. Now the bond index that Satrix has tracks the all bond index, so it has a duration of approximately five, and what you’re getting there is a higher interest rate than, for example, cash in the bank.

Within a Multi Asset Class portfolio, you would have exposure to the bond portfolio, the property portfolio, the equity portfolio, and the offshore portfolio, so if you’re confused about where you need to be, look at the Multi Asset Class products.

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