South Africa’s investment returns sparkle: index-trackers

Regular investment over the past decade in a fund tracking South Africa’s industrial companies has been a shrewd move for investors.

The Satrix INDI 25 has delivered an annual return of just over 20% for the past 10 years, according to figures to the end of July. Next up as a smart investment choice is the Prudential Enhanced Property Tracker Fund, which has produced about 19% a year over 10 years.

The Satrix INDI 25 rewarded investors over five years, too, turning in an average annual 23%. However, the best bet over five years has been to track international markets, partly to benefit from a depreciating rand, with the DBX Tracker MSCI USA giving its investors 30% a year and the DBX Tracker MSCI World producing an average annual 24%.

Over shorter periods, the NewFunds S&P GIVI RESI makes a regular – and impressive – appearance. Tracking the FTSE/JSE Resources 10 has produced monthly double-digit returns, resulting in a staggering 130% over one year.

Investors over three years in the NewFunds S&P GIVI RESI have seen their investments increase by around 25% each year. That’s good going in a world in which it is hard to find returns in single-digit figures.

Full set of results for South Africa’s index tracking funds, courtesy of, below, as well as some pointers on what to think about when choosing an index-tracking fund. – Jackie Cameron

Choosing an index-tracker: Quick tips

Index-trackers aim to mirror the components of stock market indices. Similar to unit trusts, Exchange Traded Funds (ETFs) combine money gathered from many investors to offer access to a basket of investments.

The reason they are popular is because they make it possible to access a wide variety of expensive assets that you might not be able to buy separately on your own. Instead of the thousands of US dollars or rands you would need to fork out for tiny chunks of businesses like Apple, Google and other global shares, you can pay the same money – or less – to own small stakes in each of these companies.

Your biggest decision is identifying which general basket you should aim for, with your choice based on a number of factors, including:

1. Where the gaps are in your investment portfolio

It doesn’t make sense to opt for an index-tracker that puts a heavy emphasis on South African shares if you already have investments through your pension fund, unit trusts and stock portfolio in companies listed on the Johannesburg stock exchange. This is because you will be doubling up on your exposure to specific assets.

Many South Africans start with US-focused ETFs. This is because you can’t access innovative media and technology companies like Facebook in South Africa, as organisations like this aren’t emerging here. 

Read also: World’s best investor: Why index trackers rock

Look at the index the ETF or unit trust is tracking as well as its holdings for an indication of whether it is likely to plug a gap in your investment portfolio. The provider will have fact sheet available on its website.

2. Your investment objectives

Some index-trackers represent baskets of assets that are very high risk; others are low risk, but might not excite you with double-digit returns.

Think about what you want to achieve with your investment. Do you want to make a good capital gain in a foreign currency to boost your overall net wealth? Or are you looking to build up investments that can help generate cash for you when you are retired?

Again, the index-tracker’s product summary will give you answers to many questions, including whether a dividend is payable. 

Read also: Helena Conradie: Smart beta funds – index-trackers on steroids

3. The quality of the ETF

Some index-trackers have disappointed investors. The Financial Times of London has warned that every potential ETF investor should be factoring in a potential illiquidity premium, particularly if the investment flavour is a less liquid asset like corporate bonds.

In other words, you may not get your money as quickly as you have been led to believe. ETFs aren’t all as liquid, or as easy to buy and sell, as we think.

Your safest bet, if you are worried about liquidity, is to opt for the big, established index-trackers. These tend to track the main stock market indices.

For more information to help you decide on investing in an index-tracker, read: Confusion about unit trusts and Exchange Traded Funds

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