NEW SATRIX SA BOND ETF
The Satrix SA Bond ETF lists on the JSE on Thursday, 7 May 2020. This is Satrix's sixteenth ETF listing and the second in our fixed interest range. This ETF tracks the S&P South Africa Sovereign Bond 1+ Year Index.
This is a total return ETF, which means all coupons will be automatically re-invested. Satrix will replicate the index by physically holding all the index constituents in the underlying portfolio.
The Total Expense Ratio (TER) will be targeted at 0.25% p.a. (incl VAT) and will be calculated after 1 year.
WHY INVEST IN SA GOVERNMENT BONDS?
Bond prices and interest rates have an inverse relationship. As interest rates fall the value of bonds increase and vice versa. Thus in an environment of a downward interest rate cycle, an investment into bonds has a good chance to perform well. The Satrix SA Bond ETF allows solely for investments into South African government bonds denominated in rand, and therefore will never be exposed to bonds from corporates or parastatals, such as Eskom for example.
Why is this a good time to be listing a South African Government Bond fund? March and April 2020 have been particularly tumultuous for all asset classes. Bonds were not spared. SA government bonds sold off as global risk aversion rose. On 27 March Moody’s downgraded South African debt to sub-investment grade. Whilst this wasn’t unexpected, it was more bad news to fuel the sell off. South Africa's exclusion from the World Government Bond Index was delayed until the end of April, at which point portfolios would have rebalanced to account for the change. This means that most of the forced selling is now complete. The South African Reserve Bank also committed to repurchase SA government bonds for up to a year, and to buy bonds in the secondary market. This will serve to maintain bond market liquidity.
The upside of this sell-off, coupled with material interest rate cuts, means that bond yields are trading at a significant spread to cash and the implied long-term real yields will also be materially above that of cash.
ABOUT THE S&P SOUTH AFRICA SOVEREIGN BOND 1+ YEAR INDEX
The S&P South Africa Sovereign Bond 1+Year Index includes Rand denominated sovereign debt publicly issued by the government of South Africa, with maturities of one year or more. It is a market value weighted index that is rebalanced monthly.
INDEX CONSTITUENTS AT 31 MARCH 2020
INDEX PERFORMANCE TO 31 MARCH 2020
Source data:S&P Dow Jones
WHO SHOULD INVEST?
The Satrix SA Bond ETF is suited to investors seeking a more defensive asset class, and who are looking for long term yield and some capital growth.
As bonds typically have low correlations with equities, they add significant diversification to an equity-only portfolio. The ETF structure allows for easy access in a single trade.
HOW TO INVEST
Investors will be able to access the Satrix SA Bond ETF online via SatrixNOW.co.za, which has no minimum investment amount.
This ETF can also be traded through stockbrokers and other online platforms - investors can request the specific cost profile from the particular provider.
POSTED : 6 MAY 2020