What is an asset class?
An asset class is a group of securities (investable instruments) which have similar characteristics; they behave similarly in the marketplace and are subject to the same regulations. The main four asset classes are equities, fixed income, property and cash. Each asset class has a particular level of risk associated with it. The risk level is an indicator of the potential return – higher risk equals an increased probability of a higher return and vice versa.
When making an investment decision, the first choice you are making is which asset class to invest in. Think about the choice you make to either keep you money in a bank account or invest in a Satrix index tracking fund. Here you are choosing between cash or equities.
When viewing the PRODUCTS section of the website you can filter Satrix products into their respective asset classes.
Equities are shares of companies which are listed on a stock exchange. Most Satrix funds invest in shares that are listed on the Johannesburg Stock Exchange. These shares make up the indices our products track. Equity investments are for those who want maximum capital growth and can tolerate short-term price movements and the high risk associated with this asset class. If you’re willing to take on higher risk to increase the probability of a higher return, then this is the asset class for you. You should be prepared to be invested for a longer period, at least 5 to 7 years.
Satrix offers index tracking products which invest in equities listed locally or internationally.
Fixed income instruments or bonds are debt investments in which you are effectively lending money to government or companies in order to earn a regular interest payment i.e. a fixed income in interest terms. These funds are for investors looking for a predictable income stream and are associated with a moderate risk level. Be aware however that these funds may experience some price fluctuations in the short-term.
Fixed income instruments can be invested in locally or offshore, usually via foreign bond exposure.
Cash investments include bank deposits and short-term money market assets. They are low risk investments and are highly liquid. Along with the low risk comes a lower level of return. The Satrix Money Market fund does not track a specific index, but aims to deliver a higher level of income than fixed deposits and call deposits over time. It is suitable for investors who have a shorter investment term i.e. 6 – 18 months.
Listed companies which invest in local and international properties (viz. shopping centres, industrial blocks and offices) make up the listed property sector.
Listed property is often seen as a hybrid asset class because the shares exhibit qualities of both equities (due to their listing on the JSE) and bonds (due to the anticipated yield/rental income from the underlying properties). As a result of the higher yield from rental agreements, the Satrix Property Index Fund could form part of a longer-term income portfolio, while still providing capital growth. This asset class has a high risk profile and should be seen as a longer term investment.
INVESTING ACROSS ASSET CLASSES
If choosing a single asset class is too daunting to contemplate, you may want to consider Satrix’s multi-asset or balanced funds which are diversified portfolios investing across all asset classes including equities, property, cash, bonds and offshore investments in a single fund. By diversifying your investments, you lower the risk of some of the higher risk asset classes in the fund allowing a moderate or conservative investor to find a fund which suits their risk profile. Satrix Balanced Index Fund and the Satrix Low Equity Balanced Index Fund are Regulation 28 compliant which means they are suitable to be used for retirement savings.
POSTED : 8 DECEMBER 2016