Satrix's Index Funds Tip the Scales in 2024 Half-Year Update

In its recent half-year fund update, Satrix, South Africa's leading index-tracking investment products provider, reported that the company's Exchange-Traded Fund (ETF) book has surpassed its unit trust book in assets under management for the first time, becoming the largest segment among its investment vehicles. This shift, highlighted by Kingsley Williams, Chief Investment Officer, and Nico Katzke, Head of Portfolio Solutions at Satrix*, comes alongside robust growth, with Satrix’s inflows exceeding the previous year by almost R5 billion. 

Williams said this development indicates South Africans’ growing appetite for index-based investment products and reflects a global trend. "The first half of 2024 has been a testament to the growing appetite for transparent, cost-effective investment solutions in South Africa. As we navigate economic uncertainties and market volatility, our commitment to providing accessible, index-based strategies has resonated strongly with investors. We're not just witnessing growth – we're experiencing a shift in how South Africans approach long-term wealth creation."

Market Performance and Index Trends

Providing an overview of market performance in the first half of 2024, Katzke said, "Markets since the beginning of the year have been quite perky. We've seen an appreciation across most asset classes in rand terms. Notably, financials and property had a strong start to the year, benefiting from a stronger rand and positive election outcomes.”

Katzke highlighted the performance of various indices, including gold reaching all-time highs in May and again in July. He also unpacked the All Bond Index (ALBI)’s recovery and the property sector’s potential as South Africa enters a period of political stability and lower interest rates.

He noted that equity markets have continued to rise globally, predominantly driven by tech stock rallies. However, global bonds have underperformed due to delayed interest rate cuts.

Strong Growth and Market Leadership

Williams reported robust growth for Satrix in the first half of 2024, with the company seeing healthy inflows in its international offerings. He said this results from investors recognising the value and simplicity of Satrix’s diverse product set, with its comprehensive range of access points. 

He said the company's success extends beyond traditional investment vehicles, highlighting the growing popularity of Satrix's multi-asset range. "Our multi-asset range is also growing steadily. This diversification strategy has allowed Satrix to cater to extensive investor needs, from individual retail clients to institutional investors.”

Active Management Challenges and the Rise of Index Funds

Katzke presented research showing that, despite the JSE having fewer listed companies than in previous years, the potential for active fund managers to create portfolios distinct from the index has increased. This means that even with a smaller pool of shares, fund managers have more opportunities to make investment choices that allow for differentiated return profiles.

However, he highlighted a concerning trend, "Despite this, we are seeing many active managers not using the opportunity to be different. The average active share relative to the Top 40 index has decreased from over 60% to around 40%. That's a considerable decline in how 'active' the active managers are in just over a decade."

Katzke says this reduction in active management has led to a decline in performance spread between top- and bottom-performing managers. "The lack of active differentiation is far more worrying than a shrinking universe that offers alpha opportunities, like we are seeing today."

In contrast to this trend, Williams pointed to the success of Satrix's Balanced Index Fund, which has consistently delivered top-quartile performance. "Our Balanced Index Fund continues to outperform other options in its category, offering investors top-tier results."

Williams emphasised that this performance aligns with academic research, which confirms that up to 95% of long-term returns are attributed to a fund's strategic asset allocation. He added, "Given the relatively small take-up of systematic or indexed balanced funds in South Africa, which is only 8.9%, most investors are unfortunately still overpaying for funds that aim to allocate or employ more expensive actively managed strategies."

MSCI World Unit Trust Enhancements

Williams said the Satrix MSCI World Unit Trust, one of Satrix’s largest funds, has been restructured from a Feeder Fund to a Standard Unit Trust, removing the one-day performance lag typical of Feeder Fund structures.

"Our unit trust now holds the constituents of the MSCI World index directly, and for over a year now has tracked the MSCI World index without any lag. This change has also allowed the fund to harness lower dividend withholding tax rates, potentially adding 15 additional basis points of performance for clients.” 

Shaping the Future of Investing in South Africa

The Satrix half-year update indicates that index-based strategies continue to gain momentum globally, with ETFs seeing significant growth across various market segments. This trend is mirrored in South Africa, albeit slower, as investors increasingly recognise the benefits of low-cost, transparent investment solutions.

"Satrix continues to experience strong growth and maintain its leading position in the South African index-tracking investment space. Our commitment to innovation and client value resonates with investors as the investment landscape evolves. The company's success in attracting inflows, even as the broader industry faces challenges, suggests that index-based strategies are gaining significant traction in South Africa," concludes Williams. 

*Satrix is a division of Sanlam Investment Management

Disclaimer:

Satrix Investments (Pty) Ltd is an approved financial service provider in terms of the Financial Advisory and Intermediary Services Act, No 37 of 2002 (“FAIS”). The information above does not constitute financial advice in terms of FAIS. Consult your financial adviser before making an investment decision. While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP, its shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information. 

Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. With Unit Trusts and ETFs, the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document.

 For more information, visit https://satrix.co.za/products.