Since their introduction in South Africa in July 2022, Actively Managed Certificates (AMCs) have become increasingly popular among investors looking for diversified and professionally managed portfolios. By January 2025, the Johannesburg Stock Exchange (JSE) had listed 60 AMCs with a total market capitalization of R25 billion, indicating rising interest. This article examines how AMCs on EasyEquities offer opportunities in small- and mid-cap stocks.
If you’re unfamiliar with AMCs, here’s a brief overview:
What is an AMC?
An AMC is a JSE-listed instrument that represents a portfolio of stocks, actively managed by a portfolio manager according to a specific investment strategy. The returns from AMCs are based on the growth of the stocks in the portfolio, and they are managed by third-party professionals under a robust regulatory framework.
Key Features of AMCs
- Smaller investment minimums vs. traditional unit trust funds.
- Easy access to global markets without currency conversion hassles or the need to use offshore allowances, as investments are made in rands.
- Easily tradable and highly liquid.
- Well-regulated, as AMCs are issued by banks regulated under the Banks Act of 1990.
- Cost efficient compared to traditional unit trusts, as the costs to run these portfolios are lower.
Essentially, AMCs offer investors an affordable way to access global markets without the administrative burden and tax complexities often associated with direct offshore investing.
More information on AMC’s can be found on the EasyEquities website.
New Listed AMC
Among the various AMCs listed on the JSE, the Denker Global Opportunities Portfolio offers exposure to small- and mid-cap equities in developed markets.
Why Small- and Mid-Cap Companies?
1. Smaller companies tend to offer better growth and return potential over the long run, and valuations are currently very attractive relative to their larger counterparts.
The S&P 500 and the MSCI World Index are trading at elevated levels versus their history. On a relative basis, the MSCI World Mid Cap Index, which comprises many smaller companies, currently trades at a 12% discount to the broader MSCI World Index, well below the long-run average of a 7% premium to broader markets and making it a compelling investment opportunity. This is reflected in the price-to-earnings (PE) ratios below. To put these numbers into context, generally lower PE ratios reflect better growth prospects.
Figure 1: PE-ratio comparison
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31 December 2024
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20-year average
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S&P 500
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22.2x
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16.1x
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MSCI World Index
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19.5x
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15.0x
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MSCI World Mid Cap Index
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16.7x
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15.9x
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2. The space is under-researched, making it fertile ground for stock-picking, where investors often find better alignment with corporate management teams.
As can be inferred from Figure 2, the dominance of the larger companies has led to many excellent smaller companies simply being overlooked by investors. This has led to very attractive investment opportunities across the small and mid-cap investment universe.
Figure 2: MSCI Mid Cap Index PE ratio relative to MSCI World
Source: FactSet, Denker Capital, 27 January 2025
3. The timing is ideal, given the current global equity market concentration.
Global equity market concentration is currently close to all-time highs, with the market being dominated by a few large companies and sectors. A good example of this is the Magnificent 7 stocks which have led global equity indices in recent years.
At the end of January 2025:
- The weight of the top 10 companies in the S&P 500 Index (which includes the 500 largest listed US companies) accounted for 37.7% of the total index.
- The top 10 stocks in the MSCI World Index accounted for 24.5% of the index.
- These are both well above historical averages, and well concentration is not necessarily good or bad, Barry de Kock, CFA, Equity Analyst at Denker Capital shares that this does make a strong case for diversification when investing globally.
Figure 3: The weight of top 10 stocks in the S&P 500:
Source: JP Morgan, 31 January 2025
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