Satrix RESI ETF: an ETF for exposure to the top JSE-listed resources companies.

This week's featured ETF is Satrix RESI ETF (JSE:STXRES). This ETF is suitable for investors with a high risk appetite seeking exposure to the resources sector.

To know the investment approach and the portfolio composition of this ETF, you can use this link to the full feature.

Dividend Yield

• 5%

Highlights

• The Fund invests in companies that are involved in gold mining, platinum & precious metals, general mining and chemicals diversified
• Gold prices have climbed 9.2% year-to-date
• High commodity prices over the last few years have led to higher-than-expected revenue collection for the SA fiscus in the form of taxes.
• Demand for gold this year has been mainly supported by central banks
  Mining production dropped 2.6% year-on-year in March
  
  

Top Sectors 

• General Mining - 40.5%
• Gold Mining - 25.9%
• Platinum & Precious metals - 22%

What’s happening in the markets?  

Global growth for this year appears gloomy, particularly for advanced economies such as the US and Eurozone, according to the IMF.

Aggressive interest rate hikes, global inflation and failures of Silicon Valley Bank, First Republic Bank, Signature Bank and Credit Suisse are some of the factors that have exacerbated recessionary fears around the world.

Gold prices have climbed 9.2% year-to-date amid fears of a global recession. Gold-backed ETFs are one of the important sources of gold demand and data from the World Gold Council show that gold-backed ETFs continued to witness net inflows in April, adding $800m, albeit smaller than March’s $1.9bn.

This week we review the Satrix RESI ETF, which is the only JSE-listed ETF that tracks the resources sector in a tax-efficient manner. It invests in companies that are involved in gold mining (25.9%), platinum & precious metals (22.8%), general mining (40.5%) and chemicals diversified (8.9%).

Generally, there is a negative relationship between the price of gold and the value of the dollar. When the dollar appreciates, gold becomes relatively expensive, which leads to a lower demand for the commodity, thus resulting in a lower price. 

The dollar index – which is an index that measures the value of the dollar against a basket of currencies - has dipped 2.3% year-to-date, while gold is up 9.2%. Reasons for the weaker dollar include weak real GDP growth in the US for Q1 2023 and expectations that the Federal Reserve will halt its rate hiking cycle as inflation appears to have peaked. 

Demand for gold this year has been mainly supported by central banks, whose demand reached 228 tonnes in Q1 2023, 34% higher than the previous record set in Q1 2013, according to the World Gold Council. The Monetary Authority of Singapore was among the biggest spenders on gold, purchasing 69 tonnes – the first increase in its gold reserves since June 2021.

High commodity prices over the last few years have led to higher-than-expected revenue collection for the SA fiscus in the form of taxes. However, this windfall revenue is being crowded out by the social relief of distress grant and ailing SOEs such and Eskom and Transnet. The mining industry plays a critical role in SA’s economy, having accounted for 7.3% of GDP last year from 7.7% in 2021.

The Satrix RESI ETF has a significant exposure to Anglo American Plc (26.8%), a multinational mining company which accounts for about 40% of the world’s platinum group metals (PGM). During the Mining Indaba held in February this year, Anglo voiced concerns that SA’s structural issues such as energy and transport are hampering productivity. The company signalled that PGM production was down 6% in Q1 2023 compared to the same quarter in 2022. This was mainly due to the ongoing power outages. 

Mining production dropped 2.6% year-on-year in March, with diamonds and PGMs dipping 54.7% and 9.1% respectively. This correlated with the 5.6% decline in electricity generated for the month. April and May have been characterised by high stages of loadshedding, and we expect mining output to have been hampered as a result. Intellidex expects loadshedding to worsen in winter, a phenomenon which will continue to hurt mining output.

Other commodities are on course to gain this year. Platinum has increased 0.9% to $1,091.50 per ounce year-to-date. In March this year, UBS Investment Bank increased its forecast for the metal to $1,200 per ounce by 2023-end, from a previous forecast of $1,100 made in December last year. Drivers of this increase include higher-than-expected demand for platinum, coupled with low supply.

Weekly flows into platinum ETFs climbed 117,000 ounces during the week ending 21 April, which is the biggest increase since March 2019, according to Bloomberg. This increase coincided with a 23.5% rise in spot platinum prices. This ETF provides a more tax-efficient exposure to platinum than commodity ETFs such as Absa NewPlatinum and 1nvest Platinum.

Investment term of the week: dollar index

A dollar index is an index used to measure the value of the dollar against a basket of six currencies, which are the euro, swiss franc, yen, Canadian dollar, British pound and Swedish Krona. These are currencies of countries that are referred to as America’s most significant trading partners.

Satrix RESI ETF (JSE:STXRES)

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Satrix Rafi 40 ETF (JSE:STXRAF) suits investors who want passive exposure to fundamental weighted equities over a long-term investment horizon.

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Background: Exchange-traded funds (ETFs)