The Satrix JSE Global Equity ETF offers an alternative to domestic JSE indices by tracking the FTSE/JSE Global Investor 10% Index, focusing on locally listed companies with offshore primary listings and providing higher exposure to dual-listed stocks and rand hedge companies.
A Global Alternative to the Domestic JSE
The Satrix JSE Global Equity ETF tracks the value of the FTSE/JSE Global Investor 10% Index. The index consists of the 50 largest companies, ranked and weighted by global investable market value, in the FTSE/JSE All Share Index. The index is reviewed quarterly, with the constituents capped at 10%.
In March the convergence of the broad JSE indices which was accelerated by the JSE index harmonisation, has introduced a predicament – that the global component of these indices has reduced substantially.
What is this ETF all about?
This ETF does not hold offshore shares and should not be compared to funds like the Satrix MSCI World ETF or any other offshore ETF. It allows an investor to increase their weight in locally listed companies that have a primary listing offshore. The ETF solves for, and takes advantage of the following:
- Domestication of the JSE – Local equity indices have now become less global, almost converging to one point, as the FTSE/JSE All Share Index (ALSI) now uses the SWIX methodology to weight stocks. The Satrix JSE Global Equity ETF provides an alternative for investors who want to increase their offshore revenue exposure while invested in locally listed stocks. That is because this ETF only uses the global free float weight of the stocks in it, which offers a higher exposure to dual-listed companies.
- Rand Hedge – The corporate actions on BHP Group (BHG) and Richemont (CFR) in the last two years further downgraded exposure into rand hedge stocks in the JSE broad indices. The index harmonisation in March this year has further cut the exposure to dual-listed stocks, with the process reducing the Anglo American and Mondi holdings. A significant devaluation in the rand has been a huge advantage for stocks deemed to be rand hedgers, with these companies pulling a substantial amount of their revenues from outside the country. This fund has a significantly higher exposure to rand hedge stocks, as depicted in the table below, which shows the index having far more foreign revenue exposures than the other JSE indices.
Figure 1 Source: FTSE/JSE, MSCI Barra, Bloomberg, Refinitiv & Satrix as at March 2024
Richemont, BHP Group, Anglo American, Glencore and British American Tobacco, among others, are widely considered rand hedge stocks. These have been significantly downsized in the Capped SWIX, while the Satrix JSE Global Equity ETF has a higher allocation to these stocks.
- De-risking Local Jitters – Stocks that are highly concentrated to the rand can be bound to the local economy, both in terms of pulling most of their revenues in South Africa, and also facing the local fiscal policies and political turmoil that come with an emerging market like South Africa. There is a localised idiosyncratic risk for these companies, while stocks that have a higher allocation of their revenue offshore benefit from a weak rand. They can sometimes be less impacted by any turmoil in the country as well. This ETF provides an opportunity to invest in JSE-listed stocks while diversifying away from local jitters.
Upweighting the Giants
Dual-listed companies have the significant advantage of continuous trading across different time zones, as well as being highly liquid. Over 600 US-based companies operate in South Africa, and some of them, while listed on JSE, don’t reflect their significant market capitalisation in the weightings of broad JSE indices.
In 2016 Anheuser-Busch InBev acquired SABMiller, absorbing one of the JSE’s biggest listed companies. Yet, when you look at Anheuser-Busch in the ALSI it is only weighted at 1.6%. Founded by a South African, one of the biggest luxury goods companies in the world, Richemont is based in Switzerland but also listed on the JSE, weighted at 3.0% of the ALSI. Glencore, a major supplier of coal in South Africa, and one of the world’s largest globally diversified mining companies, accounts for a mere 1.4% of the ALSI.
Amongst these are other industry giants that are also listed on the JSE, like BHP Group, British American Tobacco, Anglo American and Prosus, which only make up 11% of the ALSI.
The Satrix JSE Global Equity ETF has a significant upweighting of these stocks, as seen on the below chart – providing a totally different index from the more domesticated indices like the FTSE/JSE All Share or Capped SWIX indices.
Figure 2 Source: JSE, Satrix - May 2024
The ETF trades on the JSE, and Satrix offers it at a 0.15% TER, rebalancing and distributing its income on a quarterly basis.
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