Traditional Investing (when you invest via a Financial Adviser or other)

A1-Class (%)

Advice fee | Any advice fee is negotiable between the client and their financial advisor. An annual advice fee negotiated is paid via a repurchase of units from the investor.

Total Expense Ratio (TER) | The Total Expense Ratio (TER) is the charges incurred by the portfolio, for the payment of services rendered in the administration of the CIS. The TER is expressed as a percentage of the daily NAV of the CIS and calculated over a period of 1 year. The TER is calculated from 01 January 2017 to 31 December 2017. A higher TER does not imply a poor return nor does a low TER imply a good return.

The Transaction Cost (TC) is the cost incurred by the portfolio in the buying and selling of underlying assets. This is expressed as a percentage of the daily NAV of the CIS and calculated over a period of 1 year. Obtain the costs of an investment prior to investing by using the EAC calculator provided at www.satrix.co.za.

Satrix is a South African ETF pioneer and caused a shake-up in the SA investment space when it introduced the country to ETFs in 2000 by launching the first ETF listed on the JSE. The Satrix TOP 40 ETF needs no introduction and serves as the go-to broad market exposure investment option for professional and amateur investors alike. So transformative have the Satrix product set and access options been to South Africans that people often (erroneously) refer to all index trackers as Satrix.

Since 2000 Satrix has listed 12 more ETFs. In fact, in 2017 alone it added a property ETF, an inflation-linked bond ETF, a Quality factor ETF and three offshore ETFs to its range. You can now build a completely diversified portfolio of local asset classes using only low-cost Satrix ETFs.

To make investing ever easier and cheaper (and online) we started working with the ground-breaking team at EasyEquities. The low-cost, no-minimum, online platform they had developed, which allowed fractional share trading, is perfect for our clients too. In no time at all we had our very own www.SatrixNOW.co.za platform up and running, which allows you to do everything online with no annual fees and extremely low trading costs. With SatrixNOW there really are no excuses as you can invest as little as R10.

Macro review

In the US, the fourth quarter (Q4) saw two Republican defeats in Senate contests spur House and Senate Republicans into action, resulting in the long-awaited tax reform bill. Markets rallied on the news with big permanent cuts for corporations as the centrepiece of the package. US equities were largely also supported by generally positive macroeconomic data, including better-than-expected third-quarter GDP growth of 3.0% (annualised) and stronger-than-expected non-farm payrolls. As had been widely anticipated, the US Federal Reserve (Fed) lifted interest rates by 25 basis points (bps) in December. The Fed also raised its growth forecasts for 2018 to 2.5% from 2.1%. The quarter also saw robust corporate earnings, particularly from the technology sector.

In the Eurozone, data showed the region’s economic recovery continuing. GDP grew by 0.6% in the third quarter, even though there was a slight slowdown from 0.7% in Q2. In October, the European Central Bank announced that quantitative easing would be extended to September 2018 but that the pace of purchases would be reduced from €60 billion per month currently to €30 billion. In Germany coalition talks collapsed, while in Spain Catalonia held a regional election, which failed to resolve the independence issue. In the UK, despite a sluggish economy, the Bank of England’s (BoE) monetary policy committee raised interest rates for the first time in 10 years as annual CPI reached 3.1% in November, breaching the BoE’s upper target. Furthermore, hopes rose around progress with Brexit negotiations, with an agreement struck to allow talks to proceed to the future of trade arrangements. Emerging markets experienced largely positive political developments. In South Africa pro-reform candidate, Cyril Ramaphosa, was elected as leader of the African National Congress. This development increased the prospect for a return to more orthodox policy after elections in 2019. In Greece, agreement was reached with international creditors over reforms, paving the way for the dispersal of further bailout funds, while India also announced plans for a major recapitalisation for statecontrolled banks.

Global and local market review

For the first time on record, global equity markets rallied in all 12 months of a year, advancing 5.8% in US dollars in Q4 and 24.6% over 2017, one of the strongest years since 2009. The S&P 500 ended a strong year with a fourth-quarter gain of 6.6%, buoyed by hopes of tax reform, while Eurozone equities declined amid some profit-taking and simmering political risk, although economic data remained positive. The UK’s FTSE All Share index also saw positive returns, supported by gains for resource stocks and progress on Brexit negotiations.

Emerging market equities (EM), however, outperformed their developed world counterparts, returning 7.5% during Q4 and 37.8% in 2017. Top performers in EM in Q4 2017 were South Africa (+21.5%), Greece (+13.6%) and India (+11.8%). MSCI South Africa rallied +36.8% in US dollar terms in 2017 broadly in line with EM, driven by Media (Naspers), a metals rally, while a Ramaphosa win buoyed SA domestic-demand sectors into year-end. However, MSCI SA ex Naspers was up only 16%.

In rand terms, South African equities (Capped SWIX) delivered a healthy 16.5% during 2017, outperforming Bonds (+10.2%) and Cash (+7.5%). Over the quarter, the Capped SWIX return was 8.4%, driven by Industrial Metals (+62.7%), Banks the Capped SWIX return was 8.4%, driven by Industrial Metals (+62.7%), Banks (+27.1%) and General Retail (+22.3%). Underperforming sectors over the quarter were Household Goods (-92.3%), Fixed Line Telcos (-18.8%) and Paper (-9.9%). In 2017, SA equities recorded outflows of $2.5bn, significantly lagging inflows into EM of $77.2bn. However, dissecting the flows, it appears that, excluding the outflows from dual-listed stocks and the Barclays and Vodacom sell-down, SA equities saw inflows of just more than R60bn in 2017.

Portfolio performance, attribution and strategy

Despite some rotation which started in November (which can largely be explained by usual year-end profit taking), globally the Momentum factor (particularly Price Momentum) has led factor performances for 2017. Factors such as Growth and Quality/Profitability have also been solid strategies to be exposed to last year, but Price Momentum has benefitted most from US tax reform and global synchronized growth.

In South Africa we’ve seen an alignment with global outcomes, as Price Momentum has been the strongest signal domestically for 2017 and the prior quarter. Earnings revisions (a sub-component of headline Momentum) on the other hand has not performed in line with Price Momentum, delivering only mildly positive outperformance, while defensive factors such as Return on Equity (ROE) and Dividend have been exceptionally strong during 2017, largely back-end loaded. In our view, the earnings revisions factor was not well rewarded given high levels of domestic economic and policy uncertainty flowing over to uncertain corporate earnings estimates. However, with the domestic policy environment seemingly improving at the margin, cyclical stocks with positive forward earnings momentum should perform well.

As an overall factor, however, the Momentum signal has translated into a top performing factor-based strategy relative to the SWIX in 2017, after a testing environment in 2016. Over the prior quarter, the strategy’s outperformance was attributed to exposure to a diverse range of sectors, with the largest contributors to relative performance generated from overweights in Kumba Iron Ore (KIO), Assore (ASS), Exxaro (EXX), Capitec (CPI) and Imperial (IPL). The underweight in Steinhoff (SNH) also significantly bolstered the strategy’s performance, after the share fell 92.3% over the quarter due to accounting irregularities. On the other hand the largest detractors were overweights in Richemont (CFR), Reinet (REI) and British America Tobacco (BTI), and underweights in Barclays (BGA), Truworths (TRU) and Mr Price (MRP).

At the last rebalance date (mid-December), we transitioned the portfolio based on the evaluation of new factor signals and the risk levels in the portfolio. Based on these signals, Steinhoff (SNH), Blue Label Telecoms (BLU) and Supergroup (SPG) was removed, and Discovery (DSY), Mr Price (MRP) and Northam (NHM) was added. Exposures in Bidcorp (BID) and Glencore (GLN) have also been reduced while exposures to Assore (ASR) and Richemont (CFR) added in line with the risk objective of the fund.

We remain convinced of the factor’s medium- to long-term significance and the premium it offers in the South African capital market and remain disciplined in our implementation and extraction of the factor.