A road trip to financial freedom
Satrix 40 vs Satrix Capped All Share ETF
By Lizelle Steyn
9 November 2021
Satrix launched the very first exchange traded fund (ETF) in SA in 2000. For the first time, South Africans could buy and sell a share that was basically a basket of the 40 biggest companies listed on the JSE. Holding this single ETF in your portfolio made it possible to own a significant portion of the price movement of the JSE. On 10 November 2021 Satrix launched another ETF that makes it possible to own even more of the SA stock market, the Satrix Capped All Share ETF. What now if you already have the Satrix 40 in your portfolio? Should you switch?
Let's compare the Satrix 40 ETF vs the Satrix Capped All Share (Capi) ETF.
Table 1: Satrix 40 ETF vs Satrix Capped All Share ETF (Capi)
| Satrix 40 | Satrix Capped All Share ETF (Capi) | |
|---|---|---|
| Asset class | SA - Equity - Large Cap | SA Equity - General |
| Ideal investment term | 7+ years | 7+ years |
| Size of companies | Large cap only | Large, mid and small cap |
| Number of shares tracked | +/- 40 | +/- 140 |
| % of JSE | 70-75% | +/- 99% |
| Index tracked | FTSE/JSE Top 40 Index | FTSE/JSE Capped All Share Index |
| Are shares capped? | No | Yes. No share may be more than 10% of ETF. |
| Top 5 companies |
BHP (12%) Richemont (12%) Anglo American (10%) Prosus (8%) Naspers (5%) Date: 30 Sept 2021 |
BHP (9%) Richemont (9%) Anglo American (9%) Naspers (7%) Prosus (5%) Date: 30 Sept 2021 |
| % resources stocks | About 35% of ETF | About 33% of ETF |
| Target total expense ratio (TER) | 0.10% including VAT | 0% until May 2022; then 0.25% including VAT |
| Transaction cost in the fund (TC) | 0.02% p.a. | Expected to be 0.05% p.a. |
| Brokerage and other platform costs when investor buys and sells | Depends on the trading platform chosen by investor | Depends on the trading platform chosen by investor |
| Distributions | Quarterly | Feb, Apr, Jun, Aug, Oct, and Dec (six times a year) |
Source: gofreedom.co.za | Satrix | etfSA | November 2021
More diversification: Satrix Capi covers mid and small caps
Way back when it launched, the Satrix 40 represented 85% of the value listed on the JSE. Now it's between 70 and 75%, depending how you define it. Make no mistake, this ETF provides plenty of local equity diversification. According to Investopedia, the optimal number of stocks to have in a share portfolio lies somewhere between 20 and 50. Traditional wisdom says that after 20, the diversification benefits of adding more stocks become marginal. Still, the Satrix Capi is definitely the better diversified ETF of the two. In an interview with Nerina Visser from etfSA, Nico Katze from Satrix shared interesting findings about the Top 40 vs small caps which make adding the latter compelling. Satrix found that the top 40 shares on the JSE tend to be more correlated to one another (ups and downs often happen in tandem) and driven by momentum in the market than is the case with SA small cap funds. It appears as if the small cap share prices reflect more accurately what is happening in the company and its sector and are less driven by herd mentality.
Less single stock risk: Satrix Capi caps each share at 10%
Adding mid and small caps is one way the Satrix Capi creates better diversification. Another way is by making sure no share represents more than 10% of the ETF. At the moment the Top 40 has only a handful of really large stocks. But remember what it looked like before Naspers unbundled into Naspers and Prosus? Because the Satrix Capi caps each share at 10%, your fortune is less achored to the fortunes (good and bad) of the giants on the JSE. Your risk gets spread around more evenly among SA stocks.
Other advantages of the Satrix Capped All Share ETF relative to the Satrix 40 are:
- slightly less exposure to the volatile Resources sector
- slightly more exposure to companies earning their income internationally
But the Satrix 40 will ultimately have lower fees and costs
Satrix is offering the Capped All Share ETF at a TER of zero (yes, zero!) until the end of May 2022. Thereafter it will be 0.25% p.a. vs the Satrix 40's 0.1%. As a side note, always keep in mind that TER is not the only fee you pay for an ETF. There's also the transaction costs of the fund (as Satrix will need to buy and sell shares in the fund to track the index) and your own trading and transaction costs on your chosen platform. (More on how to find all the fees and costs involved with your chosen ETF.)
The verdict: Satrix 40 vs Satrix Capi
To summarise:
| Diversification | The Satrix Capped All Share ETF is better diversified. It includes mid and small caps. It caps each share at 10% and it has less exposure to the Resources sector. |
| Fees | Up to May 2022 the Satrix Capi is offered at a TER of zero. From June 2022 the Satrix 40 will be cheaper based on TER and on transaction costs (TC) |
If you already have the Satrix 40 in your portfolio, should you add the Satrix Capped All Share ETF for better overall diversification? No. While the Satrix Capi itself is well diversified across SA equity at a company level, adding it alongside the Satrix 40 is not diversifying you away from the SA geography or from the equity asset class. Both are exposed to South Africa geographically. And both are exposed to shares (the equity asset class) only. By all means have both in your portfolio, if you like, just bear in mind that this combination is not meaningful diversification at a greater portfolio level.
If you don't have SA equity ETFs or unit trusts in your portfolio and want to remedy this, how do you decide on the Satrix 40 vs the Satrix Capped All Share ETF? If you're highly price sensitive, you'll probably go for the sustainably low TER of the Satrix 40 (it already has the scale to keep fees that low). If you want to own more of the market and enjoy the reduced volatility of capped shares and less resources companies, the Satrix Capped All Share ETF is the clear winner.