Shrinking JSE: Satrix and Itrix to close some ETFs and merge others

Exchange-traded fund (ETF) provider Satrix has announced the closure of three ETFs at the end of next month. These are the Defensive Equity, Moderate Equity, and High Growth Equity Volatility Managed SA funds it acquired from Absa (NewFunds) in March this year. It says the three portfolios do “not align with Satrix’s strategic objectives”. 

Industry provider etfSA said in July that subsequent to the transfer of NewFunds ETFs to Satrix, the latter has “processed substantial redemptions of some of these previously NewFunds products, which suggests that this may look to clean up the number of ETF products they issue, particularly where duplication is involved”. 

All three were launched in 2019 and have failed to gain significant scale. By the end of last year, the three funds had between R55 million and R78 million in assets under management.

Following those redemptions, the three funds together have just R29 million under management (two of the funds are in the single-digit millions). Satrix says this lack of scale means it is “not cost-effective for investors to remain in the portfolio”.

“Fixed regulatory fees are levied against total portfolio units, regardless of value. The fixed fee costs are borne by fewer portfolio investors, thereby impacting performance returns (after-fees) negatively.” 

Each of the Volatility Managed SA funds allows investors “to gain varying market exposure based on volatility, to a universe” of between 15 and 34 liquid equities on the JSE. It says “this index construction will likely expose investors to significant active risk relative to the broader market and is inconsistent with the Satrix approach to constructing factor strategies and risk management in a concentrated market like South Africa”.

Trailing the benchmark

As of June, the performance of all three ETFs has trailed the benchmark on a one-year and three-year basis, as well as since inception, with the exception of the Moderate Equity fund in the last year, according to minimum disclosure documents. 

Satrix also announced the ‘amalgamation’ of its Reitway Global Property ETF with Reitway’s Global Property Prescient ETF from 26 September (pending approval). This comes after Reitway Global entered a co-naming agreement with Prescient to launch Reitway tracking ETFs and to consolidate all its ETFs into one management company.

The Prescient fund doesn’t exist yet (so far, it has brought the Global Property Diversified and Global Property ESG ETFs to market) and will list on the JSE pending various approvals. As at the end of June, the Satrix Reitway fund had assets under management of R57.8 million. 

The jury remains out on what Satrix might do regarding its other sub-scale funds.

Its Smart City Infrastructure and Inclusion & Diversity ETFs each have under R20 million in funds under management. No other ETFs had market capitalisations of under R25 million at the end of June, with only five under R50 million. 

Harmonisation of indices

Also on Tuesday, Sygnia announced the amalgamation of its Itrix Swix 40 ETF with the Top 40 one. In June next year, Sygnia says the “JSE is expected to ‘harmonise’ the All Share and Shareholder Weighted Indices”.

“This means that they will become one, and as such, there is no longer a need for both [ETFs]. To retain two similar portfolios within the scheme is not practical, especially in light of costs associated with administration and management, and it is therefore no longer deemed viable to justify their continued and separate existence.”

Sygnia’s Itrix Top 40 ETF had assets under management of R451 million at the end of June, while the SWIX Top 40’s market capitalisation was R183 million (its second-smallest fund). 

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Presumably, 1nvest and Satrix will merge (‘amalgamate’) their respective SWIX funds with their Top 40 funds ahead of the JSE’s move. 

(The JSE’s SWIX or Shareholder Weighted Indices were introduced in 2004 and refer specifically to the proportion of the company’s shares held on the South African share register. Previously, certain stocks had different shareholder registers – BHP was the most prominent – which necessitated its implementation.)

According to etfSA, there were 201 exchange-traded products on the JSE at the end of June, of which 97 were ETFs and 71 ETNs (exchange-traded notes). 

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