So, those markets hey... Q3 '20
As a Franc customer, you have 2 funds to choose from. Our cash fund is best for short term goals (risk free with an inflation beating return) and we suggest equity exposure for longer term investments. The equity fund we have chosen for you is the Satrix 40 ETF, an index tracker fund that effectively allows you to invest in the largest 40 companies on the JSE at once. The price of the STX 40 ETF as at 30 June 2020 was R50.66 and it was R50.53 at 30 September 2020, falling by 0.26%. So not a lot happened you may say? Well, actually there was a lot that did happen behind the scenes.
Recap - don't put all your eggs in one basket
In this article we explained a bit about what diversification is and how it can benefit you. In short, it is better to spread your risk so that if one/some investments of yours do badly, hopefully others can perform well for you and you can still achieve a good return.
So what happened then?
As at 30 June 2020, Naspers, Anglo Gold and British American Tobacco together made up almost 29% of the STX 40 ETF. These stocks were down by 6%, 14% and 12% respectively over the last quarter. Not great for us as investors in the fund! But the fund as a whole only fell by 0.26% - this means that some companies must have performed really well.
Capitec, Discovery, Sibanye, Goldfields, Implats, Shoprite and Northam all shot the lights out over the last quarter as per the chart below. Together they only comprised around 8% of the STX 40 ETF as at 30 June 2020, so although they didn't make a HUGE difference to the fund, without them the fund performance would have been closer to -2.5% over the quarter. It is also worth noting that now, as a result of their good performance and increased market capitalisation, these companies now make up around 11% of the STX 40 ETF - as some companies grow, their weighting in the fund increases. As some fall, so does their weighting (like Naspers, Anglo Gold and British American Tobacco which now make up 27% of the STX 40 ETF as a result of their recent share price falls).
BHP, Richemont and Anglo American made up around 30% of the STX 40 ETF as at 30 June 2020 and they were all up for the quarter but only around 1-2% each so again not making a big difference but without them the fund would have fallen even more.
What else has happened this year?
Jerusalema and banana bread. Oh you mean in the markets, sorry...
The graph above shows the performance of the STX 40 ETF against the top 4 constituents in the fund over the past 12 months - these 4 stocks make up more than 50% of the fund. Note how all of them fell dramatically in March 2020 just as Covid-19 began to change our lives in the dramatic fashion that it has.
All have subsequently recovered to at least the levels they were before the crash whilst the STX 40 ETF is around about the same. This indicates that whilst many of the other companies in the fund have not yet recovered, being in a diversified fund has softened the ride to an extent.