Absa launches new equity factor ETFs on JSE

Mar 28th, 2018 | By | Category: Equities

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Absa Bank has launched two new smart beta ETFs on Johannesburg Stock Exchange (JSE), providing exposure to South African equities whose returns are strongly linked to the low volatility and value factors.

Absa NewFunds Smart Beta ETFs

The new funds provide exposure to South Africa-listed equities with low volatility and value characteristics.

Both of the funds’ underlying indices were created by Absa Bank in collaboration with The University of Witwatersrand (Wits).

Donna Nemer, director of capital markets at the JSE, commented, “The JSE is seeing an encouraging surge in the listing of new ETFs, which increasingly offer South African investors greater exposure to a range of sectors and also global markets.

“In keeping with global trends, the local ETF industry is also effectively responding to the need for more sophisticated products which incorporate the expertise of active investment managers – and in this case an academic institution – into passive investment products.”

The NewFunds Low Volatility Equity ETF (NFEVOL SJ) tracks the Absa Wits Risk-Controlled SA Low Volatility Index, providing diversified exposure to 20 South Africa-listed securities which exhibit the lowest price volatility. The constituents’ weights are determined by applying an equal risk contribution weighting scheme.

The fund has significant exposure to three sectors which collectively account for over 75% of the total exposure: consumer staples (28.2%), financials (26.4%) and real estate (20.7%). Materials is the next largest exposure at 10.3%.

The NewFunds Value Equity ETF (NFEVAL SJ) tracks the Absa Wits Risk-Controlled SA Value Index, providing exposure to 30 locally listed equities that exhibit strong value characteristics (low price-to-earnings and price-to-book ratios). Constituent weights are also determined by applying an equal risk contribution weighting scheme.

The largest sector exposure is materials at 28.3%, followed by financials (26.3%) and real estate (23.5%). Some way behind is industrials with a 6.4% weight.

Each fund has a maximum expense ratio of 0.50%.

“These new listings complete the triumvirate of standalone investable South African equity risk premia solutions in the Absa stable,” said Ryan Sydow, head of distribution, index and structured solutions at Absa Corporate and Investment Banking.

“The significant amount of empirical research into risk premia investing is partly responsible for the huge global growth in Index/ETF investing and provides investors with a new tool kit and risk-focused lens through which portfolio construction can take place. Being able to access rewarded risks in the market we, together with our partners, are proud to be leading the way in South Africa when it comes to this approach to investing.”

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