THE JOHANNESBURG Stock Exchange (JSE) has expanded its product offering to investors with the listing of the Satrix Quality South Africa ETF (JSE: STXQUA). The new ETF will track the S and P Quality South Africa index.

ETFs are investment products which track the value of a basket of shares or other assets like bonds and commodities. Prejelin Naggan, Head of Primary Markets at the JSE, says the new ETF can assist investors in further diversifying their portfolios. “The JSE offers a wide range of ETFs which provide a cost-effective way for investors to get exposure to local equity markets as well as commodities, bonds, money markets and listed property.”

Naggan says ETFs are also a useful tool for first-time investors. “As the JSE, we strive to make investment more accessible to all South Africans and cost-effective products which are easy to use play an important role to help demystify investing. ETFs also allow retail investors to start investing with a relatively small initial amount or monthly payment, which also increases accessibility.”

The new quality ETF is the sixth Satrix listing this year and forms part of their smart beta offering. Smart beta, also known as factor investing, is gaining traction and the new ETF gives investors the opportunity to include exposure to the quality factor in their portfolios. “We want to provide investors with a complete set of ETF building blocks so they are able to construct a diversified portfolio,” says Satrix CEO, Helena Conradie.

The Satrix Quality South Africa ETF tracks the S and P Quality South Africa index, which invests in high quality stocks in the South African market, ranked by a quality score. The quality score is calculated based on the company’s return on equity, accruals ratio and financial leverage ratio. The index is rebalanced semi-annually and the weight of each constituent is capped at 10%.

Jason Swartz, Head of Portfolio Solutions at Satrix notes, “Some indicators of strong quality characteristics of companies are 1) good management, 2) strong balance sheets, 3) high and sustainable levels of profitability and 4) a high level of earnings quality. Good management, while tremendously important to a company’s ability to grow and be successful in its industry, is a difficult criteria to assess given the inherent subjectivity of the evaluation. On the other hand, the other indicators are more easily measured.”

The ETF market has seen steady growth globally as well as in South Africa and this new ETF listing brings the total number of ETFs listed on the JSE to 55 with a total market capitalisation of almost R77.68 billion.