Satrix Managers has launched a new fixed income ETF in South Africa providing broad exposure to local government bonds.
The fund provides exposure to rand-denominated South African government bonds from across the yield curve.
The Satrix SA Bond ETF (STXGOV SJ) has listed on the Johannesburg Stock Exchange and comes with an expense ratio of 0.25%.
Income is capitalized within the fund.
The ETF tracks the S&P South Africa Sovereign Bond 1+ Year Index which consists of rand-denominated South African government bonds with maturities of one year or more.
Fixed-rate, zero-coupon, step-up, and fixed-to-floating securities are eligible for inclusion with constituents weighted by market value outstanding.
As of the end of April, the index was yielding 10.24% with an effective duration of 6.53 years.
The ETF is likely to appeal to local, rand-based investors needing a broadly defensive asset class while chasing inflation-beating yields and the potential for capital growth. It may also provide diversification benefits when held alongside equities in a multi-asset portfolio.
S&P Global currently rates South Africa’s sovereign debt at BB- (the third rung down the junk ladder) with a stable outlook, having downgraded the country at the end of April. South Africa has slipped across all major credit rating agencies in 2020 with credit analysts citing ballooning government debt, excessive spending on civil servant wages, and the likelihood of a recession and reduced tax income resulting from the coronavirus pandemic as contributing factors.
South Africa’s ETF market has boomed in recent years with the JSE now home to 74 ETFs covering a range of local and international exposures across equity, fixed income, property, and commodity asset classes.
The JSE now has a total ETF market cap of R95bn with average daily value traded in 2020 of R600m, almost three times the average daily value for 2019.
The growth in trading volumes reflects not only the ongoing shift towards passive investing but the appeal of ETFs as efficient vehicles that allow investors to access liquidity and respond tactically to a rapidly changing environment during the Covid-19 uncertainty.