I need some clarification on Satrix investments.
I know of one person investing in satrixRAFI and satrixDIVI and another person investing in satrix40.
Both are long term investments. Which is better and what would be the reasoning behind these 2 individuals different decisions. I am not an investment guru, so I need someone to explain it to me please
You can't really make a "which is better" argument with Satrix products - it all depends on your invesment philosophy and the type of returns you prefer. All Satrix products track some FTSE/JSE index. The ones in your post track the following:
Satrix 40: Tracks the Top 40 index which reflects the performance of the 40 largest companies listed on the JSE. "Largest" here refers just to the companies market capitalisation which is the number of shares in issue times the share price. The performance of the companies' shares are weighted by their market capitalisations which means that the largest companies (Anglo, MTN, BHP Billiton, British American Tobacco, SAB, etc) have the biggest impact on the level of the index.
Satrix DIVI: Tracks the Dividend Plus (DIVI) index. The DIVI is constructed from the 30 companies with the highest 1-year forecast dividend yields. Just by construction you would expect that the Satrix DIVI will give most of it's return in the form of dividends instead of capital gains as may be the case with the Satrix 40. There is some overlap between this and the Top 40 index (e.g. Absa, Sasol are on both the DIVI and the Top 40) but in general the companies included in the DIVI are quite different from those in the Top 40. At the moment the largest holding in the DIVI is Coronation at 5.2% of the index which implies that it is relatively diversified compared to the Top 40 where the largest holding (Billiton) represents about 15% of the total. Because of this it can be argued that the DIVI is "lower" risk than the Top 40 even though it is still a 100% equity investment.
Satrix RAFI: Tracks the FTSE/JSE RAFI index. It is constructed using a method developed by Research Affiliates (an American investment firm) where the weights used depend on the companies' "fundamentals" including dividends, cash flow and sales. Using a method like this theoretically gets rid of a couple of "problems" with the market capitalisation method used by the Top 40. e.g. where an index like the Top 40 will reflect market sentiment almost exactly the RAFI will outperform if a company outperforms market expectations. So, it's useful if you think that the markets are inefficient in that all information is NOT reflected in the current share price.
It would look like the one person in your want regular income and believes that fundamentals are better indicators of company performance than the company's current share price while the other one is happy just to track the Top 40. Both of these are perfectly valid strategies - it really just depends on your point of view.
Just don't be one of those people who just looks at the past performance of the products and then makes a decision - think about what you want out of the investment and then talk to a properly accredited financial advisor. Past performance is almost never an indication of future performance and these three products actually have very similar performances over the last year:
Satrix 40:16.8%
Satrix Divi: 16.1%
Satrix RAFI: 17.4% (bearing in mind that for the RAFI dividends are automatically reinvested)
