Smartly Relooking Balanced

Index tracking or passive investing – whichever you’d prefer to call it – has attracted a lot of attention from both the media and active managers in the past. The arguments for and against are well documented and, as with any debate, there are always three sides to the story. If you’ve been kept out of the loop on these conversations you would do well to immerse yourself in them now, says Kingsley Williams, Chief Investment Officer at Satrix.


2017 seems to have been the year for index tracking to shake off any second rate mantle it may have been handed and really show investors that index tracking is anything but passive and a credible competitor for actively managed balanced funds.


The fund which has been able to demonstrate this best is the Satrix Balanced Index Fund, which ended the 2017 year as the second best-performing balanced fund overall and the top performing index tracking balanced fund (source: Morningstar, 2018). There are 173 retail balanced funds available at present in the high-equity multi-asset or balanced fund category, of which 11 are index-tracking balanced funds.



It is important to note that all index-tracking balanced funds are not the same. They tend to differentiate themselves in a few areas:

  • Asset allocation – they do not all have the same strategic allocation to available asset classes. While the vast majority of funds do have a static allocation, some of them do take tilts around a strategic allocation in an attempt to improve performance over time.

  • They do not include an allocation to all available asset classes nor the full investable set of assets within each asset class.

  • While the vast majority of funds do include index trackers in each of the underlying asset classes, some of them do use enhanced indexing in an attempt to boost alpha.

  • The frequency of rebalancing the strategic asset allocation differs.

These differences become important when comparing performance over time and when choosing which index-tracking balanced fund to invest in.



The Satrix Balanced Index fund has the following unique traits:

  • It has a unique equity SmartCore™

  • The fund has a strategic asset allocation which is rebalanced semi-annually

  • It has a 70% allocation to equities – 55% local SA equities and 15% offshore equities

  • The fund has a small allocation to local cash of 5%



The most differentiating feature of the Satrix fund compared to its peers in the same category is its equity SmartCore™. The SmartCore™ is a proprietary Satrix index launched in 2013, made up of a combination of smart beta indices. While its composition is researched and periodically reviewed by Satrix, the current composition has been in place since January 2016.


Three indices are combined to make up the SmartCore™, representing the 55% local SA equity exposure of the fund.

  • 13.75% S&P Quality South Africa Index

  • 13.75% Proprietary Satrix Stable Dividend Index

  • 27.50% Proprietary Satrix Momentum Index

Each index brings complementary but different equity exposure to the core of the fund, which makes sure it captures the type of returns it is targeting from the SA equity market.


The Satrix Momentum Index invests in companies/shares which exhibit price momentum or positive price movements (over six and 12-months) as well as positive sentiment (expressed through sell-side earnings revisions and surprises) – it invests in companies that are already doing well or are expected to do well. The index is rebalanced every six weeks to capture changes in either momentum or earnings revision.


The Satrix Stable Dividend Index invests in companies that have grown or maintained their dividend yield and have a higher dividend yield relative to the market. This index is rebalanced every 6 months.


The S&P Quality South Africa Index invests in quality companies with higher profitability as determined by return on equity, accruals ratio and financial leverage.  This index is rebalanced every six months.


Two of the strategies mentioned (Momentum and Quality) are also stand-alone Satrix unit trust funds.


The Satrix Momentum Index follows more of a growth strategy, while the Satrix Stable Dividend Index and the S&P Quality South Africa Index exhibit value-like characteristics. By combining these three strategies, the SmartCore™ has been able to deliver better performance relative to the FTSE/JSE SWIX index. This is what you want in a fund where the equity exposure is the primary contributor to its performance over time.


The Satrix Quality Index Fund was the top-performing fund in the South African EQ General category during 2017.  While it had no exposure to Naspers during 2017, which was a drag on its performance, this was more than made up by overweight positions in Mr Price, Kumba Iron Ore and Capitec Bank.  Steinhoff was another big source of outperformance, as it was dropped from the S&P Quality South Africa Index in the June rebalance. This makes it a valuable and high conviction fund to be used as part of an equity strategy. The Satrix Momentum Index Fund ranked number two over the same period.  Both these funds have been excellent top quartile performers since they were launched.


By combining these strategies, which are designed to capture excess returns through different market cycles, the SmartCore™ within the Satrix Balanced Index Fund has been able to deliver excess performance relative to the market, as indicated in the chart below.  Since introducing the current SmartCore™ to the Satrix Balanced Index Fund in January 2016, this strategy has contributed 1.5% of outperformance relative to the FTSE/JSE Shareholder Weighted Index (SWIX).



Through a considered strategic asset allocation, a well-researched SmartCore™ and adherence to rigour and discipline, the Satrix Balanced Index Fund has demonstrated that it is a compelling contender in the multi-asset space. In addition, the unique composition of its equity SmartCore™ makes it an excellent diversifier which blends well with actively managed balanced funds.





Article sourced from Satrix :



Mandatory Disclaimer

Satrix Managers (RF) (Pty) Ltd, a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. Past performance is not necessarily a guide to future performance, and that the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available from the Manager on request. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The Manager has the right to close the portfolio to new investors in order to manage it more efficiently in accordance with its mandate. The maximum fund charges for the Satrix Balanced Index Fund include (including VAT): An initial advice fee of 0%; annual advice fee of 1.14% and annual manager fee of 0.39%. The latest TER is 0.76%. The performance ranking of the Satrix Balanced Index Fund (3rd in its Asisa category) is according to Morningstar. The return of the fund since inception to end 2017 was 9.69%. The highest and lowest annual returns since inception were 19.04% and 4.03% respectively.


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