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Local ETF returns: Is the market mood shifting?

Despite the top performers being as expected.
The worst-performing funds didn’t come as a surprise either. Image: Shutterstock

For the third consecutive year, the 1nvest Rhodium ETF (exchange-traded fund) finished 2020 as the top-performing JSE-listed ETF. It returned a remarkable 187.1% over the year.

This followed its 140.9% gain in 2019, and 64.6% return in 2018. Over the last three years, it has delivered an annualised return of 125%.

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It nevertheless remains a niche product. Its latest fact sheet shows a net asset value of just R2.3 billion.

Tech at the top

More interesting to fund selectors will be the performance of mainstream ETFs tracking market indices. It will be no surprise that among this group, ETFs focused on global tech counters were 2020’s top performers:

Top-performing ETFs of 2020
Fund 1-year return
Sygnia Itrix 4th Industrial Revolution Global Equity ETF 68.1%
Satrix Nasdaq 100 ETF 56.1%
1nvest S&P 500 Info Tech ETF 49.9%
Sygnia Itrix MSCI USA ETF 26.3%
Satrix S&P 500 ETF 24.3%
Satrix MSCI Emerging Markets ETF 24.2%
Sygnia Itrix S&P 500 ETF 23.8%
1nvest S&P 500 ETF 23.0%
CoreShares S&P 500 ETF 22.7%
Satrix MSCI World ETF 22.0%

Source: ETFsa.co.za

The top 10 is populated entirely by ETFs tracking international indices. The best performance from a South African-focused portfolio was the 19.7% returned by the Satrix RESI ETF.

Funds tracking the US market and technology in particular dominate the list. The one exception is the Satrix MSCI Emerging Markets ETF.

Over the course of last year, emerging market index trackers were significantly boosted by the performance of Chinese equities, and particularly tech stocks such as Alibaba and Tencent. China now constitutes 39.1% of the index, and those two companies alone make up just under 11%.

At the other end of the spectrum, the worst-performing funds will also not be surprising:

Worst-performing ETFs of 2020
Fund 1-year return
Satrix Property ETF -40.9%
CoreShares SA Property Income ETF -37.7%
1nvest SA Property ETF -34.7%
Cloud Atlas AMI Big50 ex-SA ETF -30.2%

Source: ETFsa.co.za

The performance of local property ETFs reflected the substantial sell-off in this sector over the year. The decline in property stocks is now so severe that the total return of the FTSE/JSE SA Listed Property Index (SAPY) is negative out to seven years.

The Cloud Atlas AMI Big50 ex-SA ETF also recorded significant losses as African equities continued to underperform.

A reversal?

It is, however, interesting to note how different things looked in the final quarter of the year. The table below shows the top-performing ETFs from the start of October to the end of December:

Top-performing ETFs in Q4 2020
Fund 3-month return
CoreShares SA Property Income ETF 26.5%
Satrix Property ETF 23.7%
1nvest SA Property ETF 22.0%
Satrix FINI ETF 19.9%
Sygnia Itrix 4th Industrial Revolution Global Equity ETF 18.7%
Satrix DIVI ETF 15.9%
Absa NewFunds Value Equity ETF 14.9%

Source: ETFsa.co.za

The three local property funds topped the list over this period. This did little to reverse their weak performance for the year overall, but it might suggest that the market’s focus is shifting.

The appearance of the Satrix FINI would also support this view. Local financials were battered in the Covid crash, but some appetite for them clearly returned towards the end of the year.

This was part of a wider shift into some of the depressed sectors of the market, which many consider a move into value. The Satrix DIVI and NewFunds Value portfolios both have a value focus and also benefited from this change.

While the returns from a single quarter are certainly no indication of a sustained market trend, this is nevertheless a noteworthy shift. It is evidence that the market is at least considering the potential outside of those counters that have dominated returns for the past few years.

Patrick Cairns is South Africa Editor at Citywire, which provides insight and information for professional investors globally.

This article was first published on Citywire South Africa here, and republished with permission.

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