Satrix adds Momentum to its smart beta ETF range

The new Satrix Momentum ETF is Satrix’s 15th ETF and the fourth in its smart beta range. The Satrix Momentum ETF tracks the proprietary Satrix Momentum Index, developed in-house by Satrix’s quantitative specialists. Satrix Momentum joins Satrix Divi Plus, Satrix Rafi 40 and Satrix Quality as part of the Satrix smart beta ETF offering.

“We’ve successfully managed significant institutional mandates against our momentum index since 2008 and launched the unit trust in 2013. This ETF completes the momentum offering across all investment vehicles,” says Satrix CEO Helena Conradie.

Factor investing – capturing momentum

Factors are a stock’s measurable characteristics that may in some way explain future performance. A factor (or smart beta) index is a rules-based construction of stocks that all exhibit particular attributes. Momentum is one such factor.

In basic terms momentum can be defined as a trend, meaning stocks that are performing well are expected to continue to perform well (i.e. the share price is going up), while those that are not performing well are expected to show further declines in their share price.

To capture the momentum investment style and its effect, Satrix has developed the proprietary Satrix Momentum Index. The index aims to capture the return of the equity market enhanced by the momentum risk premium. To do this, they construct a portfolio tilted towards equities which display positive momentum characteristics and away from equities showing negative momentum characteristics. The index is rebalanced eight times a year.

Jason Swartz, head of Portfolio Solutions at Satrix notes, “While the alpha embedded within a momentum strategy is powerful, both the risk management and effective implementation of the strategy is crucial when harnessing this alpha. Momentum strategies can be vulnerable at turning points and generate large volatility, and thus tempering the portfolio with sound risk overlays is critical. When it comes to implementation, we focus on ensuring existing alpha is not eroded through excessive turnover and subsequent fund costs, all the while maintaining a fresh and pure momentum signal in the portfolio.”

Momentum a great complement to a value-tilted portfolio

Typically, when targeting a value strategy (particularly if shaped around a Price-to-Earnings factor), an inadvertent but significant underexposure to momentum is realised. Momentum has proven to be one of the most consistently strong factor signals in South Africa, and as such, being meaningfully underexposed to this factor may compromise the hard work and skill employed to deliver a premium through the targeted value exposure.

The role of momentum is to neutralise the underweight momentum exposure while not substantially diluting the intended value exposure, which ultimately can create a more diversified and complete portfolio.

How to access the ETF

The Satrix Momentum ETF listed on the JSE on Friday, 16 November 2018. Satrix’s online platform SatrixNOW.co.za has the benefit of no lump sum minimums, and investors are also able to set up debit orders. Investors that already have a personal stockbroking account can simply contact their brokers to invest.

Visit satrix.co.za to read more about the new ETF.