In the face of continued poor returns by actively managed funds, the JSE Securities Exchange is making more Satrix index-linked investments available to you, the private investor.
Satrix is a hybrid of an indexed investment and a listed investment company, which only invests in other companies.
Satrix announced this week that it will be extending its investment plan, which enables you to invest as little as R200 a month or a R1 000 lump sum, to all its index investments.
And this time, the JSE is also taking on the banks by offering its investment products as alternatives to ordinary savings accounts.
Satrix products are passive investments - also known as Exchange Traded Funds. As with all other passive investments, Satrix funds will do no better or worse than their underlying indices. There are no guarantees on your capital.
With most of South Africa's active managers under-performing their benchmark indices, such as the FTSE/JSE All Share Index, there has been a strong move towards the index style of investing in both unit trust funds and shares.
The Satrix index funds were launched in November 2000 by the JSE in conjunction with Gensec Bank (the product's asset manager) and CorpCapital (the corporate adviser). They have attracted almost R5 billion from institutional and individual investors so far.
To date, the Satrix investment plan has attracted more than 7 000 individual investors, with a combined investment of about R60 million.
About 95 percent of Satrix products are bought by institutional investors.
Investors who bought Satrix 40, which tracks the top 40 companies listed on the JSE, have earned a return of 39 percent since it was launched in November 2000. This return, which beats most unit trust and life assurance returns, includes capital and dividend distributions.
One of the big advantages of the Satrix products is their comparatively low costs. The costs of both unit trusts and life assurance products, in particular, have grown, undermining investment returns.
There are currently three Satrix index funds: the Satrix 40; the Satrix FINI, which tracks the top 15 financial shares on the JSE; and the Satrix INDI, which tracks the top 25 industrial shares.
Investors pay a total initial fee of 0.5 percent and an annual management fee of 0.8 percent on the amount they invest.
All dividends and other income accrues to the Satrix Trust and is paid out quarterly to investors.
An index reflects the overall growth, or lack thereof, in a selected investment market or part of a market. An index is constructed by taking into account the market capitalisation (value based on share price) of the different companies on a share market, or in a sector of that market. Each company or share in the index is then given a proportion of the index in relation to its size.
In index investing, the underlying investments of the indexed investment replicate a chosen index.