Absa NewFunds, an offering by the bank’s Corporate and Investment Banking unit (CIB), is today listing two new Exchange Traded Funds on the Johannesburg Stock Exchange.
CIB’s new listings complete the triumvirate of standalone investable South African equity risk premia solutions in its stable. Adding to the Momentum ETF that has been in existence for some time, are the Value and the Low Volatility versions – all three “risk premia” representing the most persistent and valuable risk premia in the South African equity market.
“Equity premia” is derived from “equity risk premium” and we’ve used it because “premia” implies a positive return over and above the market over a long-term investment horizon. This is opposed to the an “equity risk factor” that presents no such positive returns, even worse, negative returns, compared to market”, says Ryan Sydow, Head of Distribution, Index and Structured Solutions, CIB
This launch adds to the long line of historical firsts from Absa NewFunds.
This time around, the firsts include that:
1. These are the first publicly listed ETFs that have been designed in a collaboration partnership with a leading South African academic institution and entrepreneurial start-up in the form of The University of Witwatersrand (Wits) and AddYou (Pty) Ltd:
a. Wits, along with Absa, are named Absa in the Indices that these ETFs track, representing their invaluable contribution in researching what risk premia present themselves in the South African market. This has been done by providing access to a unique database of South African equities going back to 2003, which accurately represents our market over time.
b. AddYou is a start-up venture of five academics who were instrumental in the seeding of this idea, as well as consulting on and independently vetting the results.
Absa will continue to work with both entities, affirming our commitment to education/educations institutions and small business in SA.
2. These are the first ETFs/Indices in SA that take cognisance of the concentrated market that the SA equity market actually is – it’s the first time an “equal risk contribution” methodology has been used in an ETF/Index. Essentially, an equal risk contribution methodology looks at the overall contribution of each stock against the volatility (risk) of the portfolio and ensures that the most volatile stocks have their weightings reduced and vice versa. This unique risk focussed approach has shown to yield results.
The data to hand, from between January 2004 to 2018, shows that, not only does risk premia investing yield positive returns over a long period of time relative to the market, but also that by controlling for risk, we can improve returns or lessen the impact of market downturns.
|
All Share |
Momentum |
Low Vol |
Value |
Annualised Return |
16.27% |
20.57% |
19.49% |
17.99% |
Annualised Volatility |
18.79% |
16.90% |
13.22% |
16.58% |
Max Drawdown |
-45.35% |
-44.45% |
-28.12% |
-37.70% |
Sharpe Ratio |
0.87 |
1.22 |
1.47 |
1.08 |
Source: Absa Corporate and Investment Bank
The Indices are calculated by S&P Dow Jones Indices, continuing Absa’s long-standing relationship with this international partner. “To have a global partner with rigorous controls ensuring and infrastructure is important in the Index/ETF space,” explains Anver Dollie, Head of Product Enablement, Absa NewFunds
“Risk premia investing stems partly from the huge global growth in Index/ETF investing and provides investors (large pension funds all the way through to self-invested retail investors) with a new tool kit and approach to accessing rewarded risks in the market and Absa and its partners are proud to be leading the way in South African when it comes to this form of investing,” notes Ryan Sydow, Head of Distribution, Index and Structured Solutions, CIB.
