Wrap Text
Ballot Voting Procedure in Respect of the Proposed Amendments to Investment Policy of the Satrix Value Equity ETF
SATRIX COLLECTIVE INVESTMENT SCHEME IN SECURITIES 2
Satrix Value Equity ETF
Share code: STXVEQ
ISIN: ZAE000318325
("Satrix VEQ" or the "ETF")
A portfolio in the Satrix Collective Investment Scheme in Securities 2,
registered as such in terms of the Collective Investment Schemes Control
Act, 45 of 2002
BALLOT VOTING PROCEDURE IN RESPECT OF PROPOSED AMENDMENTS TO THE
INVESTMENT POLICY OF THE SATRIX VALUE EQUITY ETF
This announcement is important and requires your immediate attention.
The purpose of this letter is to inform you of the proposed changes to the
Index and distribution methodology of the Satrix Value Equity ETF and to
provide you with sufficient information to vote on this proposal.
Rationale for the Change in Index and Distribution Method
The reason for the ballot is that Satrix wants to change the Index of the
portfolio by replacing the NewFunds WITS Risk Controlled SA-Value Index,
with the Satrix Value Index. Furthermore, Satrix wishes to convert the Satrix
Value Equity ETF, from a reinvesting to a distributing ETF. In this regard
where this ETF currently reinvests income distributions received from
underlying securities automatically into those underlying securities on
behalf of the portfolio, Satrix will convert this fund to a distributing ETF
and as such, distributions will be declared and paid out to investors
periodically.
Furthermore, from the NAV Conduct Standard perspective, by converting the
fund from a total return to a distributing fund, Satrix will comply with
Para 10 (1) whereby all income will be distributed to the investor.
After much consideration, we have concluded that it would be beneficial to
shareholders to change the index from the NewFunds WITS Risk Controlled SA-
Value Index (Newfunds Value Index) to the Satrix Value Index.
The reasons for the index change are as follows:
1. The NewFunds Value Index is constructed by reducing the investable,
liquid local equity universe into a smaller subset based on Wits'
proprietary value metrics. The final portfolio constituent set holds
the 30 stocks with the best Value attributes. Its design is not
explicitly anchored to a benchmark index, and so introduces several
risks and inefficiencies to the overall portfolio by design:
• High turnover: By definition, company rankings can change quite
abruptly and so a high turnover is typical of strategies that do
not have a fuller universe representation or benchmark relative
anchoring.
• High concentration of risk: Although the ERC optimization routine
seeks to diversify sources of risk, the algorithm requires a higher
dimension to function properly in truly mitigating risk. It also
fails as an absolute risk-mitigating device – acting rather to
smooth selected constituent risks.
• Non-representative subset: The stocks held in the index are not
representative of the broad-based market index (like the FTSE/JSE
All Share Index or FTSE/JSE Capped SWIX), which means investors
inadvertently take on significant relative risk.
2. The Satrix Value Index rebalances on a six-monthly basis in March and
September, coinciding with the FTSE/JSE index rebalancing (ensuring
trades happen during high market liquidity, minimizing the fund's
market participation in the market). Large and mid-cap companies with
low price-to-earnings, price-to-book, price-to-cashflow and EV-to-EBIT
ratios are considered for inclusion – while sector-specific
considerations are employed in the signal calculation (this is an
important step, as value measures differ based on super-sector
classification).
At rebalancing, the value signals are transformed into alpha
predictions, before applying a utility optimization routine that
considers stock level risk as well as overall portfolio risk
concentration. We also ensure super-sector active exposures are limited
to 8% relative difference to the FTSE/JSE Capped SWIX benchmark, before
ensuring single stock active risk contribution is not unduly
concentrated. Further we manage active risk compared to the benchmark,
targeting a 4% realised tracking error, while annual portfolio turnover
is kept to below 40%.
3. From the table below, both the Satrix Value and NewFunds Value indexes
outperformed the FTSE/JSE Capped SWIX benchmark since 2018 –
particularly on the back of strong performance for the signal since
2020.
The table also shows the lower absolute risk experienced by the Satrix
Value Index compared to the NewFunds Value Index (10% lower annualised
Standard deviation and a 17% lower downside deviation). The Satrix
Value Index also experienced lower relative risk compared to the
benchmark, with a realised tracking-error of 4.5% compared to the
NewFunds Value Index's 8.85%. This translates into a higher information
ratio (0.45 compared to 0.21), often regarded as a key metric for
contextualising the return per unit of relative risk taken. The
NewFunds Value Index also has a significantly higher average active
share (68.8% versus 51.7%), implying the strategy has a significantly
higher level of active risk embedded in its design.
Fund moments comparison: April 2018-July 2022
SATRIX VALUE CAPPED
INFO INDEX NEWFUNDS VALUE SWIX
Returns (Ann.) 7.40% 7.23% 5.39%
Std.Dev.7 18.97% 21.07% 16.74%
Sharpe Ratio 0.39 0.34 0.32
(Ann.)
Tracking Error 4.50% 8.85% 0.00%
Information 0.45 0.21 0
Ratio
Beta 1.11 1.15 1.00
Beta (Bear) 1.05 1.49 1.00
Beta (Bull) 1.09 1.07 1.00
Pct Up 57.69% 51.92% 0.00%
Downside- 3.74% 4.53% 3.37%
Deviation
Mod. VAR -8.72% -10.67% -7.81%
Avg. Active 51.77% 68.80% 0.00%
Share
7 Capped All Share Index used as Benchmark
Source: Morningstar and FTSE/JSE. Calculation:
Satrix
4. Compared to the NewFunds Value index methodology, the Satrix Value
Index offers a more stable return profile with less deep drawdowns,
providing investors comfort that:
• the index should not deviate significantly from the benchmark index,
which helps to mitigate against value traps and deep drawdowns that
subset value strategies tend to be exposed when markets experience
downturns;
• portfolio turnover is managed carefully, ensuring high transaction
costs are not imposed on investors;
• both absolute- and relative risk concentration are accounted for
during rebalancing, while single stock contribution to overall risk
is monitored closely.
5. Compared to the NewFunds Value index methodology, the Satrix Value
Index offers a more stable return profile with less deep drawdowns,
providing investors comfort that:
• the index should not deviate significantly from the benchmark index,
which helps to mitigate against value traps and deep drawdowns that
subset value strategies tend to be exposed when markets experience
downturns;
• portfolio turnover is managed carefully, ensuring high transaction
costs are not imposed on investors;
• both absolute and relative risk concentration are accounted for
during rebalancing, while single stock contribution to overall risk
is monitored closely.
The table below lists the current investment policy, as well as the proposed
changes to the new investment policy which have been underlined for easy
reference.
Current Index definition New Index definition Impact on Investor
"Index" means a portfolio "Index" means a portfolio of There is no negative impact on
of securities selected from securities selected from the the investors within the
the South Africa Equity South African equity market Satrix Value Equity ETF
market universe; defined, universe; defined, customized, because of the implementation
customized, developed and developed and adopted by the of the proposed change in the
adopted by the Index Index Governance Committee of index. The purpose of this
Governance Committee of the the Manager. The index will be change is to better achieve
Manager. The index will be securities in the South the fund's stated objectives
Securities in the South African equity market that of gaining broad equity market
African equity market that exhibit traditional value exposure at a lower realised
exhibit traditional value characteristics in their volatility. Our research
characteristics in their performance such as the Satrix suggests the proposed index
performance such as the Value Index ("Index") or any definition achieves this
NewFunds WITS Risk such index as the Manager better than the existing
Controlled SA-Value Index deems fit for use in definition.
("the Index") or any such delivering on the investment
index as the Manager deems purpose, subject to the
fit for use in delivering on approval of the Authority.
the investment purpose,
subject to the approval of
the registrar.
Current fund benchmark New fund benchmark Impact on Investor
NewFunds WITS Risk Satrix Value Index There is no negative impact on
Controlled SA-Value Index the investors within the
Satrix Value Equity ETF
because of the implementation
of the proposed change in the
index. The purpose of this
change is to better achieve
the fund's stated objectives
of gaining broad equity market
exposure at a lower realised
volatility. Our research
suggests the proposed index
definition achieves this
better than the existing
definition.
Distribution Methodology Distribution Methodology Impact on Investor
Reinvesting (Quarterly) Distributing (Quarterly) Change in distribution
methodology i.e change from
total return to price return
provides the investor the
option to receive the physical
distribution cash or reinvest.
Action required from investors
1. Please read this announcement on the proposed change to the portfolio,
your rights as an investor and the impact this will have on your
investment.
2. A Ballot Form enclosed, is available to all investors, brokers and CSDPs
for completion of the ballot vote.
3. The various Brokers/CSDPs will then submit the ballot responses via email
to our external auditors, KPMG, at satrixballotSTXVEQ@kpmg.co.za on or
before 31 January 2024. Alternatively, the Ballot Form may be emailed
directly to KPMG at satrixballotSTXVEQ@kpmg.co.za by 31 January 2024.
4. Please do not include any other instructions regarding your holdings with
your ballot form, e.g. requests for purchases, switching instructions,
etc. Your ballot form will go directly to our auditors and, should such
instructions be sent to the auditors, we cannot guarantee that any
instruction subsequent to the commencement of the ballot process will be
effected.
5. If you are no longer invested in this portfolio, no action is required.
Approval and Commencements
In-principle approval for amendment to the index was granted by the JSE on
12 December 2023.
Subject to the ballot voting procedure being successful and approval by the
Financial Sector Conduct Authority ("the Authority") of Collective
Investment Schemes, the investment policy amendment will be with effective
from commencement of business on 29 February 2024.
Timelines for the implementation of the amendments on Satrix Value Equity
ETF ballot:
Weekday Date Action
Thursday 14 December 2023 Receive investor holdings per STRATE Register (as
14 Dec)
Monday 18 December 2023 Release of announcement on JSE SENS
Friday 31 January 2024 Final date of response to ballot letter (30
business days after distribution)
Wednesday 05 February 2024 Satrix submit audit report to FSCA
Tuesday 09 February 2024 FSCA approve audit report
Thursday 19 February 2024 FSCA approve supplemental deed (10 business days
prior to implementation)
Thursday 29 February 2024 Effective date of change of investment policy
The effect on you as investor
The proposed changes to this fund will not change the nature of the underlying
strategy.
Effective date of change
The effective date of the proposed changes in the investment policy of the
portfolio will be 29 February 2024, provided that the necessary consent is
obtained from investors and the Financial Sector Conduct Authority ("FSCA").
Charges, performance, and unit pricing
Investors will not be liable for the payment of any additional fees, charges,
taxes or brokerage as a result of the investment policy.
Special distribution
No special distributions will be effected nor applicable.
Your rights as an investor
The rights of investors are firmly entrenched in the Act. In terms of Section
98 of CISCA, as read with Clause 59 of the Deed of the Satrix Collective
Investment Scheme in Securities, the Registrar of Collective Investment
Schemes requires that:
• All investors are notified in writing of any proposed material changes
to the collective investment schemes and portfolios in which they hold
units.
• All investors are balloted for them to vote on the proposed changes.
Please note that, in terms of the Act, the Registrar will not consent to the
changes to the portfolio unless satisfied that the changes will not be
detrimental to the interests of any investor.
At least 25% in value of investors, excluding the manager must respond in
writing of which the majority must agree to the amendment.
In addition, you have the following alternatives available:
• Should you not want to remain invested in the Satrix Value Equity ETF,
you may switch to any other Satrix ETF Portfolio. If you opt for a
switch, please email your instructions to your broker or online
platform. Please note that switching will trigger a CGT event and that
you may be liable for CGT at your next income tax assessment as well as
brokerage on the sell and buy leg of the transaction.
• Should you not be comfortable with the proposed change in investment
policy, and do not wish to switch your investments to any other unit
trust, you may elect to redeem your units at any time and withdraw your
funds at the net asset value price, as defined in the Deed. Please note
that by electing to redeem your units, your action may constitute a CGT
event and you may be liable for CGT at your next income tax assessment.
If you choose not to switch or sell your funds prior to the effective date
of the change of investment structure as set out in this letter (if approved
by investors), the amended investment policy will automatically apply to
your investment.
Should you require further information on the proposed change or should you
wish to exercise your right to switch or sell any of your investments, please
contact Satrix Managers on 0860 111401, or send an email to
info@satrix.co.za.
18 December 2023
JSE Sponsor
Vunani Sponsors
Date: 18-12-2023 09:35:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
