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Ballot Voting Procedure In Respect Of Proposed Amendments To The Investment Policy Of The Satrix Low Volatility Etf
SATRIX COLLECTIVE INVESTMENT SCHEME IN SECURITIES 2
Satrix Low Volatility ETF
Share code: STXLVL
ISIN: ZAE000318333
("Satrix LVL" 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 LOW VOLATILITY 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 Low Volatility 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-Low Volatility
Index, with the Satrix Low Volatility Index. Furthermore, Satrix wishes to
convert the Satrix Low Volatility 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-Low Volatility Index (Newfunds Low Volatility
Index) to the Satrix Low Volatility Index.
The reasons for the index change are as follows:
1. The NewFunds Low Volatility Index is constructed by reducing the
investable, liquid local equity universe into a smaller subset
based on Wits' proprietary risk metrics. The final portfolio
constituent set holds the 20 stocks, which we believe 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.
• 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.
• 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 proposed Satrix Low-Volatility Index's departure point is the
FTSE/JSE Capped SWIX benchmark index itself. From these weights,
it systematically holds less of the more volatile companies and
more of the stable companies (without requiring a strict exclusion
of companies in the portfolio). This means high levels of
diversification are maintained, lower drawdowns are experienced,
and portfolio turnover gets significantly reduced.
3. The Satrix Low-Volatility Index managed to outperform both the
FTSE/JSE Capped SWIX benchmark (by more than 1% annualised) and
NewFunds Low-Volatility index (by close to 5% annualised), doing
so at a significantly reduced standard deviation, lower average
drawdowns, and downside deviation, and with a significantly reduced
Beta when the market corrected (Beta Bear of 0.55).
Fund Moments Comparisons:
April 2018 - July 2022
INFO SATRIX LOW VOLATILITY NEWFUNDS CAPPED SWIX
Returns (Ann.) 6.53% 1.56% 5.39%
7
Std.Dev. 14.65% 15.76% 16.74%
Sharpe Ratio (Ann.) 0.45 0.10 0.32
Tracking Error 5.66% 9.02% 0.00%
Information Ratio 0.20 -0.42 -
Avg.DD 8.71% 16.06% 11.10%
Beta 0.83 0.80 1.00
Beta (Bear) 0.55 1.24 1.00
Beta (Bull) 0.91 0.57 1.00
Pct Up 50.00% 53.85% 0.00%
Downside-Deviation 2.63%
3.66% 3.37%
Mod. VAR -6.06% -8.74% -7.81%
7
Capped All Share Index used as Benchmark
Source: Morningstar and FTSE/JSE. Calculation: Satrix
The above performance comparison is consistent with our own internal
research into the workings of the low-volatility factor signal in
South Africa. Our views on the factor can be summarised as follows:
• A key truism in finance is that in order to achieve higher
returns, more risk needs to be taken as fair compensation.
o We thus believe there is no long-term return predictive
power inherent in low-risk company signals: in fact our
research clearly shows that only holding low-risk stocks
is a losing strategy over the long term.
o We do, however, find that when anchored to a benchmark,
systematically reducing risk by favouring more stable
companies, while holding a larger and more representative
portfolio, leads to higher and more stable long-term
returns.
4. In contrast, the proposed Satrix Low-Volatility Index's departure
point is the FTSE/JSE Capped SWIX benchmark index itself. From
these weights, it systematically holds less of the more volatile
companies and more of the stable companies (without requiring a
strict exclusion of companies in the portfolio). This means high
levels of diversification is maintained, lower drawdowns
experienced, and portfolio turnover gets significantly reduced.
This approach then, as opposed to capturing an alpha signal per
se, improves overall returns compared to the benchmark by virtue
of compounding more over time through losing less. Our longer term
back test certainly underscores this as well – producing improved
returns primarily through experiencing lower drawdowns and
volatility through time.
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 of "Index" means a portfolio of There is no negative impact
securities selected from the securities selected from the South on the investors within the
South Africa Equity market African equity market universe; Satrix Low Volatility ETF
universe; defined, customized, defined, customized, developed and because of the
developed and adopted by the adopted by the Index Governance implementation of the
Index Governance Committee of Committee of the Manager. The index proposed change in the
the Manager. The index will be will be securities in the South index. The purpose of this
Securities in the South African equity market that exhibit change is to better achieve
African equity market that low volatility investing the fund's stated
exhibit low volatility characteristics in their performance objectives of gaining broad
investing characteristics in such as the Satrix Low Volatility equity market exposure at a
their performance such as the Index ("Index") or any such index as lower realised volatility.
NewFunds WITS Risk Controlled the Manager deems fit for use in Our research suggests the
SA-Low Volatility Index ("the delivering on the investment purpose, proposed index definition
Index") or any such index as subject to the approval of the achieves this better than
the Manager deems fit for use Authority. the existing definition.
in delivering on the
investment purpose, subject to
the approval of the registrar.
Current fund benchmark New fund benchmark Impact on Investor
NewFunds WITS Risk Controlled Satrix Low Volatility Index There is no negative impact
SA-Low Volatility Index on the investors within the
Satrix Low Volatility 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
Current fund benchmark New fund benchmark Impact on Investor
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 satrixballotSTXLVL@kpmg.co.za on or
before 31 January 2024. Alternatively, the Ballot Form may be emailed
directly to KPMG at satrixballotSTXLVL@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 Low Volatility
ETF ballot:
Weekday Date Action
Thursday 14 December 2023 Receive investor holdings per STRATE Register (as
14 Dec)
Tuesday 19 December 2023 Release of announcement on JSE SENS
Thursday 01 February 2024 Final date of response to ballot letter (30
business days after distribution)
Tuesday 06 February 2024 Satrix submit audit report to FSCA
Friday 16 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 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 change.
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 Low Volatility 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.
19 December 2023
JSE Sponsor
Vunani Sponsors
Date: 19-12-2023 04:35:00
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