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In this episode of Ghost Stories, we get stuck into the world of fixed income – a space that retail investors often overlook in favour of equities.

Yusuf Wadee of Satrix concurs with The Finance Ghost’s cricket analogy: fixed income returns act as the singles that keep the scoreboard ticking over. But that doesn’t mean that investors should default to low-yield cash accounts.

Veteran fixed-income portfolio manager James Turp from Ninety One explains how his funds aim to optimise returns in the sweet spot between cash and bonds. And now, with the launch of the Satrix Income Actively Managed ETF (AMETF), investors have an easy way to access this expertise.

Topics covered in this podcast:

• How a balanced approach to equities and fixed income helps build an innings
• Diversification, volatility, and survivorship bias
• How most investors fall into “lazy cash” traps
• The structure and purpose of the Satrix Income AMETF
• How the partnership between Satrix and Ninety One works
• How James constructs an active fixed‑income portfolio
• Duration, interest‑rate cycles, and inflation dynamics
• Liquidity and accessibility of an actively managed ETF
• Tax‑free savings considerations for fixed‑income ETFs

Keen to learn more? Check out the Satrix Income AMETF (JSE: STXINC) here.

This podcast was first published here.

Please remember that nothing you hear on Ghost Stories should be treated as advice. You must always speak to your personal financial advisor.

Full Transcript:

The Finance Ghost: Welcome to this episode of the Ghost Stories podcast. It’s going to be a goodie today, where we’re going to be learning all about fixed income. Which, I’ve got to say, is a very, very interesting part of the world of finance.

It’s certainly not my specialisation, and I’m always keen to learn more about it. 

The reason we will be having that conversation is because we’re going to learn about the Satrix Income Actively Managed ETF. And the best way to do that is for us to have someone here, not just from Satrix, but also now from Ninety One, a name you may well know. 

Before I mention him, let me introduce Yusuf Wadee of Satrix. Yusuf, thank you so much. You are a familiar voice and a familiar face to Ghost Mail listeners. You have done a podcast with me before. You’re a wealth of knowledge, really. And thank you for being here.

I’ll let you say hello first, and then we’ll welcome our esteemed guest from Ninety One.

Yusuf Wadee: Awesome. Thanks, Ghost. Thanks for having me. Excited to get into this very exciting topic with you today.

The Finance Ghost: Absolutely. So, of course, our other guest is James Turp of Ninety One. And James, you are no stranger to anyone who’s been around financial markets for a long time. 

You were actually working in the global markets team at Nedbank, at around the time that I may or may not have been doing my CA training articles there. Not very ghostly of me to reveal that!

It’s been a while since I saw you on a trading floor. I was an absolute nobody. Fetching coffee, basically. Not much has changed.

You were important. You still are. Nice to have you. Thank you.

James Turp: Absolute pleasure, Ghost. Thanks for that very kind introduction. I do remember all those years ago. That was during and around the Global Financial Crisis. So, never a dull moment on the trading floor back then.

And thanks – what a pleasure to be on your podcast and to join Yusuf from Satrix as well. Thanks very much for having me.

The Finance Ghost: I’m very excited to dig in here. So, look, the reason we’re talking about fixed income, I think it’s an important place to start – and Yusuf, I’m going to start with you on this one – because I think, the majority of people, when they think of markets, especially retail investors, they kind of think to themselves, “Okay, we’re talking equities, we’re talking about stock-picking, we’re talking about ETFs from Satrix, where I’m going to go and actually buy the Top 40 or the S&P 500”, or whatever the case is.

But actually, as you speak to more investment professionals, then this concept of a balanced portfolio starts to come through.

And look, I missed, unfortunately, all of this T20 tournament because I have just been working very hard in earnings season, so there hasn’t been much cricket for me. But I do know, from the bit of cricket that I did used to play: quick singles and boundaries, you kind of need both.

It feels like in many ways, equities are the boundaries. Trying to hit the fours and sixes.

But it definitely helps to just keep that scoreboard ticking over, and to just earn that fixed-income-style return, to actually build out the different risk profiles in your portfolio. 

Do you think that I’m considering this in the correct light? Is that how listeners to this podcast should be thinking about the world of fixed income as they learn about this?

Yusuf Wadee: Thanks Ghost. I think that’s a great analogy.

Think of that batsman. His whole plan is to make a proper innings. In doing so, it’s a combination of singles, low-risk singles. Maybe he squeezes the odd double here and there, but in between those, he goes for the high-risk boundaries, right? He goes for the four, for the six.

I think that’s a great analogy. In many ways that describes diversification, that describes portfolio construction. When you’re putting together an investment portfolio, it’s almost the same principle.

Your low-risk singles, your low-risk doubles are your more subdued investments – your fixed income investments, your local government bonds, your global bonds, as an example, as well as infrastructure. There are other categories of investments that fall in the category of, let’s say, low-risk singles.

Then of course you have your high-risks: high-risk boundaries around the edges, right? You’ve got your local equity markets, your global equity markets. You might like a certain theme which is highly geared to a big development that’s driving global growth going forward, or currently. 

That’s an awesome analogy.

In many ways, the financial markets have adopted that same thinking, but they’ve probably called it other things. The listeners have probably heard stuff like “core satellite approach” to building portfolios. 

In classic theory, you’ve got, let’s say a core, and it can be any sort of core. A low-cost core or a passive core, or it can even be a fixed-income core. And as a satellite, you can then think of other satellite strategies, whether they are highly active funds or equity funds.   

But the whole concept of core satellite is another more formal description of exactly what you described with that cricketing analogy. And again, what you’ve described is pretty much the cornerstone of almost all portfolio theory. 

If I think of all of our pension funds: mine, yours, pretty much everyone – that has to follow Reg 28 portfolio construction – all portfolios follow a balanced fund approach in some form or another.

Whether some guys have a 60-40 split, so they’ve got 60% equities or 40% bonds. In other cases, they may have a 50-50 split: 50% equity, 50% bonds.

But it’s exactly your analogy. You have to have that combination of singles coupled with boundaries. 

There’s real merit as to why that is the case. You think about just playing a cricket match and going for sixes all the time, that innings isn’t going to last very long, right? And it’s the same with the investment portfolio. You can’t just build a long-term investment portfolio just with a one-trick equity play. If you do that, you’re going to have to live with volatility, lots of volatility. 

So clearly, diversification brings down volatility. That’s a good thing.

Drawdowns – if you just have a strong equity-focused portfolio, you’re going to have to be very comfortable with big drawdowns. You can think about the current political crisis, the geopolitics that we’re seeing playing out in the Middle East now, currently.

If you’ve just got a single equity portfolio without any cash allocations, bond allocations, or any other form of diversification, your drawdowns will be pretty steep. Certainly a lot steeper than if you had a balanced fund portfolio. 

We’ve seen this play out time and time again. The investment industry understands as well. You also see – to take that balance fund concept a little bit further – most people would have heard of lifestage portfolios. They probably call it different things, but most people would have heard of a lifestage portfolio. 

So if you go to any fund manager, or any company that sells investment products, most of them would have something called an aggressive balance and a conservative portfolio. Those are exactly balanced funds. They just have a different mix of equities and fixed income. 

If you’re a little bit younger in your career or you’ve got a long time to go for retirement, you probably want to be in the more aggressive side. More equities and less fixed income. 

Closer to retirement, you still have a balanced fund, but you’ve probably got more fixed income and fewer equities. Hence, the conservative portfolio.

So that analogy is a great starting point. Certainly, fixed income plays a very important role in holistic portfolio construction.

The Finance Ghost: Much like cricket, it’s not quite a traditional game anymore. The rules of thumb have gone. It’s the slog sweep, it’s T20.

And don’t worry – if you hate cricket, I promise that’ll be the end of the cricket analogies. You will survive this podcast. That’s quite enough cricket for today.

But it is a good analogy and there are lots of sporting analogies that you can use. There are lots of life analogies that you can use. It’s risk-taking, at the end of the day – it’s risk/reward.

And the one other concept that comes through clearly, and you’ve already spoken to it there, Yusuf, is survivorship bias. 

If you just go for the big sixes, it looks great, until it doesn’t. And if it doesn’t very quickly, then, sorry, that is probably your career out the door.

If it’s Formula One and you take the big risks, and you put it in the wall every time, then, sorry, you’re gone. If it works out well, then great. 

And that’s what equity investing is. If you take on too much risk, yeah, sure, you can look like a genius for a while, but a lot of it is going to be luck. And at some point you are going to run out of luck. The markets will humble you. I don’t care who you are and what you do. 

And in that moment, you’ll be thankful for the day you had some diversification, and you were taking those singles, or you were just keeping things ticking over. 

So, James, that brings me nicely to you. And you’ve been doing this for a long time, as we’ve mentioned: since the Global Financial Crisis, essentially.

Is that what got you into fixed income? Did you just look at the world basically on fire in equities, and you were like, “No, thank you. This is a dumb idea. I’m going to go and play in fixed income and stay there”?

What was it about this space that attracted you to it, and then kept you there for, I don’t know, 20 years now? Almost? Roughly? 

James Turp: That’s some flattery there. Thanks, Ghost [Laughs]. It’s been a couple more years, I’ll let the audience work that one out. 

I did start actually in the currency markets prior to fixed-income, and moved across to managing fixed-income portfolios as the next natural step. 

And what was appealing is, if you think about what makes the world move and what is responsible for a lot – it’s monetary policy. And that is always – in this world of inflation targeting – about cooling off inflation, the number one enemy of investing. 

So, as appealing and attractive as equity and all these other risk assets are, it’s the nuts and bolts of the global economy and protecting your portfolios that is the fixed income responsibility.

Like Yusuf said, you use the term “cornerstone” in portfolio management. It’s the appealing and sexy stuff that gets all the headlines. But when the tide goes out, you look to your fixed income portion to see how bad it really is.

And so that’s the game we’re in. It’s trying to build those singles. But try to tick along and get inflation-beating returns as your primary objective. 

And I just think it’s so interesting. It focuses on the macro economy, really, and everyone experiences it. When you look at other asset classes, they can seem a little bit removed, but you cannot escape the effects of inflation and interest rates. 

And so it’s something that everyone understands, and I think something everyone’s actually really interested in. Sometimes we find it more complicated than it needs to be, Ghost.

The Finance Ghost: I was being slightly kind. You have been doing this since I was in pre-school, but I think it’s because you look so young, which I reckon is because you’ve been on the fixed-income side. It’s just less risky! 

You see the benefits here, building this career of taking the singles rather than trying to smack it as far as possible?

What is interesting is that you are, of course, at Ninety One, not at Satrix, which makes this podcast particularly unique as part of the broader podcasts that I’ve done with Satrix. 

So let’s maybe talk about that, and understand that link before I go back to Yusuf. So, James, you just basically moved across, as I understand it, this is part of the Sanlam – Ninety One transaction, right? 

So maybe just give us literally a minute on what you’re actually doing at Ninety One. What does that new role look like?

James Turp: Effectively, it’s a strategic partnership that Sanlam and Ninety One have. And as a result, Sanlam sold its active asset management to Ninety One, in exchange for shares in the business, and appointed Ninety One as its asset manager of choice, or its preferred asset manager. 

So that means our portfolios, our clients from the Sanlam environment, are now in the Ninety One environment. We’re going to be managing those portfolios within the impressive infrastructure and platform of Ninety One, the biggest active asset management business in the country. So that’s really exciting!

And the good news is that the Sanlam products will (for the most part, in the fixed income area that I manage), remain and be managed in the same way. But they are being enhanced now by this absolutely impressive platform on the other side now, on this side, as it were.

So carrying on and indeed growing, and that’s what this product is. It’s an indication of that change. A new product to channel into a new distribution area that’s untapped. So yeah, very excited about this.

The Finance Ghost: I remember when that deal closed, and then there were just a million SENS announcements about how Ninety One has gone through the 5% threshold on JSE-listed companies. 

I remember being on X, and people were like, “Wow, Ninety One is buying literally everything on the JSE”. And I’m like, “Guys, relax. They’ve just done the deal with Sanlam [laughs]. That’s what this is. These are the funds coming together.”

Anyway, Ninety One has not suddenly bought all of South Africa. Having said that, it is a landmark deal. So I’m sure everyone on that side is quite excited.

So, let’s then get into why we’re doing this podcast, actually – there’s a new and interesting ETF.

Yusuf, I’m going to bring you in here. There’s clearly more to fixed income than just having your money in a money market account at the bank, which I think is the absolute default, right?

For 99.9% of investors, I think it’s as simple as: if I want to buy shares, I go do a Satrix ETF. Maybe I could do some stock picking. Cool. My emergency fund, and my savings and everything else, sits at the bank. If you’re lucky, in a money market account; if you’re very lucky, an inflation-beating interest rate – and that’s it.

There’s clearly more to it than that, and there can be more to it than that for those who seek it out. So walk us through why this ETF is important, what it is, how it actually works, and, for that matter, how it works with Ninety One involved as well.

Yusuf Wadee: Awesome. What’s interesting is that the overall diversification benefits – that’s number one – that’s a key application for fixed-income products.

Number two, another big application that we see is that we get a lot of investors who approach Satrix and they would want to invest for an income, right? 

People invest for different purposes. For a rainy day, you invest for your pension one day when you retire. But a lot of people also just invest to earn an income, right? And so that cannot be underplayed – the importance of investing for an income.

Drawdowns, 7% / 8% / 9% or whatever rates may be at the time – that’s a huge application for us. We’re conscious of the first thing, the diversification play. Two, we’re conscious about people who are looking to invest for income. 

Thirdly, another thing that plays out – you mentioned people putting their money in the bank. There’s an interesting dynamic that plays out when it comes to cash. It’s a very behavioural thing. We see this with our clients all the time. 

So let’s say you get someone looking to save for something: looking to buy a house, save for his kids’ education, his first car purchase. Whatever it is, let’s say he’s got a purchase he’d like to put in place. 

These guys, normally they kind of go “Okay listen, the first thing I want to do is, I go to my bank, start saving cash portion”, right? Now, the reason why that made sense at the time was that in his mind, this person is going “Well, I’m only going to save for about four or five months before I need that cash to do something, right?”. 

But ultimately – and this is an interesting behavioural dynamic that we see play out – most people end up in that position for a lot longer than they initially thought they would. 

They thought they were going to do this for five months. But lo and behold, often you find two years have passed, or maybe even three years have passed – and they haven’t really gotten to what they started out saving for. 

It turns out that a lot of people end up parking cash in very underperforming cash accounts, very low-performing interest-rate accounts. And so it’s a behavioural thing. The banks know this. Well, the banks define it as “lazy deposits”.

The Finance Ghost: The banks love this: sticky deposits, right? Sticky deposits. There’s a term I remember.

Yusuf Wadee: Absolutely, It’s sticky, it’s lazy. And normally, the guys aren’t remunerated for being in there for that period of time. They end up being there for one, two, or three years. It’s unbelievable how sticky these things are. 

But the rates they get are pretty small, right? And so we see a big part of the market that falls into this category. And it’s not only banks. We see investors who go to their stockbroking accounts, and they’re meant to start investing. 

They’re waiting for the right time to pick the right ETF, or they’re waiting for the market to correct, or they’re waiting for that perfect time. And lo and behold, their cash just builds up, and it sits there for six months. And it sits there for a year and sits there for two years. 

And that’s the reason why we’re excited about this fund, right? So we came up with the Satrix Income AMETF; we’ve offered this thing in an ETF form. The reason why is that it turns out the ETF is probably the deepest-penetrating instrument right now.  

You can launch a unit trust, and we’ve got lots of unit trusts. But with unit trusts, you have to have an account directly with us, or you have to have an account on a platform where we’re available. That’s how you get access to our Satrix unit trust. 

But ETFs are a little bit different, right? We list the ETF on the JSE, and the moment we do so we are available on all stockbroking platforms. If you bank with a certain bank, we are available on their stockbroking app. We are available on a multitude of platforms. 

Clients don’t even have to be Satrix clients to access this product. You just need to have access to the JSE. This is the other global appeal of an exchange shared fund. They have democratised investments to such a point purely because they penetrate so deep into the market. 

And so really, that’s why we’ve offered this product in an ETF form, number one.

Number two, this ETF is an actively-managed ETF (we’ll get to why we’ve structured this as an actively managed ETF). 

But in this regard, we have partnered up with James at Ninety One. James has a fantastic track record of successfully running strategies like this for a really long time, consistently delivering strong risk-adjusted performance. And he’s got the benefit of sitting in a globally-integrated fixed income team at Ninety One, certainly the largest fixed income team in SA.  

So, we’re hugely excited by this relationship.

So in a nutshell, Satrix launches this product, and brings it to market, but at the back-end it is managed by James at Ninety One on an actively-managed basis.

This fund is completely actively-measured. I think James will take us through some of his philosophy shortly. But the whole point is that this fund aims to give investors something slightly more than cash, because that’s the whole point, right? Something slightly shorter than bonds. So it sits at the unique space between cash and bonds. The one-year paper, two-year paper, five-year paper. 

It’s a very interesting part of the curve, where we think there’s lots of value. It delivers lots of strong cash-plus performance. I mean, the fund that we have launched in conjunction with James aims to pay money-market rates plus about a percent on average. So it aims to beat the average money market by about a percent, which we’re quite excited about. 

It has a limited drawdown. Investors couldn’t expect to have a capital loss if they’re investing for periods of more than three months, three-to-six months. Not a very volatile fund.

We’re offering this fund at 46 basis points, which is pretty much institutional-style pricing for everyone. That’s the exciting thing about an exchange traded fund, right? Everyone gets the same deal. There’s no institutional class or retail class. 

James can certainly take us through some of his philosophy in terms of exactly the magic behind how he ekes out that 1% of the money market.

The Finance Ghost: Yeah, we definitely are going to dig into that, without a doubt. 

I think the one thing I just wanted to point out to people – that really does show the distribution, the flexibility, the structuring power of an ETF as a structure – it basically is really just a cool way for people to get access to this kind of thing, which is now very much actively managed. 

There have been many podcasts that I’ve done with Satrix team members in the past few years, really, where we’ve kind of debated the passive-versus-active. And tried to take the conversation away from “an ETF is always passive”. No, an ETF is a rules-based thing. It’s a structure. It’s something a little bit different to that. 

It doesn’t necessarily always mean passive. And here’s a really good example of that.

And as you say, people’s behaviour costs them money. You put money in a money-market account that’s designed to give you instant access to your funds. That should really be your emergency money, and not much more.

And I’m guilty of it too. I think we all are. Very few people manage their money to that level of precision. You’ve just got too much else going on in your life. It’s kids, it’s family, it’s work, it’s life. You can’t possibly manage your own money to that level of excellence.

But you can try and get closer. You can try and say, “Well, what do I really need this money for?” and then try and actually buy the right point on the curve. As you say, it rewards you for it. 

So James, that’s where you certainly come in. And this is, of course, a wonderful opportunity to get a little bit of a masterclass, if you will, from someone who’s been doing this for a long time. All the experience in the world – and trying to understand how your world really works. 

What are the building blocks that you’re working with? How are you trying to structure something in the right way?

Give us that fixed-income masterclass, and then how it specifically relates to this product.

James Turp: There are a couple of ways you should look at fixed income.

I think hearing Yusuf ‘s comment earlier – so you’ve got money-market, right, which is basically the collective term for very short-term investments. So something that you’re going to put in the bank; they often call them “call accounts” or money market (slightly better), but it’s where you would put the money that you need immediately. 

That’s not what I’m focused on. I’m focused on more committed funds.

So you’ve got the extreme now, which is bonds. And just by definition, the word “bond” shows you that it’s a commitment. And though liquid, it’s basically an investment of money for a fixed period of time that’s going to pay you interest over this holding period. 

But in between now and getting your money back, a lot can happen. So things can get risky. And if you were to need your money sooner, you could take a capital loss or a capital gain. But that’s a commitment. 

We try and structure products in between the two as well (so in between money market and bonds, which is the extreme).

So the basis of fixed income is built around inflation. Inflation is what eats away at the buying power of your money. So, a rand can buy less in a year’s time than it can now, if inflation is high, or wherever inflation sits. So we want to get investors at least ahead of inflation.

And money-market funds in South Africa tend to do that, because we have what they call “positive real rates” – “real” meaning the difference between inflation and what you’re earning. 

We want to reward people even more. And we often talk about it as your loyalty. The loyalty of your deposit of money should be rewarded. And so if you’re thinking, “My cash could be there for three months, six months, 12 months or more”, you should try and correlate that to an investment product. 

In doing that, you also find in the market, the assets that we would look to buy will pay you more for longer-term commitment. So collectively, in a product like this actively-managed Satrix ETF, we can put all sorts of those fixed-income investments in, and structure a liquidity signature in the fund, that can match these types of investors. 

To structure a portfolio like that, you actually need to put a number of different assets in. You’d put a number of fixed-rate bonds and floating-rate bonds, as well your cash-type instruments as well. So floating-rate bonds are a big part of the strategy – and those are also commitments. 

But the interest rate changes, like a home loan – if you think about all of our home loans, rates go up – suddenly, you get that letter from the bank quite quickly, that your rate is now even more [laughs]. And if rates come down, of course, that’s the good news, you’ll be paying less. 

Well, the opposite applies in these of course, rates go up – you’re actually happy that you’ve got those, because you’re going to be earning more, and vice versa.

So, it’s about getting the right amount of interest rate risk, for the current economic cycle that we believe we’re in. 

And that’s where the Reserve Bank comes into it, and that’s where the economy comes into it. Because the Reserve Bank is trying to keep inflation at 3%. We know that the change was made last year and adopted by the National Treasury. So we know they’re trying to keep it at 3%.

But if inflationary pressures grow, they hike interest rates. The theory being, if you hike interest rates, the cost of doing business or the cost of inflationary pursuit is cooled, and then slowly inflation moderates down. That’s the relationship between monetary policy and inflation.

So we need to sit and work out, as a team, where we think we are in the interest rate and inflation cycle. If we think that inflation for the next two years is going to be under control, or if it’s going to be lower or higher, then we would forecast what we think interest rates would do to respond to that. 

But the market’s smarter than us. Collectively, the market always prices in the “efficient market hypothesis”, that all known information usually is priced into the market.

So when you look at interest rates, what they’re discounting normally corresponds to the inflation expectations collectively of the market. So we as active managers have to work out: do we think the market’s right or wrong? Do we think inputs will be different?

But ultimately, how should we position this portfolio to benefit from any discrepancies that may exist? Or if we can’t find any, what’s the best position on the curve for the current expectations?

And that’s the beauty of this fund. It’s flexible. And so it can one day – as an extreme, it can look like a money market fund- and the next day it could look like a bond fund. It’s highly unlikely it’s going to be that much of a chameleon. It’s going to operate somewhere in the middle. 

We want to keep its risk as low as possible, but we want to get on the best risk-adjusted area on the curve, meaning: where do we think we’re getting the most reward for the least amount of risk?

And that seems to be, for example, at the moment, somewhere around the two-year area on average. That doesn’t mean you’re buying two-year fixed deposits though. It means you’re structuring a portfolio with a number of fixed-rate bonds and a number of floating rate bonds and cash, the average of which, if we simplify things, the interest rate risk arrives at somewhere around two years. It could be one year, it could be three years. It just depends where you think – but it’s important that we acknowledge that sometimes you may just want to get a low-risk, fixed-income portfolio. We don’t want to take too much risk for these.

What we’re telling investors is its rewarding you for your loyalty and for the time that money is going to be in there. And we don’t want to create unnecessary volatility. 

So that’s the general thinking around this sort of vehicle. For many years now, this area of fixed income in South Africa has been the fastest-growing area of investment. It’s a good move by Satrix to include such a product in their already impressive offering.

The Finance Ghost: Thanks, James. That’s a fantastic amount of insight there. Very, very cool. You’ve spoken to positive real rates there in South Africa. It certainly does make fixed income quite exciting here. 

I would think you’ve actually got interest rates to work with, that move around – you’re not sitting in a developed market where it’s little incremental changes. Although these days, it’s a whole lot more volatile than I ever remember it. But still, it feels like emerging markets are the fun place to be with this. 

I think that point – that it’s fixed income, not fixed returns – has come through in what you’ve described. It’s a fixed-income instrument. It’s a thing that pays a set amount, or at least references a rate, whatever the case may be. 

But actually, a lot of other stuff happens. It was, for me, the scariest of the CFA textbooks. So, much respect for everything you do in this space. Lots of maths, as opposed to lots of storytelling, which is more my world in equities. But it is very, very interesting and I’m not surprised you spend so many years doing it because it changes all the time. 

And like you said, it’s an optimisation process. It’s baking, not cooking. It’s finding that perfect little amount that changes everything. That’s really what you’re doing, which is a very cool space, very technical. 

And Yusuf, that’s obviously why you’ve partnered with James – to actually make this work, to do this actively-managed ETF. Wearing my investor hat, I listened to this, and I’m like, “Okay, so the idea here would be that net of fees, I get a better outcome here than I do – not necessarily in a money-market account because there’s a slightly different risk, I have to commit my money for a bit longer here.”

That’s what I’m hearing. So I just want to make sure, for listeners, they understand where this competes with other alternatives to get that fixed income return on their money, and how they think about it going into the portfolio?

James Turp: I just wanted to make sure – the access to your funds is always immediate in this product. It’s advised that you keep your cash there for a bit longer, but you always have access to your liquidity. So I think that’s just an important point there. 

The beauty of this is, you always have access to your money, but it’s advised that you match your minimum investment period with the sort of fund you invest in. We don’t want to make the audience think, “We’ve got to commit to this”. No one wants commitment in this day and age! [laughs]. 

Yusuf Wadee: [Laughs]. As James said, it’s readily available. It’s a daily-traded fund. Investors can buy in at 10 o’ clock in the morning, and they can sell at four in the afternoon. It’s listed on the JSE, you trade it whenever you like. It’s real-time liquidity. And that’s the beauty of an exchange-traded fund. 

The comment around term was, that’s where this fund ekes out that premium. It’s invested in paper that has exposure to term. But it doesn’t mean your money is locked up for term. You can cash out as and when you like. 

So that’s the beauty of these types of funds. Income funds, money-market funds, they clearly form an aggregation of lots of different instruments, some short-term, some long-term. 

But as a whole, they are very much a daily-traded experience. That’s why they do have an advantage of simply just putting your money in a bank account, putting your money with one instrument, with one person. 

Back to your earlier comment. As you pointed out, Satrix is an indexation house. We offer index product, index-tracking manager. We offer index-tracking products in a variety of spaces and asset classes. 

If you think about, “How do you get access to the US?”, well, we’ve got an S&P 500 ETF. Access to India? Well, we’ve got an MSCI India. We are passionate, and that’s something that is the cornerstone of what we believe at Satrix. 

The interesting thing however, is that when you look at the fixed income space, this is an interesting quantitative dynamic. Few parts of the fixed-income market actually lend themselves to indexation. 

Take bonds as an example. The long-term bonds, the bonds that hang around, they’ve got a 10-year maturity; 15-, 20- year maturities. Those long-dated instruments, right?

Those instruments actually lend themselves very well to being indexed. In fact, there are indices of those bonds, and Satrix tracks those indices. We’ve got a Satrix government bond ETF, inflation-linked bond ETF. We’ve got a Satrix global bond fund that gives you access to global bonds. 

But what is a very interesting thing, is that it’s actually quite difficult to index the short term money market; the short-term paper. This is an interesting thing that not many people appreciate. There doesn’t exist a credible, replicable short-term fixed-income index. 

The market would have heard of STeFI. Everyone talks about the STeFI index. Well, the STeFI is an index that simply reports performance of short-term paper. 

It’s not something that I can invest alongside the STeFI recipe. I can’t break down the STeFI, look at the component parts, invest exactly in line with it and then achieve the STeFI performance. 

That’s an interesting thing that plays out in the fixed-income space, and that’s really the reason why we’ve partnered up and gone down the active-managed route for this space. Because it’s pretty difficult to try to do this via a traditional index route.

It’s certainly our view that this is the best way to deliver product in this space – something between cash and bonds. As James mentioned, the sweet spot is the duration of two years or just under.

We’re super excited about it, and this is certainly, in our view, the best way to play this part of the market – via an active-managed strategy. Hence why we launched the Satrix Income AMETF.

The Finance Ghost: So Yusuf, then maybe just to finish off on this point, I know tax-free savings are always top of mind for investors. We’ve just seen that annual allowance go up actually, which is quite exciting.

I imagine this works like any other ETF. If you want to hold it in your tax-free savings account, you can?

Although individual investors do actually benefit from some tax-free interest every year, and they should definitely just think that through, don’t necessarily go and waste your tax-free allowance holding interest-earning instruments when you can get interest-free returns without being in it. Go and speak to your financial advisor please. 

I guess the point I wanted to check, Yusuf, is: it can go into your tax-free savings account if you want to use it as a way to either park money, or balance risk, or whatever the case may be, right? It’s like any other ETF?

Yusuf Wadee: Certainly. It’s available on SatrixNOW or any other tax-free platform that clients may have access to, where they can access the JSE’s range of exchange-traded funds. That tax-free savings account is a fantastic vehicle for lots of South Africans to get into the discipline of long-term savings. 

And in many ways, the products we bring to market play exactly to the space where people investing in platforms like SatrixNOW can easily make a decision about these products. 

Products we’d like to think are super succinct; they’re very simplistic to understand – and so investors can quickly form a view on whether they like these types of payoffs or not. 

Classic point: if you like the US, we’ve got S&P 500; you like South Africa, you’ve got the Satrix 40. 

In very much the same vein, we think if investors want access to the cash market, let’s assume they just can’t make up their minds about bonds. 

Maybe it’s something a little bit tough for them to get their heads around, but if they want something better than cash, this is certainly a product we think is super simplistic and provides very efficient exposure to this part of the market.

So, if you want access to short-term cash, that part of the yield curve, we’re super excited about this product.

The Finance Ghost: Yusuf, thank you so much; James, thank you so much. You’ve really shed some good light there on your world. Fixed income, it’s obviously a gigantic topic. We could do 10 podcasts! There’s a reason why those CFA fixed-income textbooks are quite thick. And that was not the intention today.

It was really just to give people an idea of the kind of thinking that goes behind this, and most of all to expose investors to the fact that this product now does exist. The Satrix Income Actively Managed ETF. 

If you want someone like James making clever decisions on the curve with your money, and you want to take advantage of the excellent Satrix distribution and the low fees, then this is a very viable alternative. 

Obviously, as always, speak to your financial advisor, make sure you understand the product properly, and do the research. 

Yusuf, James, thank you so much for your time on this. Good luck with this one.

Yusuf, Satrix has been so busy launching new products, it’s insane. It really is outrageous. James, I’m sure you’ve been busy too, but the amount of new products coming out of Satrix right now is incredible, actually. Really good to see, so well done. 

To both of you, thank you for your time today.

James Turp: Thank you, Ghost.

Yusuf Wadee: Thanks for having us. 

Disclaimer:

Satrix Managers (RF) (Pty) Ltd a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. With Unit Trusts, Exchange Traded Funds (ETFs) and Actively managed ETFs (AMETFs) the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETFs and AMETFs, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs and AMETF are registered as a Collective Investment and can be traded by any stockbroker on the stock exchange, LISP platforms and or via online trading platforms. ETFs and AMETFs may incur additional costs due to it being listed on the JSE. Past performance is not necessarily a guide to future performance, and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF and AMETF Minimum Disclosure Document. The index, the applicable tracking error and the portfolio performance relative to the index can be viewed on the ETF and AMETF Minimum Disclosure Document. International investments or investments in foreign securities could be accompanied by additional risks such as potential constraints on liquidity and repatriation of funds, macroeconomic risk, political risk, foreign exchange risk, tax risk, settlement risk as well as potential limitations on the availability of market information. AMETF are ETFs which are actively traded by a Portfolio Manager to adjust the AMETF holdings and asset allocation with the aim to outperform the benchmark. AMETF differ from ETFs which only track indices. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Satrix retains full legal responsibility for the co-named portfolios. 

The management of this investment is outsourced to Sanlam Investment Management (Pty) Ltd, an authorised Financial Services Provider (FSP No. 579) that forms part of the Ninety One group of companies.