I started this series in February 2019 after having purchased my first ETF (ever!) in December the previous year. I’ve been keeping track of how the investments are doing and even though it’s a futile exercise, I’m enjoying it and have received feedback from baby readers who enjoy it. So, let’s continue!
My current investments
Up to date I have invested a total of R8,950 which is the total amount before any fees or costs. But, the actual value is only R8,909.08 which means that I have lost money. This is similar to the month of May which also had a negative growth.
Here are the actual ETFs I have and how they are performing.
The table below shows the amounts that I invested since starting and I have calculated the interest I would have earned had the money been earning 5% interest in a bank account versus what it is really earning. As you see, my investments aren’t looking too healthy right now as my all-time average growth is -1.5%.
As you can imagine though, the index values go up and down daily. No need to over-analyze the the next graph, but it shows the daily growth (simply the value that I have invested versus the value at the end of the day). So it’s not compounding or doing anything too clever.
The point however is to see that the values go up and down all the time and that there is a level of risk involved. However, passive investing (index investing) is for the long term and many big-time investors (eg Warren Buffet) swear by simple long-term index tracking funds.
The CoreShares SciBeta index
If you read my July ETF Update you would have seen that I was confused about what the CoreShares Top40 index change meant and what to do about it. They changed from an equally weighted Top40 index to a “smart beta” index which made me a little anxious. Since then though I’ve been doing a lot of research to understand the underlying index better.
The new CoreShares SciBeta (SMART ETF) tracks the Scientific Beta CS South-Africa Multi-Beta Multi-Strategy Six-Factor EW Index. This is seriously a long and over-complicated name but we can break it down as follows:
It’s Scientific as the methodology is well researched and documented with the initial research thesis dating back to the 70’s. The Beta refers to the measure of volatility and the movement versus a benchmark and the weighting is done in a “smart” way to diversity the undesired risks. And finally, the Multi-Factor part refers to the 6 factors that are taken into account in this index namely; size, value, momentum, low volatility, investment & profitability.
Basically (and this is a real high-level), the index uses 6 factors that are calculated using a combination of both publicly available accounting data from company results (such as profitability) as well as market data (such as price movements and share price volatility). The weighting of the 51 funds that make up the index is then automatically applied.
Although there is a very high level of automation and programming required, along with a significant amount of market and accounting data to be processed, this is not using Artificial Intelligence (AI). It’s simply rule-based calculations. So no emotions or speculation, simply tracking facts and figures based on 6 specific areas.
I like it actually so will simply stick with what I have.
Why are my investments doing so badly?
There’s no simple answer as to why the investments are currently doing badly. It’s a combination of local politics, instability in the country as well as international politics and the rantings of Mr Trump. We can speculate all day but it’s a little pointless.
Just know that the tide will turn again and in 20 years time this will probably just be a tiny blimp of the graph.
My investment strategy
As discussed in my July update, my investment strategy is as follows:
- 25% Local Equities – CoreShares Sci-Beta (Smart Beta)
- 15% Local Equities – Satrix Top 40
- 10% Local Property – Satrix Property ETF
- 40% Offshore Equities – Satrix Worldwide
- 10% Offshore Property – Sygnia Global Property ETF
When investing additional funds I simply re-balance the ETFs to match my goal.
Question: Should I slightly adjust these investment allocations to include 1% or 2% of crypto-currency?
This is something that I am currently contemplating, whether or not to include a small percentage of crypto. There’s always a lot of talk about it and with the new crypto index it’s becoming vaguely tempting. Please feel free to share your thoughts in the comments below and wait for next month to see what I do.
Tracking index funds on a month-to-month basis isn’t exactly the most exciting pastime but I am interested to see how this will pan out over a year. After that I’ll probably only do periodic updates to see how it’s going.
It’s always tempting to try and time the market; to buy at the right time and to sell and make huge profits. And then of course there’s the emotion that comes to play when stocks fall and markets change and you suddenly get scared and second-guess yourself.
The idea of passive investing is to simply choose a few indexes to track and then to do absolutely nothing besides contribute to the investment. Don’t sell, swap or stress. Just sit back and forget about it.
I’m clearly not following my own advice as I’m actively watching it, but I’m not going to sell or do anything drastic. I’m just watching it so that I can report back on how it’s performing.