Investing in mid-cap shares
The FTSE/JSE Top40 Index, the index which consists of the largest shares by market capitalisation, is well known and very popular with South African investors.
But is it worth looking at mid-cap shares too?
The mid-cap Index constituents are selected based on a market representation percentage rather than a fixed number. The market representation target for the mid-cap index is 85%-96% of the FTSE/JSE All Share Index and is typically more exposed to purely South African businesses than the Top 40 Index which consists of many shares that have foreign earnings.
Despite concerns about the sluggish economy, mid-cap shares may well be worth a look as they consist of not only shares that now look attractive on a valuation basis, but also boasts many well-known companies such as Clicks, AVI, Spar and RMI Holdings, which has investments in OUTsurance and Discovery among others.
An easy and cost-efficient way - to invest in midcap is with the with the Ashburton mid-cap ETF which has a Total Expense Ratio (TER) of only 0.61% and around R406m of assets under management. It is traded on the JSE just like any other share and is highly transparent meaning you can see each share held and what weighting of the total fund it comprises.
The aim of the Ashburton MidCap ETF is to provide returns linked to the performance of the FTSE/ JSE mid-cap Index. The Ashburton MidCap ETF pays a quarterly distribution to investors which is made up of any dividends or interest earned from the underlying shares.
Currently the biggest weightings in the index are basic materials at 25%, followed by consumer services at 22% and property at 15%. The biggest holdings in the ETF are Impala Platinum, Sibanye Gold and Clicks.
By investing in mid-cap shares in addition to say a Top 40 ETF, investors will spread their risks better and have broader exposure to a wider spread of companies in their portfolios. Just the two biggest holdings in the Top 40 - Naspers and BHP Group - make up nearly 30% of the portfolio.
It therefore may be prudent to compliment investments in South Africa’s largest companies with mid-cap stocks to reduce their concentration risk gain exposure to more of the market.