The eRAFI™ Overall ETF is compiled using the innovative enhanced Research Affiliates Fundamental Index™ (eRAFI™) approach to portfolio construction pioneered by California-based Research Affiliates. The eRAFI™ ETF methodology weights shares based on fundamental valuation metrics - sales, cash flow, book price and dividends, as well as two additional filters (the quality of earnings screen and the financial distress risk screen) - rather than traditional market capitalisation.
Adapted for South Africa's specific investment environment, the eRAFI™ Overall ETF is managed by Absa Capital, together with local investment manager Plexus Asset Management. It tracks the Plexus Absa Capital eRAFI™ Overall SA Index calculated daily by independent investment consulting firm Riscura. This index consists of 40 shares selected on fundamental accounting measures from the top 100 JSE-listed companies.
The eRAFI™ Overall ETF overcomes the typical problems associated with ETFs that use the market capitalisation method of indexing, which over-weights stocks that are overvalued in the market and under-weights stocks that are undervalued – the opposite of good investment practice.
RAFI® strategies have statistically outperformed cap-weighted index strategies by more than 2.5% per annum in over 23 mature international stock markets, and significantly higher in emerging markets.
Benefits of investing in eRAFI™ Overall securities
- Companies are evaluated on fundamental accounting measures rather than market capitalisation
- Consistently outperform (2 to 2.5% on average) indices that are weighted on market capitalisation
- eRAFI™ Overall securities can easily be bought and sold at any time that the JSE is open for trade
- Investing and withdrawing funds is straightforward
- Investment values can be determined at any time.