The eRAFI™ Resource 20 Index ETF is compiled using the innovative enhanced Research Affiliates Fundamental Index™ (eRAFI™) approach to portfolio construction pioneered by California-based Research Affiliates. The 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.
The NewFunds eRAFI™ SA Resource 20 Index ETF Portfolio, in the NewFunds Collective Investment Scheme, is a portfolio of Constituent Securities held with the objective of tracking the eRAFI™ Resource 20 Index. The index, which is calculated by RisCura, is comprised of securities in the 20 companies with the largest fundamental value, selected from the universe of the resource sector companies that fall within the top 100 companies listed on the JSE, as measured by market capitalisation.
The enhanced Research Affiliates Fundamental Index™ (eRAFI™) approach 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™ Resource 20 securities
- Companies are evaluated on fundamental accounting measures rather than market capitalisation
- eRAFI™ Resource 20 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.