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Strengthening Your Core with Indices in South Africa

Since the introduction of index-based investing in the 1970s, passively managed assets have grown substantially, with AUM in products tracking the S&P 500® reaching nearly USD 3 trillion.

South Africa has participated in the global trend; a wide range of indices has been developed for the region, meeting a growing demand for passive solutions that span asset classes and investment styles. This paper highlights the range of passive exposures and indices available in South Africa and uses S&P Dow Jones Indices’ (S&P DJI) array of domestic and international indices to illustrate the variety of outcomes that could have been achieved with index-tracking portfolios, maintaining the perspective of a local investor.

Summarizing one of the key conclusions of this paper, Exhibit 1 shows the potential differences in risk and return profiles that a South African investor might have obtained over a 10-year period by making different possible choices among indices. An allocation to international equities would have proved beneficial in most cases, but the choice of domestic equity index—the “core” exposure—proves to be an important decision point.

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