Satrix’s Siyabulela Nomoyi discusses South Africa’s first inclusion and diversity ETF launch
Siyabulela Nomoyi, Quantitative Portfolio Manager at South Africa’s asset management firm Satrix, has talked with ETF Express on the launch of the first of its kind in South Africa, Satrix I&D ETF, which strives to challenge South African companies to do better when it comes to inclusion and diversity.
Q: What lay behind the decision to launch the Satrix Inclusion and Diversity ETF focused on South Africa?
A: Satrix identified the theme in 2016 as one that we have a strong alignment with, in terms of our strategic purpose if you look at our 20-year journey. Satrix wanted to go beyond offering investors equity exposure by offering a product that gives investors exposure to JSE listed companies that demonstrate and promote Inclusion & Diversity.
In South Africa, inclusion and diversity is a very important topic, more especially that the legacy of exclusion is still prevalent in our country. Satrix also had a view that this type of theme would be a great ESG linked product with a huge focus on the “S” as most of the time the focus is on the E and the G when it comes to ESG. We wanted the focus to be on JSE listed companies only to highlight the successes of inclusion & diversity of these companies, to even play a role in motivating other companies to do better in improving business outcomes and improving social outcomes.
Q: Are there specific issues with inclusion and diversity in South African companies?
A: There is room for greater inclusivity and diversity in South Africa's corporate sector, and definitely among senior leadership. The highest scoring company in the index, Woolworths (JSE: WHL) employs around 70 per cent female workers, but moving up to management, you start to see these numbers dropping down with 42 per cent women on its Board of Directors, 34 per cent women managers and 25 per cent women executives. This is one of the biggest issues in South Arica that needs to be addressed where we see diversity in lower-level staff and but in senior levels, numbers start being diluted. Since we are able to score each company out of 100 on each of the 4 pillars namely, Inclusion, Diversity, People and News and Controversies; on average, the companies in the Satrix I&D ETF average a score of 42.8 in Diversity and 49.2 in Inclusion. The top five biggest companies in South Africa including Naspers did not make the Satrix I&D ETF, and only 13 companies from the FTSE/JSE Top 40 index made it into the Satrix I&D ETF index.
Q: What evidence is there that companies with high inclusion and diversity metrics perform better?
A: It’s been shown that teams that are more diverse tend to perform better as they base their decision on a wider set of considerations and ideas. They are more creative and more responsive to change. Diversity in the workplace allows people from different backgrounds to broaden a company’s ability to adapt to change and serve a much broader market as well. Global studies which apply to South Africa as well, have shown that diverse management can boost revenues by almost 20 per cent, ethnically diverse companies having much higher probability of outperforming peers, and gender-diverse companies are more likely to outperform their peers.
We have done a back-test on this strategy since September 2009. Looking at the performance of the index vs a much broader index like the FTSE JSE All Share, the I&D index did 13.1 per cent per annum while the FTSE All Share index did 11.9 per cent per annum – since Sep 2009 to end of June 2021. If you are looking at the last 12 months – the index did 44.5 per cent while the All Share did 25.1 per cent. This supports the notion that companies that promote inclusion and diversity actually do outperform their peers.
Q: Who do you think will invest in this ETF?
A: The ETF enables people to invest in companies that demonstrate the importance of inclusion and diversity. While the ETF does provide a local equity risk profile, it does also appeal to investors who are intending to invest in a theme that speaks to their belief regarding the direction corporate South Africa should be taking. The investment will also be supporting companies that are more inclusive and diverse in South Africa, and in return this could encourage other companies to pursue policies and also put into practise, processes that will increase inclusivity & diversity in the workplace.