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Kieran, you are not the only person troubled by this, so I will respond in detail below. Will keep it very simple and basic. May be too simplistic for your needs, but may be of help to others.
JSE listed ETFs tracking foreign indexes, such as STXNDQ and STX500 are definitely Rand hedges and excellent ones too. Basically, the underlying assets, which are denominated in US$ are converted at the ruling rand exchange rate to arrive at the currently traded Rand price.
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So if the Rand weakens, the JSE price for the ETF will rise, even if the $ price of the underlying assets has not increased.
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Let's assume you buy 1 share in a JSE listed ETF when the $ price is $10 and the exchange rate 12 Rand to the $ ($/R 12.00).
Your cost would be R12.
If the Rand weakens to 14 ($/R 14.00) and the underlying $ value stays static, the JSE listed price would be R14.
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Your cost would be R12.
If the Rand weakens to 14 ($/R 14.00) and the underlying $ value stays static, the JSE listed price would be R14.
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Thus the value of your investment in the ETF has increased from R12 to R14 - an ↑ of 16%. The full +16% is due to the weakening Rand as the underlying investments, in dollars, have not increased in value. So this is the 'Rand hedge' effect at work.
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Let's look at the STXNDQ. I like this one because the pricing is transparent. The underlying feeder fund is the giant iShares Nasdaq100 which is listed in London and trades in US$. The London code is CNDX.
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The London listed CNDX is the fund you would buy with externalised $'s or £'s.
You buy the STXNDQ here on the JSE. It is the exact same fund, just administered in SA by Satrix as a Feeder Fund. You pay in Rands - the price is effectively the $ price x the $/R exchange rate.
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You buy the STXNDQ here on the JSE. It is the exact same fund, just administered in SA by Satrix as a Feeder Fund. You pay in Rands - the price is effectively the $ price x the $/R exchange rate.
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CNDX is today trading in London at $4.10.
$/R exchange rate is currently 14.60.
So the Rand value of each share is: $4.10 x 14.60 = R59.86.
STXNDQ is currently trading on the JSE at R59.96. Voila!
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$/R exchange rate is currently 14.60.
So the Rand value of each share is: $4.10 x 14.60 = R59.86.
STXNDQ is currently trading on the JSE at R59.96. Voila!
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The JSE listed STXNDQ is up by 1% today to R59.96 from R59.39 y/day although the underlying $ assets (as in the CNDX) have declined by 0.2% in London. The rise is therefore purely due to the weakening Rand. Again showing the Rand hedging quality at work.
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The JSE STXNDQ has a slightly higher fee than the underlying London CNDX. CNDX has a fee of 0.33%. Satrix adds 0.15% for admin, equating to 0.48%. This is very reasonable imo and less than the cost of opening & maintaining a foreign bank acc just to buy the exact same thing.
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Finally, if the above does not answer the Q fully, just ask. There are always others with the exact same Q and they will thank you.
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