South African index investment business Satrix, a division of Sanlam Investment Management, has announced that its new smart city infrastructure feeder exchange-traded fund (ETF) will offer investors access to the rapidly growing investment opportunity of smart cities.
The fund’s initial public offering went live on June 28, with listing planned for July 26.
The emergence of smart cities has become one of the largest investment “megatrends” owing to rapid urbanisation around the globe, states Satrix.
A smart city uses information and communication technologies to increase operational efficiency, share information with the public and improve both the quality of government services and citizen welfare.
The overarching mission of a smart city is to optimise city functions and drive economic growth, while improving quality of life for its citizens using smart technology and data analysis.
“The growth in urban populations, combined with the requirement for future cities to adapt to keep up with this trend, makes a compelling investment case,” says Satrix quantitative portfolio manager Siyabulela Nomoyi.
The fund is the latest under the Satrix megatrends strategy, which seeks exposure to powerful and transformative forces that are predicted to change the trajectory of the global economy.
The world’s largest asset manager Blackrock has shortlisted technological breakthrough; demographics and social change; rapid urbanisation; climate change; and resource scarcity as among the long-term megatrends that will have “irreversible consequences for the world”.
Under the rapid urbanisation trend, the United Nations (UN) has predicted that there will be at least 43 megacities globally by 2030, each with ten-million or more inhabitants, and each requiring new and innovative ways to develop, maintain and manage infrastructure.
Research by research firm McKinsey Global Institute has also supported the notion that technology will play a role in enabling smart cities that will deliver key enhancements to the quality of inhabitants’ lives.
In this context, the Satrix smart city infrastructure feeder ETF tracks the performance of companies that help to turn cities into smart cities, as an alternative to traditional infrastructure plays.
The focus on nimbler companies offering infrastructure services over major infrastructure assets is illustrated by the sectoral exposures in the underlying index, which include 47.4% industrials, 36.8% information technology, 6.3% communication services and 3.4% materials.
“The Satrix megatrends strategy aims to make global investment megatrends accessible to South African investors through cost-effective, efficient index exposure to appropriate segments of the offshore market,” Nomoyi says, adding that the smart city infrastructure feeder ETF was a thematic fund and the latest in a range of Satrix index trackers that invest across sectors and territories, into companies that will leverage these megatrends, with a specific focus on those that offer innovative technology-backed solutions for smart cities.
He says smart city-focused indices also offer the advantage of being aligned to the UN Sustainable Development Goals (SDGs) and that they feed into a Sustainable Finance Disclosure Regulation Article 9 product, satisfying the appetite among local institutional and retail investors for impactful and sustainable investments.
“Our objective is to infuse the right global themes into an investment strategy that will offer diversification by having less correlated returns to the broader market. We expect this fund and fund strategy to appeal to all investors who want to invest sustainably and make a positive impact with their capital, while getting meaningful offshore exposure,” Nomoyi says.
The Satrix smart city infrastructure feeder ETF will track the STOXX Global Smart City Infrastructure Index, which invests in a minimum 80 component holdings that contribute to SDG 6: Clean Water and Sanitation; SDG 7: Affordable and Clean Energy; SDG 9: Industry, Innovation and Infrastructure; SDG 11: Sustainable Cities and Communities; and SDG 12: Responsible Consumption and Production.
The Satrix smart city infrastructure feeder ETF has an aggressive risk profile and will fall under the Global: Equity, General category of South Africa’s Collective Investment Schemes funds.
It will offer South African investors offshore exposure to the US at 47.9%; Japan at 9.8% and Sweden at 6.1% with smaller exposures to Australia, Canada, Germany, Finland, France, the UK and Taiwan.