The NewRand fund offers investors some protection against a fall in the rand by investing in companies that earn their revenue in foreign currencies.
Under normal circumstances the fund would declare a dividend four times a year.
Dividends have dried up because there has been a significant decline in the NewRand fund’s size. This means that each investor has to carry a greater portion of the fund’s fixed costs.
Absa Capital confirms that the original “seed investor”, Sanlam Investment Management, sold its units in the fund some time in 2011. This saw the fund decline some 88% in value, from R642m in March 2011 to R74m in March 2012.
The NewRand management team confirms that the costs of the fund are stable at about R1.2m a year. This cost is funded firstly by scrip lending fees earned by the fund as well as interest earned on cash balances. If that is not enough, then it is deducted from dividends earned by the fund.
The annual cost of R1.2m works out to 1.3% of the current fund value of R92m. This is reflected in the NewRand’s total expense ratio (TER) of 1.46% disclosed in the most recent fund fact sheet. Three years ago the fund’s TER was just 0.32%. This demonstrates how exchange traded funds benefit from economies of scale.