Satrix RESI, time to buy?

The Satrix RESI is an exchange traded fund (ETF), providing the investor in one fell swoop with exposure to 10 of South Africa's biggest Resources companies. Naturally Anglo American, BHP Billiton and Sasol make up 75% of the fund so a person investing directly on the JSE might as well buy those 3 shares instead of the ETF.

The Question that needs answering is:  Do we invest in SA resource companies or not?


I am going to keep this short and to the point.

Pros:

• Satrix Resi is trading at the same price it has traded 5 years ago.
• Satrix Resi pays you 2.23% dividend yield.
• Over the last 12months resources has underperformed the JSE All Share index by 18% and the Financial/Industrial index by 30%!!
• Over the last 5 years Resources has underperformed the All Share by 27% and the Industrials by 65%!!!
• Anglo American is trading on a PE ratio of 8, Billiton on 7.9 and Sasol on 8.3 (cheap!)
• Commodity prices (Copper, Silver, Platinum) have come down substantially.
• World growth expectations are very low (sentiment is negative).

Cons:

• Growth in China is slowing down.
• EU is falling apart, hampering growth which supports commodity prices and demand.
• Most of our mines are unproductive due to high costs (labour, electricity).
• Mines might be nationalized in 10 years time.

So what to do!?

Everything has a price. If something becomes cheap enough, somebody will see value and start buying. I believe we will see some growth returning to the world over the next 5 years and demand for resources improves.

It might take 7 years or 3 years, the point is we have had spectacular returns from Industrial and Financial companies over the last 5 years and nothing from Resource companies. I punted Satrix Divi and Satrix Rafi over the last 3 years and am happy with the results. I will also not sell out of them but what I will do is start buying resources as part of my portfolio for the longer term recovery.

Alternative to buying the ETF or Shares

For the sophisticated investor who wants to participate in the potential upswing in commodities without buying the company with the operational problems, there is always the pure exposure to Platinum, Silver or Gold that can be bought using the SA listed Exchange Traded Notes on the JSE. You then effectively get the exposure to the metal and not the company.

Conclusion: Satrix Resi might become cheaper but for the patient investor with a monthly amount to invest, this asset class might produce lovely, succulent returns over the next decade.