10X Investments

Indexing

Industry problem 10X solution

Active management

Investors are led to believe that professional managers reliably beat the market index. But after costs, the index beats around 80% of professionally managed funds.

Index management

10X portfolios are indexed as index funds beat most professional managers.

We use index funds, to ensure you earn the full market return at low cost.

An index fund seeks to mirror the performance of the stock market by investing directly in the shares that make up the market. The alternative strategy is to trade the market in the hope of earning an above-market return. This is called active management.

Why index?

Over the last twenty years, only 1 in 20 fund managers has managed to beat the market index.

Active managers have a dismal track record

Indexed Retirement Funds
Source: General Equity unit trusts vs. FTSE JSE All Share Index. Profile Data. December 2010

As past performance is not an accurate predictor of future performance, the probability of identifying these outperformers ahead of time is equally low. Not dissimilar from playing Russian roulette – not with one chamber loaded, but with one chamber empty!

Incidentally, the experience is no different internationally. In the US, only 10% of active-managed equity funds have outperformed the index over the past 25 years.

  • Why does indexing outperform active management?

    As a group, all investors (no matter how smart they may appear) can do no better than earn the market return. For someone to be overweight a winning share, someone must be underweight, so for every winner there must be a loser. The winners and losers cancel each other out, to equal the market return.

    This is before costs, however. As the cost of indexing is lower than active management, on average indexing delivers a higher return than active management.

  • What indices does 10X replicate?

    10X replicates the following indices:

    Asset class Benchmarks
    SA Equity Deutsche Bank 10X SA Share Index
    SA Bonds Composite ALBI and Inflation-linked bond index
    SA Property Equity JSE Property Index
    SA Cash AF Short Term Fixed Interest Index
    International Equity MSCI World Index (Rands)

    Source: 10X Investments

    The Deutsche Bank 10X SA Share Index is independently calculated and measured by Deutsche Bank, and is used by 10X to gain balanced and direct South African equity exposure for its retirement funds. The index tracks the 60 largest companies on the FTSE JSE All Share Index (representing approximately 90% of its market capitalisation) but no share is allowed to comprise more than 6% of the index at the time of re-weighting. The 6% cap reduces concentration risk to internationally acceptable levels.