SIYABULELA NOMOYI: Where I’m investing in 2025 and why

Indexation has evolved from a passing trend to the cornerstone of investing. The rise of this strategy reflects its value to investors seeking transparent, cost-effective and systematic solutions. Globally and locally, the adoption of index-tracking investments is accelerating, and this momentum is only set to continue.

Against this backdrop, my focus remains on diversification — spreading investments across asset classes, sectors and geographies to balance risk and optimise growth. A well-structured, rules-based approach provides stability and long-term potential, ensuring my portfolio can weather market fluctuations while capitalising on investment opportunities.

Index funds have experienced significant growth, especially in the US. In 2024 assets under management (AUM) in the indexation investment space rose by 20%, with cumulative flows into US equity exchange traded funds (ETFs) reaching $2.5-trillion, while mutual funds experienced outflows of $3-trillion.

Over the past year about 120 new niche index-tracking funds were launched globally, offering investors diversified, low-cost choices to traditional actively managed funds. Locally, index investing is gaining ground. While offshore markets have reached a 50/50 split between index funds and active funds, in SA indexation still accounts for just 10% of the market.

However, the trend of indexation adoption locally is accelerating. Over the past five years 36% of collective investment scheme (CIS) inflows went into indexation, with Satrix capturing 40% of those flows. In 2024 alone, 90% of CIS inflows went into indexation and Satrix secured 50%.

A key driver of indexation’s growth has been the rise of ETFs. These vehicles offer liquidity, transparency and cost efficiency, making them an attractive choice for retail and institutional investors. ETFs, with their ability to be traded intraday, also offer significant diversification benefits, making them an essential component of resilient portfolios.

The emergence of smart beta ETFs, which blend elements of indexation and active strategies, has further accelerated the growth of indexation. These funds use factors such as value, momentum and quality to enhance risk-adjusted returns. In SA, some factor-based ETFs have seen healthy inflows, and offer an investment option for those looking to further diversify their exposure.

Diversification is a core principle of investing — it helps reduce risk, enhance returns, and improve portfolio stability. The way you diversify depends on your investment timeline. For example, investing for my children’s education varies based on their ages. My one-year-old has a far longer horizon (17-18 years) than my older child in grade 11, who will need funds for tertiary education within a year or two.

For short-term goals I prioritise lower-risk assets such as money market instruments and bonds while keeping some exposure to growth assets. A diversified portfolio typically experiences smaller fluctuations, helping investors stay committed during market volatility.

Recent market swings have created opportunities for long-term investors, especially in growth assets, where valuations have fluctuated significantly. The pullback presents a chance to invest in high-growth opportunities at more attractive levels. Personally, I’m continuing to build my growth assets while ensuring I’m not overexposed to any single asset class, sector, or country.

Managing country exposure is particularly important. For example, the Satrix MSCI World ETF has more than 60% exposure to the US market. To diversify further, particularly away from the US, one could consider the Satrix MSCI Emerging Markets ETF, which provides exposure to economies such as India and China — markets that have recently outperformed the US. For long-term goals such as my kids’ tax-free savings accounts, I’m comfortable holding riskier assets, knowing they have time to recover. For instance, my one-year-old can withstand pullbacks in the Satrix Nasdaq 100 ETF as equities tend to rise over time.

For my own offshore exposure within my tax-free savings account I’m balancing risk with diversification across countries. To avoid excessive US exposure, I’m adding emerging markets while keeping a cushion against potential downturns. The Satrix Infrastructure ETF is particularly interesting, offering uncorrelated exposure compared to other JSE-listed options.

• Nomoyi is quantitative portfolio manager at Satrix, a division of Sanlam Investment Management.