The CoreShares Preference Share ETF (PREFTX), which tracks the FTSE/JSE Preference Share Index, has been offering South African investors convenient access to a diversified basket of preference shares since 2012. Historically the index has been dominated by the large bank issuances making up roughly 80% of the Index. The banks initially issued these preference shares to raise permanent share capital which also qualified as Tier 1 capital in terms of their capital adequacy requirements. However, post the introduction of Basel III regulations some years ago, these preference shares now no longer qualify and as such most of the banks have either redeemed or bought back their issuances. The rate of redemptions, particularly amongst the larger banks, has gather pace over the last 15 months.
While these redemptions have been favourable for investors, driving positive performance in the asset class, it has left the index with limited liquidity in the remaining components and with large exposures to individual preference share issues. Accordingly, we have taken a number of proactive steps on behalf of investors, not just to mitigate the liquidity concern but also to provide investors with a different solution which ticks many of the same investment boxes. The process has culminated in us now seeking to change the investment mandate of the fund.
The remandate means that the ETF is set to track a custom index of the 8 highest-yielding SA government bonds, thereby offering investors an alternative strategy with an attractive yield profile – the CoreShares Yield Selected Bond ETF. The remandate is subject to investor approval and quorum and we are aiming for the new strategy to be effective from the 19th of April.
If you’re a holder of the CoreShares Preference Share ETF, we would appreciate your vote by the 22nd of March 2023. Please chat to your broker or email us if you need more details.
You can hear Chris Rule discussing all the details in Simon Brown’s recent podcast here.
You can find the SENS announcement dated 03/02/2023 here.