Quarterly style analysis | September 2021

The 27four quantitative research team conducts style based analysis on the top 100 shares (by market capitalization) listed on the JSE. The styles typically considered include momentum, value, growth, low volatility, quality, size, liquidity and dividend yield. This quarter we have added currency sensitivity to our analysis. Currency sensitivity is a major contributor to the variation in share returns on the JSE, with the ‘rand hedge’ and ‘rand tracker’ or ‘SA Inc.’ being the accepted vernacular for categorising shares. The dichotomy of shares on the JSE is unique given that the majority of the large caps generate a large proportion of revenues and costs in forex and serve the global economy. Similarly, the majority of shares that service the local economy (generating both rand revenue and expenses) fall out of the upper market cap echelons of the ALSI. The result is a mismatch in terms of the JSE being a pure proxy for the state of the South African economy. Since the COVID drawdowns, there has been a shift to value which has actually centred around SA Inc. companies that were viewed as attractive due to their ‘cheapness’. Therefore, in attempt to further disentangle the SA market, we have now introduced currency risk or ‘exchange rate beta’ as an additional style.