When you’re shopping, you probably reach for the familiar brands that you know and trust. But while that sense of comfort is great at the mall, Duma Mxenge, Head of Business and Market Development at Satrix, warns that choosing the most famous names is rarely the best approach when it comes to equity investments.
The key to investment success lies in having a balanced, diversified portfolio that’s designed to help you achieve your financial goals. ETFs, or exchange-traded funds, are useful and easy-to-access investment tools. But like any investment, they can attract hype – especially if a big brand or a famous company, included in the index tracked by the ETF, is in the news.
To help you look past the hype and plan clearly for your future, here are five easy rules to help you avoid the “Fame Trap”.
DON’T: Focus on famous names
DO: Think about your bigger picture
“Investors often focus on familiar or popular ETF names,” says Mxenge. “But the core issue is identifying the underlying market, index, or asset class. You need to ask yourself: Does the ETF provide exposure to local companies listed on the JSE, offshore markets, specific sectors, or asset classes such as bonds or property? You should also consider the ETF’s primary purpose: Is it long-term growth, income, or diversification within a broader portfolio?”
Mxenge recommends thinking about how your ETFs fit into your overall financial plan. This includes tax structures, such as retirement annuities and tax-free savings accounts, and regulatory rules like offshore exposure limits. Knowing these factors helps you use ETFs as long-term investment tools, not just for short-term trades based on headlines.
“Avoid the fame trap by looking beyond familiar names and recent performance,” Mxenge says. “Focus on the kind of exposure you’re getting and how it supports your long-term goals. For most people, a steady, diversified ETF portfolio brings more lasting success than chasing trendy products.”
DON’T: Get stuck on a lot of the same
DO: Diversify
Apple! Amazon! Alphabet! They’re big, successful companies in a big, successful industry – but if the tech sector were to take a tumble, those stocks would all tumble together. That’s why it’s better to diversify, which helps you avoid putting too much faith in one story, product, or market.
“A diversified ETF portfolio spreads risk across different asset classes, regions, and sectors, which helps reduce the impact of market ups and downs,” says Mxenge.
Even a tech-heavy ETF like the Satrix Nasdaq 100 has built-in diversification, with just over 50% of its portfolio allocated to Information Technology. The rest is spread – or diversified – across Communication Services, Consumer Staples, Consumer Discretionary, and others.
DON’T: Chase lots of winners
DO: Get your balance right
“Diversification isn’t just about owning lots of ETFs, but about having the right mix for your goals,” says Mxenge.
Growth is unpredictable, but exposure is something you can control, he adds. “In South Africa, this usually means balancing local and offshore investments instead of focusing only on recent winners. Investors can choose how much to allocate between South African and offshore assets, and how diversified their portfolio should be. ETFs are especially useful for getting broad exposure without taking big risks on single investments.”
DON’T: Try to catch a hot streak
DO: Your homework
It’s easy to be tempted by trendy products and big headlines, especially if you want to benefit from a fast-growing sector. But strong past performance doesn’t guarantee future returns – and in that respect, ETFs might not be as low-risk as you expect.
“Some ETFs, especially those focused on single sectors or themes, can be volatile,” Mxenge warns. “Investors sometimes think offshore or global ETFs are always safer than local ones, but they may not fully understand currency risk or valuation. These assumptions can lead to buying well-known ETFs without proper analysis.”
When comparing South African ETFs, pay attention to the underlying index and how it’s built, the total expense ratio, and how closely the ETF matches its benchmark. “Liquidity is also important, particularly on the JSE, where trading volumes can vary a lot between products,” says Mxenge. “For offshore or rand-denominated global ETFs, investors should also understand currency exposure and how exchange rates can affect returns.”
DON’T: Try to predict someone else’s future
DO: Think of your own future
Many investors fall into the trap of trying to predict which market, country, or theme will grow the most next. It’s a common mistake, and even experienced investors do it sometimes. In South Africa, this often means chasing popular offshore indices or jumping into a trending global technology ETF after it has already done well.
“A better approach is to focus on the kind of exposure an ETF gives you and how it fits into your long-term plan,” Mxenge concludes. “Growth usually comes from staying invested through different market cycles, not from trying to perfectly time the next winner.”
Disclaimer:
Satrix consists of the following authorised Financial Services Providers: Satrix Managers (RF) (Pty) Ltd and Satrix Investments (Pty) Ltd. The information does not constitute financial advice. While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.
