Changes in the unit trust industry could work to your advantage, writes Charlene Smith
There is no doubt that the unit trust industry is profitable, for investors and trust-fund managers, but what new developments should the investor be sensitive too?
Overall, unit trusts are performing better than the Johannesburg Stock Exchange’s (JSE) all share index, mainly because the JSEis heavily reliant on mining shares, which most asset managers view with caution.
Unit trusts are beginning to raise the minimums for investment with R200 a month being the lowest for many, while more are raising their minimum lump-sum investment to about R5 000 from R1 000, with money- market fund minimum investments standing at about R50 000 – but if you have the savings to invest in this area it can be highly lucrative.
The University of Pretoria puts out four unit trust surveys a year. Its latest showed that the total assets of South Africa’s 156 unit trusts increased by almost 28% (or R16,8-billion) for the first quarter of this year, compared to the last quarter of 1997, to R78,4- billion. The increase was more than the total assets of the entire unit trust industry at the end of 1992, which was R13,4-billion. The increase is a resounding vote of optimism among investors in South African growth.
However, Georg Mikula, executive director of GuardBank, believes the obsession with percentage-point differences and quarterly unit trust performance has fixed attention on short-term profit and loss when investors should be thinking long term “to compound and protect their gains”.
Nedbank Growth was the top performer among general equity funds for the first quarter of this year, managing to leap an astounding 38,6%, followed by Absa (38,2%) and PSG Growth (36,9%).
The top performer for the past six months was Metlife (32,5%), while Fleming Martin Acorn Growth, at a remarkable 43,3%, was the top performer for the past year.
Financial and industrial funds – reflecting a dynamic financial services sector – did well with rates varying between 32,7% for Old Mutual and 23,4% for GuardBank.
Smaller-companies funds continued to surge ahead, with Absa’s Specialist Growth achieving the highest quarterly rate of return of all unit trusts (60,84%), although the annual rate of return of Rand Merchant Bank’s (RMB) Strategic Opportunities Fund (73%) was the best of all unit trusts followed by Coronation’s Specialist Growth Fund (59,25%). This area is very strong, with Sanlam Select (55,9%) and UAL Emerging Companies (50,7%) also showing excellent rates of return.
The RMB Strategic Opportunities Fund, although categorised as a smaller- companies fund, stands apart from other funds in its category due to a threefold focus which consists of smaller companies, specific sectors or “themes”, and undervalued “blue chips”. The portfolio managers of the fund say they are able to react timeously to industry and global trends by adjusting the balance of the portfolio between the three different themes.
Capital Alliance, which placed four new unit trusts on the market earlier this year, including Phambili Fund which invests in black chips, recommends that South African portfolios should have a 7% to 10% exposure to emerging companies
Mining funds have fared poorly – little surprise – but the quarterly rates of the two gold funds, Old Mutual (19%) and Standard Bank (6%) lifted marginally.
International funds have been disappointing with Old Mutual Global Equity Fund reflecting rates of return of 21% and Board of Executives Global showing a return of 8,9%.
RMB Unit Trusts launched four offshore unit trusts and an offshore deposit account when exchange controls were relaxed. They say although a great deal of interest has been shown in these investments, they have not attracted large inflows. Further relaxations announced this year, with the additional requirement of a tax clearance certificate, “have had no positive impact on inflows”.
Unit trusts tend to be handled by young, dynamic managers with a wide view of the markets that they occasionally hone to give a specialist trust. One of the interesting new offers in this field is Sage’s SciTech Fund, the eighth unit trust from the Sage portfolio, but the only one to concentrate on the fast-moving world of information technology (IT), telecommunications, chemicals, media, electronics and biotechnology. Since its launch earlier this year it has grown rapidly – as a simple reading of IT and telecommunications shares on the markets would anticipate.
Over the past five years the unit trust industry has expanded considerably. Unit trusts have become a much more respected vehicle of investment. There has been an increase in the number and type of specialist funds available. Investors and financial intermediaries have had to absorb large amounts of information to keep up to date with the various funds and their differing investment mandates.
New management companies have entered the market resulting in greater choice. The emergence of linked-product companies has increased flexibility.
RMB’s Sherri Croucamp says prospective changes are centred on deregulation. “Innovative charging structures, such as performance-based fees and back-end charging, will also be introduced. Investment products using unit trusts as building blocks will also become more commonplace.”
She says unit trusts were once considered more risky than endowment policies, but “investors have realised that there are a range of unit trusts with different risk profiles to suit different people. They are now attracting people of all ages, regardless of income earned or investment requirements.”
Croucamp says the RMB’s Strategic Opportunities Fund would be recommended for a young investor who is not averse to risk, whereas for the 35 to 40 age group a “core and satellite” investment approach would be recommended. “For an investor who seeks maximum, inflation-beating growth over time, we would suggest a combination of the RMB Equity Fund [core investment fund], the RMB Maximum Income Fund [if liquidity is required] and the RMB Strategic Opportunities Fund [higher risk but higher return potential],” she says.
Mikula says unit trusts offerhigher returns than savings accounts, while the immediate availability of funds gives them an advantage over life-industry products. However, it is recommended that investments should be long-term.
He says an investment of R100 000 in GuardBank’s growth fund 25 years ago would be worth R1,146-million today, with an average rate of return of 20,88%. A saving of R100 a month in the Growth Fund for 25 years would see a return of R992 265, an average return of 22,78%.
The personal finance pages of most newspapers and financial magazines regularly survey unit trusts and many of the bigger unit trust companies have websites, so take time to assess where your investment can maximise returns for you.