`Theme funds’ have emerged to cater to specialised investment needs, writes Fumane Diseko
The performance of unit trust funds based on ethics, such as the Oasis Crescent Fund, Southern Pure Specialist Fund and the Community Growth Fund, has overturned the cynical view that limitations on these funds reduce returns.
According to Colin Woodin, executive director of the Association of Unit Trusts, all these funds have performed well, despite the limitations on their investment portfolios.
The Oasis Crescent Fund generated returns of 107,7% for its unit holders from August 1998 to December 1999 and is rated by Standard & Poor as among the top 10 performers in the unit trust industry for 1999. The assets of the fund currently stand at R62-million, with 1 500 unit holders.
The Oasis Group, under which the fund falls, was granted a unit trust licence last year in December. A new fund, the Oasis Crescent Equity Fund, was launched this month and will merge with the Oasis Crescent Fund. This ends the fund’s administration relationship with Fedsure, and Automated Outsourcing Services will be its new outsourcing partner.
Both the Oasis Crescent Fund and the Southern Pure Specialist Fund mandates are based on Islamic principles. Southern Pure Specialist Fund manager and founder Shams Pather, who is also managing director of Real Africa Asset Management, explained that the Southern Pure Specialist Fund does not invest in companies that earn their capital through interest, gambling, or the distribution and manufacturing of alcohol, tobacco, pornography or pork products.
“We also extend these limitations to the controlling shareholder. For example, Anglo American Group has significant interest in financial services and consequently we exclude the company from our share universe for the Southern Pure Specialist Fund. Now that supermarkets distribute alcohol, they would not form part of the investment universe,” said Pather.
It is obligatory for unit trusts to bank liquid assets and both Islamic funds deal differently with interest. “Unit trusts are performance driven and this complies with people’s charitable and moral desires. Of the 100% profit that is earned, only 1% or 2% is related to interest … Interest earnings are from cash being in the bank, so most people have chosen to distribute it to charity. People have options; they decide upfront about whether they want to receive it [interest] or not,” said Adam Ebrahim, managing director of the Oasis Crescent Fund.
However, the Southern Pure Specialist Fund banks its unit trust assets with Al Baraka, a Muslim bank with headquarters in Durban. The Southern Pure Specialist Fund had returns of 42,2% for 1999.
Ian Hamilton, CEO of Southern Unit Trusts, under which the eight-year-old Southern Pure Specialist Fund falls, says the fund has not always had an easy run. “The fact that we have a restricted mandate does impact on performance from time to time,” he said. “But there are good opportunities for the Southern Pure Specialist Fund to invest.”
Since its inception the Oasis Crescent Fund has made phenomenal strides in its growth. According to Ebrahim, the fund is gaining an average of 150 new members a week. Even though the company is based on moral principles, its unit holder base is spread 50/50 between Muslims and non-Muslims.
Ebrahim attributed the fund’s success to the conservative economic principles held by the company. As the Oasis Crescent Fund aims for low volatility, monetary losses are substantially reduced when the market dips. The fund focuses on diversifying risk. The company is research based, so its investment process is driven by detailed research of the companies it invests in. It performs due diligence on potential buys and focuses on globally competitive companies. This has meant high profits because there is less competition. The fund prefers low-risk industries and companies which produce cash rather than those in the red.
Unlike the Islam-based unit trust funds, the Community Growth Fund does earn interest. The trust holds it shares with companies with a strong sense of social responsibility.
“We invest in companies that are interested in the development of the community, fair labour practices … Various companies are approved on the criteria that they create jobs through innovation, train employees and increase skills, and practise affirmative action. There are researchers to check how the company fits into the criteria,” said Community Growth Fund’s marketing co- ordinator Bulelwa Conco.
The challenge faced by the fund is that it is limited to 90 companies. But there is potential to grow as more companies are approved and listed on the Johannesburg Stock Exchange. “The reward for such a limitation is that the company invests with a conscience,” said Conco. The fund, owned by unions which are also its managing shareholders, earned 29,21% for 1999.
According to Ebrahim, the reason for funds to choose moral principles is because “increasingly modern society needs choice. As society becomes more wealthy, it exercises choice. We need to provide additional choice to see that the needs and demands of our communities are looked after better.”