Do unit trust awards actually provide any useful information for the investor? Thebe Mabanga The unit trust industry is entrusted with the responsibility of looking after the wealth – and often livelihood – of investors with relatively little knowledge. At the end of the March quarter, this wealth amounted to R117-billion and was controlled by approximately 300 funds. There is therefore probably a need to reward those fund management companies who make the best of volatile market conditions to create and protect their investors’ wealth.
One way of showing recognition is the use of awards. But who runs these awards, how are they decided upon and, most importantly, can they be used to decide which fund one should invest in? “An award is worth noting if one is looking at the longer term,” advises Colin Woodin, executive director of the Association of Unit Trusts of South Africa. But Woodin then emphasises that past results are no guarantee of future success. The Association runs, in conjunction with Personal Finance, the Raging Bull Awards. The awards, which were started in 1998, seek to reward consistency. Bruce Cameron, editor of Personal Finance, points out that the Raging Bull is based on performance for three-, five- and, if need be, 10-year periods, in line with conventional investment wisdom. “We have actually resisted pressure from the industry to reward shorter term investments” he says. The first Raging Bull is for straight performance, awarded to a fund that finishes top of the log at the end of the three-year period. The organisers then reward those funds that have, over a five-year period, performed consistently well with a breakdown based on each quarter. The most stringent test then comes with the risk-adjusted performance assessment. Here, a statistic called the Sortino ratio is used to assess how well a fund can consistently perform above inflation with minimum risk. This is important to show investors how much risk their wealth is subjected to. Cameron then cites as an example the Board of Executors (BoE), which was the toast of the industry in the early to mid-nineties, only to crash around 1998. “That is because they took a lot of risk to get to the top,” says Cameron. “This is just a game of statistics. Investors should not just look at one statistic because anyone can show a piece of statistic that makes them look good” says Peter Major, who manages three funds for Nedcor Investment Bank, which has since merged with Syfrets. He should know: his Mining and Resources fund was among the top funds in 1996 and 1999 and was recipient of the risk-adjusted (Sortino) Raging Bull for 1998. The irony of his position is that after the success of 1996, his fund actually did badly. This means that an investor who bought into the fund on the strength of the 1996 award would have actually made less money than with other funds. By Major’s own admission, his fund has been both at the top and the bottom more than anyone else’s. The most influential indicator, though, is probably the Management Company Award. For the Raging Bull, this award is co- sponsored by Plexus Asset Management and is given to a company that has under its management four or more funds with consideration made for a three-year period. A performance average – which has an inverse relation to performance – is obtained by ranking each fund on its performance in its sector. The average has a weight spread over a three-year period, with the most recent year under consideration carrying the most weight. Last year the award was won by Sanlam. Arminius Archer, executive director of Plexus Asset Management, says: “Investors can use the result to determine which management company consistently provides good results across the entire spectrum of unit trust”. Archer reckons that the initiative makes companies aware that they are being compared to their competitors, which encourages them to strive for consistency.