L Dube asks: What is the relationship between unit trusts and the JSE all-share index? How can I track an investment being managed by a fund manager?
Maya replies: The JSE all-share index (the formal name is the the FTSE/JSE all-share index) is the average of all the shares listed on the JSE. If you want to invest in equities (shares) you can invest in an index tracker which will simply replicate the all-share index or you can opt to invest with a fund manager through a unit trust.
If you invest with a fund manager, and pay fees, you are expecting the fund manager to outperform the average of the JSE — otherwise why bother. So for many pure equity unit trusts, the JSE FTSE all-share Index is their benchmark that they aim to outperform after fees.
Depending on the unit trust however, you may find different benchmarks. A fund that aims to deliver a performance relative to inflation will have an inflation linked benchmark (CPI plus 3% for example). Balanced funds may use a benchmark that is relative to its peers — for example the average performance of unit trusts in the asset allocation prudential medium category.
Because the JSE index has a very high weighting of resource shares, some fund managers prefer to use other benchmarks that have a lower weighting to resources such as the SWIX index or the FINDI index (this index tracks financials and industrial shares and has no exposure to resources).
Tracking performance
The fund will issue a fact sheet — depending on the fund manager — every month or quarter, which will show the fund’s performance relative to its benchmark. There will also be an explanation as to any over- or under-performance.
It is important not to judge a fund manager over such a short period of time as his or her stock selection will be over a three year view and it takes time for their predictions to play out.
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