Squeaky clean

‘No scrip lend­ing in­come has ac­crued to the man­age­ment com­pany’

Finweek English Edition - - Creating wealth -

IN YOUR IS­SUE of 12 April you pub­lished a re­port head­lined “It’s been a three-year party”. It looked at costs in the in­vest­ment in­dus­try. A good part of that re­port ap­pears to be di­rected to com­ments that the costs as­so­ci­ated with in­vest­ing in the Sa­trix ex­change-traded funds are ap­pre­cia­bly higher than they re­ally are.

“What does Sa­trix re­ally cost?” was a sep­a­rate re­port, for in­stance, com­mit­ted to one as­set man­ager’s at­tempts to re­state the Sa­trix cost struc­ture. Also, a num­ber of ref­er­ences were made in the re­port to im­ply that the per­for­mance of the Sa­trix 40 is seem­ingly dif­fer­ent to what it re­ally is.

The per­for­mance and cost struc­tures of Sa­trix are a mat­ter of pub­lic record. We’re in­cluded in a num­ber of sur­veys of per­for­mance of col­lec­tive in­vest­ments and our ac­counts (as pub­licly listed se­cu­ri­ties) are freely avail­able. They can be viewed and down­loaded on the Sa­trix web­site, www.sa­trix.co.za, un­der the “Fi­nan­cial info” but­ton, click on “Sa­trix Fi­nan­cial State­ments”. They are the au­dited ac­counts pre­pared to the stan­dards re­quired for listed com­pa­nies on the JSE, con­form to IFRS and all ex­penses are fully dis­closed.

It was with some sur­prise, there­fore, that we find that the Sa­trix pol­icy of full dis­clo­sure isn’t taken ad­van­tage of and your re­port con­tains a num­ber of in­ac­cu­ra­cies. Those fall un­der the fol­low­ing broad cat­e­gories: Bench­marks: The re­port in­di­cates that Sa­trix 40 has un­der­per­formed the FTSE/JSE to­tal re­turn Top 40 in­dex. That may well be true, be­cause it is not the man­date of Sa­trix to track the to­tal re­turn in­dex. A to­tal re­turn in­dex im­plies that all div­i­dends are rein­vested on the day they’re an­nounced and re­main in­vested to in­fin­ity.

The com­pounded ef­fect of that cap­i­tal­i­sa­tion of div­i­dends, and the fact that the FTSE/JSE cal­cu­lates the to­tal re­turn in­dex to­tally de­void of costs, makes a to­tal re­turn in­dex an elu­sive tar­get and, as far as I’m aware, no eq­uity in­vested col­lec­tive in­vest­ment scheme tar­gets a to­tal re­turn in­dex as its bench­mark.

Like Sa­trix, they pay out div­i­dends to in­vestors on a reg­u­lar ba­sis, quar­terly in the case of Sa­trix, and even if those div­i­dends are rein­vested, tim­ing dif­fer­ences and the costs as­so­ci­ated with such trans­ac­tions mean that a prod­uct that dis­trib­utes its in­come will al­ways suf­fer rel­a­tive to an au­to­matic rein­vest­ment in a to­tal re­turn in­dex.

Stat­ing, as you do in your re­port, that Sa­trix 40 un­der­per­forms the to­tal re­turn in­dex is like say­ing that “Sun­der­land had a bad year in the English Pre­mier foot­ball di­vi­sion”. Of course, it did; it doesn’t play in the Pre­mier Di­vi­sion! Com­par­ing a prod­uct such as Sa­trix 40 to an in­dex that it isn’t man­dated to track is an ex­er­cise in “in­tel­lec­tual slip­per­i­ness” that doesn’t bear fur­ther com­ment. Sa­trix per­for­mance: The Quar­terly Unit Trust Sur­vey, which com­pares the per­for­mance of most reg­is­tered col­lec­tive in­vest­ment schemes, shows the fol­low­ing per­for­mance for Sa­trix 40:

The per­for­mance fig­ures quoted above are from an in­de­pen­dent source; they in­clude the rein­vest­ment of div­i­dends, both for the in­dex and for Sa­trix 40. But the bench­mark is the Top 40 cap­i­tal value in­dex, plus div­i­dends, and not a to­tal re­turn in­dex.

Sa­trix 40 clearly doesn’t un­der­per­form its bench­mark by the wide mar­gin im­plied in your re­port. To the ex­tent that it doesn’t match the bench­mark, that can be ac­counted for by a 1%/year fee that’s charged against Sa­trix in com­pil­ing the per­for­mance sta­tis­tics.

The 1% fee re­lates to an ad­min­is­tra­tion fee charged by the com­pany that ad­min­is­ters

We live in hope that other unit

trusts will in­clude their dis­tri­bu­tion costs in com­pil­ing their per­for­mance data but we’re

not hold­ing our breath.

the Sa­trix In­vest­ment Plan. That com­pany has noth­ing to do with Sa­trix and the fee isn’t earned by Sa­trix but by the ad­min­is­tra­tor.

Sim­i­larly, we be­lieve that the av­er­age re­tail in­vestor would pay a bro­ker­age charge of 1% in buy­ing Sa­trix 40 through a stock­bro­ker. So we’ve opted to in­clude that 1%

Tak­ing is­sue with our re­port. Mike Brown

AN­NUAL RE­TURN (%)

Source: Unit Trust Sur­vey (De­cem­ber 2006)

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