PICK AND CHOOSE

In­vestors are faced with a huge num­ber of unit trusts to choose from and should se­lect care­fully

Financial Mail - Investors Monthly - - Contents -

It is un­clear what to make of the ever-grow­ing num­ber of unit trusts avail­able on the mar­ket. By the end of De­cem­ber last year, the to­tal had bal­looned to 1,626. Five years be­fore there were 967. And it should be no sur­prise that to­tal as­sets un­der man­age­ment also grew sig­nif­i­cantly — by 83%, to be ex­act, to reach R2.25 tril­lion.

With so many dif­fer­ent funds to chose from, what is an in­vestor or ad­viser to do?

“The num­ber of funds is quite con­cern­ing, but one must also un­der­stand which are the funds that are in­creas­ing,” says Leigh Köh­ler, head of re­search at Glacier by San­lam.

“The large growth has been in the mul­ti­man­ager area. Big com­pa­nies, funds of funds or mul­ti­man­agers are launch­ing so­lu­tion funds to pro­vide for a spe­cific groups of clients.

“Reg­u­la­tion 28 drove the bal­anced fund in­dus­try be­cause it pro­vides a good so­lu­tion that nor­mally en­cap­su­lates the best across as­set classes.”

Reg­u­la­tion 28 pre­vi­ously lim­ited funds to an ex­po­sure of only 25% to in­ter­na­tional as­sets and 5% into the rest of Africa. Th­ese lim­its were in­creased in the 2018 bud­get to 30% and 10% re­spec­tively.

The growth in the pop­u­lar­ity of bal­anced funds is ev­i­dent in the num­bers pub­lished by the As­so­ci­a­tion for Savings & In­vest­ment SA. Be­tween the end of 2012 and 2017 the num­ber of lo­cal bal­anced funds grew by 87% and eq­uity funds by 52%. In­ter­est-bear­ing funds de­clined by 9%.

Bal­anced funds rose to 49% of to­tal as­sets un­der man­age­ment, from 34% in 2012.

Eq­uity funds have re­mained fairly con­stant at around 21%, but in­ter­est-bear­ing funds slipped from 40% to 26%.

Köh­ler says the growth in the num­ber of bal­anced funds could have been driven purely by de­mand and the need for as­set man­agers to re­main sus­tain­able. This is par­tic­u­larly true of the num­ber of bou­tique fund man­agers that have sprung up in the wake of shake­ups at the likes of Corona­tion, Al­lan Gray and RMB. Th­ese teams tend to have skills in manag­ing par­tic­u­lar as­sets, but grav­i­tate to multi-as­set funds as that is where the de­mand lies.

Ja­son Swartz, head of port­fo­lio so­lu­tions at Sa­trix, shares Köh­ler’s con­cern about the in­creased dif­fi­culty pre­sented by the greater num­ber of funds.

He says it af­fects both fund man­agers who may tend to in­tro­duce new funds to bulk up their book and in­vestors who need to find a so­lu­tion that meets their in­vest­ment goals.

“What in­vestors need to think about is whether a fund is a le­git­i­mate build­ing block or a le­git­i­mate fund of­fer­ing with a tried-and-tested in­vest­ment ap­proach. It’s a real chal­lenge, specif­i­cally for in­vestors who don’t have ac­cess to ad­vis­ers or con­sul­tants who can do re­search and pick the best op­tions for them.”

He sug­gests that peo­ple should do what re­search they can into the per­for­mance of the funds and their man­agers. They should, if pos­si­ble, try to get a bet­ter un­der­stand­ing of the fund man­agers’ phi­los­o­phy and find out whether they op­er­ate ac­cord­ing to a proven ap­proach and how that phi­los­o­phy is em­bed­ded in the port­fo­lio. “We don’t have ex­per­tise in man­ager re­search, but of­ten our clients ask our view about how cer­tain man­agers stack up rel­a­tive to in­dex or tracker funds,” he says. “And it’s a chal­lenge, be­cause per­for­mance is the eas­i­est thing to grab onto. But you need to un­der­stand the process, ca­pac­ity, costs, trans­parency and di­ver­si­fi­ca­tion of th­ese funds.”

This is an area Köh­ler is well ac­quainted with in his po­si­tion as head of re­search for Glacier by San­lam. One of the prod­ucts of his re­search is a bian­nual pub­li­ca­tion of lo­cal and global funds and as­set man­agers. It tracks their per­for­mance and re­turns, by as­set class and sec­tor.

“The aim is to give fi­nan­cial ad­vis­ers peace of mind when se­lect­ing unit trust funds and as­set man­agers,” he says.

“We look to un­der­stand whether the man­ager has a clear, sound phi­los­o­phy, from idea gen­er­a­tion to port­fo­lio con­struc­tion, and [whether this is] con­sis­tent and un­der­stand­able. We look closely at in­vest­ment teams, qual­i­fi­ca­tions and the vi­a­bil­ity of the busi­ness.”

Köh­ler ac­knowl­edges that he is priv­i­leged to be able to drill down to such specifics. In a mar­ket awash with more than 1,600 funds, those in­sights rep­re­sent sig­nif­i­cant mar­ket in­tel­li­gence.

Pic­ture: 123RF — OLEGDUDKO

Leigh Köh­ler … mar­ket in­tel­li­gence

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