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Collective Investments
Thursday, February 1, 2007
Missing the boat

After three fabulous years of investment returns, equity-based unit trusts came out tops again during 2006, says Ian Dodds, Managing Director of Fundamental Investments. He said that the top ten performers included equity-based unit trusts mandated to invest in property, commodities and small companies.

“There were no strong set of out-performance from any one sector. This year’s batch of leading fund managers deserve their success,” he said.
May had probably been the most testing time for asset managers. Then there was renewed nervousness at the beginning of October when the dollar weakened. While the commodity funds dominated the field up to about June or July, those funds that were over exposed to banks and industrials came into their own from about October.
Leading equity funds enjoyed performances of over 50%, while the top bond funds produced a return of just less than 7%. However, he noted that as usual, many unit trust investors had missed out on the equity boom.
He quoted statistics released by the Association of Collective Investments in September 2006, which showed that only 30% of unit trust investors had investments in equity-only unit trusts, down from 63% in September 1998. An additional 24% had investments in asset allocation funds where the fund managers were mandated to choose the underlying asset classes of the investments.
He said that a combination of nervous markets and the fact that financial advisors were obliged to take responsibility for the advice they gave to clients, may have led to unit trust investors being under-exposed to equities.
An additional factor is that in general, market commentators do not distinguish between long-term investors and short-term traders when discussing volatility and daily price moves on the Johannesburg Securities Exchange.
“Long term investors have to learn to cut out the noise,” he explains. “We often have an environment where the stakes are much higher for short term traders, and where their potential positive or negative returns are dependant on the price moves of a few shares over a short time period. The risks are much lower for those who have longer term objectives; where we should not be so concerned with daily price moves,” Mr Dodds added.
Most current unit trust investors will probably live longer than their parents and may have to fund thirty years of retirement. “And there is no way an investor in fixed income investments will achieve this goal,” he said.
 

Copyright © Insurance Times and Investments® Vol:20.1 1st February, 2007
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