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Collective Investments
Tuesday, August 1, 2000
Some concern

The assets of the unit trust industry rose just 2% from R117,34 billion to R119,69 billion during the second quarter this year. For its latest report to June 30 2000, the Association of Unit Trusts (AUT) also confirms the trend towards foreign oriented unit trusts. Domestic funds totalled R95,6 billion (or 80% of the total invested in the industry); foreign funds totalled R18,4 billion (or 15% of the total). In the previous quarter the percentages were 82% and 14% respectively.

  If there were anything fairly dramatic in the latest statistics it would be in the numbers of registered unit trusts, leaping another 30 odd during the quarter, from 273 to 301. This has been a major factor in the growth of wrap funds whereby managers attempt to simply the investment choice for consumers.
The latest quarter suggests that the numbers of account holders have stabilised — 2 271 038, as compared to 2 271 327 in the first quarter. But compared to last year, there has been a substantial drop (a loss of some 200 000 accounts), from a peak of 2 471 084.
The association points out that its statistics only represent unit trust accounts held by management companies (being members of the AUT). It acknowledges that fund distribution channels have changed fundamentally over the last five years, following the emergence of linked investment service providers and the ‘very recent explosion of investments into wrap funds’, which have contributed markedly to the sustained growth of the unit trust industry. A multitude of accounts relating to unit trust investments are held in these institutions, and these are of course not recorded by the AUT, suggesting that the ‘loss’ of accounts is merely a statistical quirk.
Another well-established trend appears to be a migration of assets towards money market funds as investors either seek a ‘parking bay’ pending a switch in their investment strategy, or a safer alternative for their assets. It is clear from the AUT’s annual report to March this year that many unit trusts have not served their clients well. For example, compared to an overall 12% increase in the JSE All Share Index, unit trusts in ‘equity value’ rose only an average 9,7%; while ‘equity growth’ experienced an average negative return of 4,05%, against a 7,05% rise in the Financial and Industrial Index. The Small Cap Index fell 12,7% during the 12 months, while Small Cap Unit Trusts fell 36,7%. On the other hand, ‘equity mining’, gold and technology unit trusts generally did better than their yardstick indices. The returns are for lump sum investments. As the AUT notes, “The year was marked by extreme volatility in the financial markets.”
Money market funds recorded a 63,1% surge in the 12 months to March 31, their third year of existence, to R33,1 billion, or over 28% of total industry assets. Last year money market funds attracted 67,8% of the industry’s net inflows. For the latest quarter to June 30, these funds rose to 29,3% of industry assets, or R35 077m.
Di Turpin, chairperson of the AUT, notes that 195 offshore-domiciled funds have been registered locally in South Africa for the period to March 31. “This means that South Africans can now choose from almost 500 local and offshore unit trusts that meet the AUT requirements for client protection and transparency.” She further explains that with the Financial Services Board, the AUT has actively sought to ensure that only registered participants are promoted in SA.
“Wrap funds have become an important force in our industry over the past year,” she says. “Many of these groups are credible and abide by similar rules to the unit trust industry, as for example, in terms of full disclosure of costs and charges.
“However, some have seen it opportune to increase charges without adding more value or disclosing the full cost.” This is of great concern to the AUT.
“A continued drive to educate the investor and financial advisor on the merits and potential problems of the considerable range of hybrid products is a priority for this year.”
Given the proven benefits of long-term investments in unit trusts, “industry sales figures reflect a worryingly high level of switching. This is mainly as a result of investor, intermediary and wrap fund manager activity via linked investment service provider and wrap fund companies.
“This reflects poor decision-making by some parties trying to access short-term performance by switching between funds. This is invariably undertaken at the wrong time, chasing performance that has already peaked. This is also of great concern to our industry and needs to be addressed.”

Copyright © Insurance Times and Investments® Vol:13.7 1st August, 2000
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