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Investors bet on these equity funds

The small funds that have seen big inflows.

ORAPA – Most South African investors would probably have little trouble naming some of the big local asset managers. The likes of Allan Gray and Coronation have become well recognised brands.

But there are a number of smaller players that are making headway in the industry. The latest statistics from the Association for Savings & Investment SA (ASISA) show that a number of smaller funds attracted a lot of money in the 12 months to the end of June.

These funds still make up a small portion of the market, but they are giving investors real options outside of the big names.

The below table lists 10 funds that all had assets under management of less than R1bn on the 30th of June last year. They have all grown substantially since then, in most cases at least doubling in size.

Fast growing SA Equity General & Large Cap Funds

 Fund name

Size of fund  at 30/06/2012

Size of fund  at 30/06/2013

Net growth

Percentage growth

First Avenue SCI Equity Fund

R37.4m

R792.8m

R755.4m

2019%

36ONE Met Equity Fund (36ONE Target Return Fund)

R77.6m

R753.8m

R676.2m

871%

Mazi Capital MET Equity Fund

R379.0m

R1 386.7m

R1 007.7m

266%

27Four Shari’ah Active Equity Prescient Fund

R13.1m

R37.6m

R24.5m

187%

Fairtree Equity Prescient Fund

R267.7m

R745.3m

R477.6m

178%

SIM Dividend+ Index Fund

R224.8m

R534.8m

R310.0m

138%

Imara MET Equity Fund

R174.0m

R404.3m

R230.3m

132%

Prescient Equity Active Quant Fund

R104.2m

R218.1m

R114.6m

110%

BettaBeta Equally Weighted Top40 ETF

R52.5m

R101.5m

R49m

93%

Momentum Best Blend Specialist Equity Fund

R862.5m

R1 408.4m

R545.9m

63%

Source: ASISA

The five funds that top that list showed remarkable gains in assets under management in the period. Although the 27Four Shari’ah Active Equity Prescient Fund is easily the smallest of them, its rate of growth still makes it noteworthy.

The figures for the 36ONE MET Equity Fund should be seen in context, however, as the fund was re-named and re-classified on the 1st of July last year. On 30 June it was still called the 36ONE Target Return Fund and was in the asset allocation – targeted absolute and real return category. However, the way the fund is managed has not altered substantially.

It is also worth noting that there are two passively-managed funds on the list. The SIM Dividend+ Index fund is an index-tracking unit trust, while the BettaBeta Equally Weighted Top40 is an exchange traded fund (ETF).

One would expect that the primary reason for investors flocking to these funds is due to their performance. And in most cases this appears to be the case.

An analysis of the performance of all these funds to 30 June 2013 reveals the following:

Performance to 30 June 2013 of fast growing SA Equity General and Large Cap Funds

 Fund name

1 year

3 years

5 years

First Avenue SCI Equity Fund

27.30%

36ONE Met Equity Fund

33.40%

Mazi Capital MET Equity Fund

24.80%

 –

27Four Shari’ah Active Equity Prescient Fund

20.50%

Fairtree Equity Prescient Fund

23.34%

 –

 –

SIM Dividend+ Index Fund

9.36%

Imara MET Equity Fund

21.68%

21.59%

Prescient Equity Active Quant Fund

13.44%

15.45%

9.03%

BettaBeta Equally Weighted Top40 ETF

17.87%

17.44%

Momentum Best Blend Specialist Equity Fund

24.17%

21.94%

13.90%

FTSE/JSE SWIX All Share Index

20.81%

19.41%

11.23%

Source: Fund fact sheets

The first three funds as well as the Momentum Best Blend Speciliast Fund were all within the top 15 funds in their category over this one year period, with the 36ONE MET Equity Fund as the stand out front runner in the sector. In addition, the Mazi Capital MET Equity Fund was the best general equity fund in the country in both 2011 and 2012.

For its part, the Fairtree Equity Prescient Fund was the 23rd best general equity fund for the 12 months under review.

The Imara MET Equity Fund and the Momentum Best Bled Specialist Equity Fund delivered strong returns over the three years to 30 June 2013. Both fall within the top 10 over that time frame.

The 27Four Shari’ah Active Equity Prescient Fund is an interesting case, as it was only launched in June last year. Investors have therefore been entering the fund without the comfort of a track record. However, their faith has certainly been rewarded as the fund has outpaced its benchmark and is the best-performing Islamic Equity Fund since its inception.

It is also worth noting how young most of these funds are. The Prescient Equity Active Quant Fund and the Momentum Best Blend Specialist Equity Fund are the only ones that have been around for more than five years. The Imara Equity Fund and the BettaBeta Equally Weighted Top40 ETF are the only others that have been available for longer than three years.

The 36ONE MET Equity Fund was established as the 36ONE Target Return Fund in 2005, but has only been classified as an equity general fund since 1 July 2012.

One question the above table does raise is around the SIM Dividend+ Index Fund. Its poor relative performance for the year looks out of place in this company.

However, one has to bear in mind that investors will have been drawn in by past performance, and the FTSE/JSE Dividend Plus Index was the second best-performing equity index for the three years before that. Only the Indi 25 delivered higher returns.

It is also therefore worthwhile to look at the performances of these funds up to the end of June 2012 – in other words the start of the growth period.

The 27Four Shari’ah Active Equity Prescient Fund is not included in the below table, as it did not yet have any performance data available. The Fairtree Equity Prescient Fund and SIM Dividend+ Index Fund were also not yet a year old by the end of June last year.

The figures for the 36ONE MET Equity Fund are those it generated as the 36ONE Target Return Fund.

Performance to 30 June 2012 of fast growing SA Equity General and Large Cap Funds

Fund name

1 year

First Avenue SCI Equity Fund

17.60%

36ONE Target Return Fund

(36ONE Met Equity Fund)

23.67%

Mazi Capital MET Equity Fund

22.00%

Fairtree Equity Prescient Fund

 –

SIM Dividend+ Index Fund

Imara MET Equity Fund

19.83%

Prescient Equity Active Quant Fund

10.99%

BettaBeta Equally Weighted Top40 ETF

10.57%

Momentum Best Blend Specialist Equity Fund

17.09%

FTSE/JSE SWIX All Share Index

13.31%

Source: Fund fact sheets

The 36ONE Target Return Fund outperformed every South African general equity fund, although it was not in this category at the time. The title of top performer therefore belonged to the Mazi Capital MET Equity Fund.

The Imara MET Equity Fund was the third best performing fund in this sector for the 12 months, while the First Avenue SCI Equity Fund and Momentum Best Blend Specialist Equity Fund were also in the top 10.

The BettaBeta Equally Weighted Top40 ETF was the best-performing non-sector specific equity index tracking fund over this one year period, delivering returns more than twice those earned by the Satrix 40. This would explain its appeal, even though its return over the following twelve months dipped below both the Top40 and the SWIX40.

The only fund that seems to lack a performance basis to explain its recent inflows is the Prescient Equity Active Quant Fund. It has consistently underperformed both the sector and its benchmark.

Perhaps an explanation for its recent rise in popularity lies in its cost. Together with the Investec Active Quant Fund, it is the cheapest general equity fund available in South Africa, based on its total expense ratio (TER) to 30 June 2013.

It’s TER of just 0.41% makes it cheaper even than all of the Satrix products, most of which have TERs of 0.46%. In an environment where investors are becoming increasingly cost-sensitive, this could be a significant pull factor.

For more, visit Moneyweb’s Click-a-unit trust/ETF tool.

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