South Africa’s third largest asset manager, STANLIB, recently announced a review of its fund range that will see it closing 15 of its unit trusts and consolidating them into other funds. The manager has just completed the process of balloting investors for approval.
Chief operating officer for STANLIB retail, Anthony Katakuzinos, says that this is something it has been looking at doing for a number of years, as it had become clear that it needed to simplify its fund offering. This is primarily because many of the firm’s funds were no longer appropriate, given how advice and investment decision-making has evolved.
“Due to changing conditions in the market, the way that people have been buying funds over the last 15 to 20 years has been changing,” says Katakuzinos. “We’ve created new products to meet those requirements, but what it has led to is quite a clutter of funds on our platform and the feedback we are getting from clients and advisors is that our range is too complex.”
An obvious example of this is that STANLIB will be consolidating all of its equity sector funds – the STANLIB Financials Fund, STANLIB Resources Fund and STANLIB Industrial Fund – into its SA Equity Fund. It is also amalgamating the STANLIB Capital Growth Fund into the SA Equity Fund, and the STANLIB Value Fund into the STANLIB Equity Fund.
“Back in the 1990s and early 2000s people were buying investment themes and looking for style and sector funds, but they don’t do that any more,” Katakuzinos says. “It doesn’t fit into the advice process because it’s fairly risky to choose funds that specific, and so they are not really relevant to the market any more.”
He believes that the broader retail market got caught up in trying to identify which themes or sectors were going to outperform, but has now realised that it’s not that easy to do.
“I think regulations have also pushed advisors to go back to basics,” Katakuzinos says. “They are looking at what they should be trying to achieve in terms of preserving and growing people’s wealth rather than picking funds, and so a lot of these specialist funds are no longer relevant.”
STANLIB is also reducing some of the duplication in its multi-asset funds, but consolidating funds in the same category. For instance, the STANLIB Moderately Conservative Fund of Funds and STANLIB Conservative Fund of Funds will be amalgamated into the STANLIB Balanced Cautious Fund.
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For some time the industry more broadly has been criticised for launching too many ‘flavour of the month’ unit trusts to attract assets. This has led to managers like STANLIB having very bloated fund ranges.
“We have seen this trend of product proliferation as managers aim to attract flows and launch numerous funds and cover all areas of the market,” says Gerbrandt Kruger, an investment analyst at Morningstar Investment Management. “But it’s good to see that they have consolidated their fund range and are focusing on core capabilities. While we would not advocate closing funds for the sake of it, it is good to see a more focused fund range and the business allocating resources to those strategies that are going to add value to investors.”
STANLIB’s extensive fund range is often compared with those of its larger competitors, Allan Gray and Coronation, both of whom have very narrow, focused offerings.
“Allan Gray and Coronation recognise what their skill set is and know what they excel at,” says Kruger.
Even after closing the 15 funds, STANLIB will still have a far bigger fund range than either of these firms. However, the intention to reduce complexity is clear. It is also part of a broader industry trend towards more simplified offerings.
“We had to do a lot of work and I’m sure a lot of other players are doing the same to identify what is the right range of funds to maintain going forward,” says Katakuzinos. “It’s not a simple process or a cheap exercise to close funds, but it became very important for us to do so, especially because the size of our range doesn’t make sense any more.”
Kruger agrees that this is a positive move.
“Hopefully we’ll see more of this in the industry,” he says. “Managers should get to their core skills and competencies and provide funds or solutions that are putting the investor first and not their bottom line.”