Registered users can save articles to their personal articles list. Login here or sign up here

Five notable unit trusts launched during 2015

Funds worth watching.

Cape Town – The choice for investors in South African unit trusts is huge. There are currently over 1 300 funds available on the local market.

During 2015 around another 100 new funds were added to this list. It is therefore becoming increasingly difficult for investors to know where they should be putting their money.

To provide some guidance, Moneyweb took a look at five funds launched this year that may be worth keeping an eye on as they establish their track records.

Harvard House BCI Property Fund

The boutique asset manager in Howick has established quite a reputation over the last decade due to the performance of its flagship equity fund, which has received both Morningstar and Raging Bull awards.

It is therefore notable when a manager this successful launches a new product. What makes this even more compelling is that astute investments in listed property have been one of the driving forces behind Harvard House’s equity fund producing constant out-performance.

“We have always been large investors in listed property, believing that the asset class is superior to bonds in terms of long term growth in both income and capital,” says chief investment officer Michael Porter. “So we understand the sector well, and we have a large exposure to it. We wanted a fund that would be suitable for smaller clients but that was focused so that those clients could enjoy the same benefits as if they have a discretionary property portfolio. 

Porter adds that while listed property has had a good run for the past ten years and that level of outperformance is unlikely to be repeated, the asset class remains a good way to secure inflation-beating returns.

“It is almost impossible to construct a long term, low-inflation scenario for South Africa,” he says. “Therefore clients, especially retired investors, have to ensure that their funds can beat inflation over time. The sector has grown and attracted new entrants and foreign listings, so choice has widened enormously. Not all companies are of the same quality, so there will be winners and losers in the sector, but listed property as an asset class is still very much a cornerstone of a successful income strategy.”

Satrix Quality Index Fund

With passive investing continually growing in appeal, a new equity offering from the largest local provider of index-tracking funds is worth noting. The Satrix Quality Index Fund tracks the S&P Quality South Africa Index, which selects and weights companies based on their future profitability potential (return on equity), the integrity of their earnings (accruals), and financial robustness (financial leverage).

“The index exhibits a better absolute draw-down experience in deeply volatile bear markets with a quicker time to recovery,” explains fund manager Jason Liddle. “The S&P Quality Index may under-perform the broader market in a protracted and trending bull market cycle, but its addition to a portfolio of factor or smart beta funds tracking factors like momentum, value and size adds definite diversification benefit.”

The index currently looks very different to anything else one can find in a passive product, with its top holdings being Vodacom, Mr Price, First Rand and Life Healthcare. This illustrates how the quality factor has a distinct positioning.

“The beauty about factors is that they perform reliably and predictably relative to one another,” Liddle explains. “In the current climate, price momentum and earnings revision are being richly rewarded, while value, yield and quality find it tougher going. As the market cycle turns, the value and quality factors will offer rich diversification benefit.” 

The fund currently charges a management fee of 0.68% (including VAT), which is on the high side for a passive product. However, Liddle explains that Satrix has exclusively licensed the use of this index from S&P, which commands the premium. 

Amity BCI Global Diversified Fund of Funds 

Given the weakening of the rand and concerns over the local economy, many investors are looking offshore for returns. The Amity BCI Global Diversified FoF is the first of three offshore offerings Moneyweb considers in this list.

It is a global multi-asset flexible fund, which gives the fund manager wide discretion in asset class selection, with the only restriction being that at least 80% of the portfolio must be invested outside of South Africa at all times.

“Flexible funds allow the fund manager to optimally position the fund with no restriction to any one asset class,” explains Amity’s Jessica Fannin. “This includes the ability to hold a high level of cash or equity, depending what is deemed to be appropriate at the time. It also allows access to asset classes such as foreign property, which are are not normally available in any meaningful way in equity-only mandates.” 

In its selection of underlying managers, two things stand out in this fund. The first is its broad exposure to passive products, which will translate into lower costs for investors, while the second is its healthy allocation to emerging and frontier market mandates.

“Given the rich valuations many developed markets present it is necessary for us to include some level of exposure to emerging markets which have more attractive fundamentals,” Fannin says. “Although emerging and frontier markets alike have experienced heightened levels of pessimism and the effect of weakening currencies relative to the dollar, they remain attractive to Amity Wealth. As the Amity BCI Global Diversified is oriented towards capital growth and that the recommended investment term is seven years or longer, we believe that this positioning is suitable.”

Discovery Global Real Estate Securities Feeder Fund

South African investors are slowly starting to look more seriously at the potential in foreign listed property, and the Discovery Global Real Estate Securities Feeder Fund is only the 11th specialist fund to be launched in this space.

“Exposure to global listed real estate companies provides investors with an attractive combination of both yield and income growth,” says fund co-manager Neil Stuart-Findlay. “The asset class can offer relatively predictable cash flows, with inflation hedging qualities, and a high income component to total returns.”

He adds that what makes global real estate relatively compelling is that it currently trades at a discount to net asset value, whilst offering a forward yield of around 4%. It is also a natural rand hedge.

“We are expecting growth in dividends in the global arena to achieve 6% to 7% per annum over the coming three years,” Stuart-Findlay adds. “This is an encouraging outlook given the benign global inflation backdrop and is not dissimilar to local real estate’s growth prospects of roughly 8% over the same time period. 

Emperor IP Global Momentum Equity Fund

Similar to the Satrix Quality Fund, the Emperor IP Global Momentum Equity Fund aims to capture a specific market ‘factor’. In this case, it uses a quantitative strategy to select and weight funds based on their price momentum.

“The momentum concept is simple,” says fund manager TC van der Walt. “Large increases in price are followed by additional gains and vice versa for decreases in price. The basic idea is that once a trend is established, it is more likely to continue in that direction than to move against the trend. This is due to under reaction by analysts and the irrational behaviour of investors whereby they tend to follow herd behaviour.”

Investors do need to be aware that the momentum concept will perform differently in different market cycles, and should therefore consider this kind of fund more for its diversification benefit than as a core holding.

The fund is still in the process of being set up, but when it is established it will hold anything between 30 and 50 shares. At first, these will only be US-listed equities, but in time Emperor hopes to make it a truly global offering.

The fund might appear very expensive for a quant offering at an annual management fee of 1.50% at benchmark and a performance fee of 20% of any out-performance. However, should the fund under-perform its benchmark, the manager will not take any fees at all.



To comment, you must be registered and logged in.


Don't have an account?
Sign up for FREE

Hi Patrick,
“The fund is still in the process of being set up, but when it is established it will hold anything between 30 and 50 shares.” This is mentioned icw the Emperor IP Global Momentum Equity Fund.
This fund has it’s daily price quoted since 03-07-2015 by the provider of my daily unit trust prices.
Based on the performance since launch there are a number of Global Funds performing better than this fund under the same testing market conditions but one can at least see if it can do well over an investment period of say 3 years.
However the manager did make a few good calls up to 06-10-2015.

End of comments.





Follow us:

Search Articles:Advanced Search
Click a Company: