Fund Managers often compare their fund performance to the “sector” or their “peers”, but what exactly are they referring to and how are the funds they use for comparison grouped together?
The Association for Savings and Investment SA (ASISA) is a non-profit company that plays a significant role in the development of the social, economic and regulatory framework in the unit trust industry. One of its tasks is grouping unit trusts into 33 categories based on fund objective, investment policy and restrictions like asset class exposure and region. The range of unit trusts in the market is continuously expanding and the number of categories could change. There are two tiers of classification.
The first tier of classification:
South African portfolios
Invest at least 70% of their assets in SA with 25% allowed in foreign markets and a further 5% in Africa.
Sharenet Investments manages 9 South African unit trusts.
Invest in both South Africa and foreign markets.
Invest at least 80% outside South Africa.
The Sharenet BCI Global Balanced FoF falls within this category.
Invest at least 80% in a specific country or region.
Second tier of classification
Invest at least 80% in equity and seek maximum capital appreciation as their primary goal. There are 7 sub-categories of equity portfolios.
General; Large Cap; Mid & Small Cap; Resources; Financials; Industrials and Unclassified.
A fund is classified in a specific sector if it has at least 80% exposure in the sub-category specified.
The Sharenet BCI Equity fund that is classified in the SA Equity General sector.
Invest in a wide spread of investments in equity, bond, money and property markets. There are 6 sub-categories of multi-asset portfolios.
Flexible – Unit trusts in this sector have a significant degree of discretion over asset allocation and often sees managers actively manage the asset split to maximise return.
The Sharenet BCI Flexible fund is classified in the SA Multi-Asset Flexible sector.
High Equity – Unit trusts in the High Equity sector are limited to a maximum exposure of 75% in equity and 25% in property.
The Sharenet BCI Balanced fund and Sharenet BCI Aggressive FoF are both classified in the SA Multi-Asset High Equity sector.
The Sharenet BCI Global Balanced FoF is classified in the Global Multi-Asset High Equity sector.
Medium Equity – Unit trusts in the Medium Equity sector are limited to a maximum of 60% equity and 25% property exposure.
The Sharenet BCI Moderate FoF is classified in the SA Multi-Asset Medium Equity sector.
Low Equity – Unit trusts in the Low Equity sector are limited to a maximum exposure of 40% in equity and 25% in property.
The Sharenet BCI Stable fund and Sharenet BCI Conservative FoF are both classified in the SA Multi-Asset Low Equity sector.
Income – Unit trusts in the Income sector are limited to only 10% equity and 25% property exposure.
The Sharenet BCI Income Plus fund is classified in the SA Multi-Asset Income sector.
Target Date – Unit trusts in this sector have a target date and the asset mix of the portfolio changes as the target date approaches. An investor looking to retire on a certain date could invest in a portfolio with a target date close to the date of retirement. Fund in this category cannot be compared as they would have differing target dates and asset splits.
Interest Bearing portfolios
Unit trusts in this category invest exclusively in bond, money market instruments and other interest-earning instruments. Equity and portfolio investments are excluded in this category. There are 3 sub-categories of interest-bearing portfolios.
Variable Term; Short Term and Money Market.
Real Estate portfolios
Invest at least 80% in listed property shares, property loan stock and real estate investment trusts (REITS).
The Sharenet BCI Property fund is classified in the SA Real Estate General sector.
To sum it all up. A portfolio that satisfies the limits of a global portfolio, as well as a real estate portfolio, will be classified in the Global Real Estate General sector. Similarly, you can find a portfolio classified in the Worldwide Multi-Asset Flexible sector or the South Africa Multi-Asset Flexible sector if more than 75% of its assets lies in SA. The fund categories provide for more meaningful comparison between portfolios to assess fund managers relative to their competition.