FEATURE UNIT TRUSTS
31 May 2017
MoneyMarketing asked Paul
Hutchinson, Sales Manager at
Investec Asset Management,
about the process involved in
bringing a unit trust to market.
“Firstly, the unit trust manager’s business case
is taken into consideration - i.e. why should the
manager add to their fund range?” says Hutchinson.
“Broadly the answer is profi tably and sustainability.
(The opportunity should be enduring and not in
response to a short term fad). It should address
a specifi c client requirement that is currently
not being satisfi ed by another fund in their
off ering. Importantly, the manager must have the
manufacturing capability and investment expertise to
deliver on the proposed fund’s investment mandate.”
He adds that the manager would need to be
confi dent that he will raise suffi cient investments to
make the new fund profi table.
“While we estimate this to be in the region of
R100 million (depending on the fees charged), in
making a new fund available we would look to raise
R1 billion within a three year period.
“By way of example, on 1 April 2016 Investec
launched the Investec Worldwide Flexible Fund. We
believed that investors would benefi t from a broad,
unconstrained by geographical or asset class limits,
mandate. Investors have clearly recognised the
benefi ts of such a mandate with the fund’s assets
under management having grown to almost R600
million by the fund’s fi rst anniversary.”
Secondly, says Hutchinson, the formal
requirements of the Collective Investment Schemes
department of the Financial Services Board (FSB)
must be taken into consideration.
This is because any new fund needs to be
approved by the FSB.
“As part of this approval process, the FSB requires
a detailed motivation, which must address a number
of specifi c requirements, including what the fund’s
investment objectives and characteristics will be, how
and to whom it will be marketed and distributed,
confi rmation that the manager has the systems and
procedures in place to support the new fund, and
how it will comply with the FSB’s Treating Customers
Fairly requirements,” he adds.
Paul Hutchinson,
Sales Manager,
Investec Asset
Management
Why invest in unit trusts?
U
nit trusts are probably the easiest
way to invest in the stock market. In
addition, the risks associated with this
type of investment are probably lower than the
risks associated with direct investments.
“It is possible to get fantastic returns
investing directly on the stock market, but it
is also possible to lose all of your money,” says
Jeanette Marais, Director of Distribution and
Client Service at Allan Gray.
“Traders need a considerable amount of
time to research and analyse stocks, and they
compete with professional managers in an
unforgiving environment. Unit trusts pool
together money from many investors, allowing
them to diversify their investment cheaply and
use the services of a professional manager to
invest on their behalf.”
According to Paul Hutchinson, Sales
Manager at Investec Asset Management,
investors can take comfort in the fact that
unit trusts are well-regulated by the South
African Financial Services Board (FSB) in
terms of the Collective Investment Schemes
Control Act (CISCA).
He makes the point that we are – aft er all
– living “in a world where we regularly read
of investors being defrauded or losing their
entire investment capital in schemes like the
recent Belvedere Management Ponzi Scheme,
the Kubus milk culture scheme of the early
1980’s, the Leaderguard foreign exchange
currency scam, and the Masterbond and
Blue Zone property developments schemes,
amongst others.”
Additionally, he says, each unit trust fund
must appoint an independent trustee and
custodian, who must ensure that the unit trust
fund is run both according to its mandate and
in terms of the requirements of CISCA.
“Importantly, the custodian holds all
unit trust fund assets on behalf of investors,
separating them from the manager’s
own assets.”
When investing in unit trusts, your
investment term must be determined by
your goals.
“Th e unit trusts you choose should meet the
goals you are aiming for. Th ere are diff erent
types of unit trusts. Some can help you meet
short-term goals, while others deliver over
the long term. A fi nancial adviser can help
you fi nd the right unit trusts for your needs,”
Marais says.
Hutchinson agrees: “Th is will depend on
each individual client’s specifi c investment
objectives and could range from six to 12
months for clients investing emergency funds
in the Investec Money Market Fund, for
example, to 7+ years for clients investing in
an aggressively-managed equity fund such as
the Investec Value Fund locally or the Investec
Global Franchise Fund internationally.”
If one compares unit trusts to an investment
like fi xed deposits, the former appears to be a
better investment over the