Actuarial news and views from Cape Town and beyond

Too much of a good thing?


Unit trusts have become one of the most fashionable and convenient individual-oriented investment products available. Simply pay your money into the fund and watch it grow. However, some are of the opinion that there simply are too many funds to choose from. See for example this list of unit trusts. There are more than a 1000 (1025 last September). 

A brief overview on exactly why this is troublesome is given in this Financial Mail article, and a less brief overview is given in this moneyweb article.

A very interesting comparison with other countries’ unit trust business is also made in the Moneyweb article. For example India, with its population of 1.2 billion (compared to SA’s 51.7 million) has about the same asset value under management as South Africa, around $140 billion. This despite India’s $2.4 trillion market capitalisation of listed companies, compared to SA’s $903 billion. (These numbers are as at 31 December 2012, so it’s a bit outdated)

Any ideas on why unit trusts are so popular in South Africa?


8 thoughts on “Too much of a good thing?

  1. I am also a bit puzzled. Unit trusts have disadvantages like higher management fees, yet they seem to be popular. I haven’t done research into this, but maybe unit trust is quite well-established in South Africa and it is a cultural thing?

  2. I think there are two questions here: why are unit trusts a popular investment choice for individuals, and why are there so many unit trusts.

    In my view, unit trusts are the most accessible and easy to understand ways for an individual to access the market. I am investing my savings through a unit trust, and my thinking was:
    – I wish to participate in real returns which outperform inflation
    – I don’t think property is a good investment – too concentrated, too much trouble to maintain
    – So equities
    – I want to be diversified
    – I certainly won’t go direct, I have no time/expertise/wish to be stressed out of my mind, all of which I would associate with picking my own shares
    – I don’t have a strong view on active management being able to consistently outperform the market, but I believe that if I pick a good active manager there is a good chance they will, and if I pick an average manager I still think they will deliver more or less the same as a passive fund, after fees
    – I do believe that active managers smooth returns which is nice for my sanity
    – I don’t really understand etf’s, and they are passive anyway as far as I understand

    I don’t think there is anything other than a unit trust that I could invest in?

    As to why there are so many, I think it’s marketing – trying to create interest by making lots of funds. But at some point you stretch your expertise out too thin and need to consolidate again. There may be 1000 funds out there, but once you decide on the management house you like, and the type of risk profile you have, you will be left with about 20 to choose from. Is that too much?

    When I was choosing my fund, I was very quickly down to about 3 options – that was the real choice.

    • ETFs are indeed passive, but they are all the rage lately. If you read my article you will find the active funds are performing badly. That’s why ETFs are getting really popular now.

  3. I would say that one of the main reasons ETFs are becoming popular is the low fees compared to unit trusts.

    • I think ETFs actually have higher fees than other passive funds, yet they are still getting more popular than the other passive funds.

      • I did a quick comparison of etfSA and the Allan Gray equity fund. The comparison isn’t straight forward as the equity fund is not an index tracker.

        However, if you invest less than R500000 and the equity fund performs the same as the index:

        Allan Gray equity fund charges – 1.5% per year minimum (more like 2%)
        etfSA charges – 0.7% per year*

        *Note that you will pay 0.11% once off to buy or sell the ETF, but if you’re a long term investor this becomes negligible.

        The charges on the ETF become even less if you are investing more than R500000.

        Here is a fantastic article on the cheapest ways to buy ETFs. It’s from 2011 but it should still apply.

  4. Pingback: REITs – A Collective Investment Scheme | gschumann

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