Unit trust investors enjoyed robust returns in 2021 as fiscal stimulus and accommodative monetary policies floated all boats, including passive investments.
Data from the Association for Savings & Investment SA shows investors preferred interest-bearing and global equity unit trusts, with the latter attracting R24.6bn in net inflows, but the SA equity category delivered the strongest performance — 28% over one year — as the commodities boom supported the local economy.
These inflows helped the local collective investment scheme (CIS) sector, including unit trusts, surpass R3-trillion in assets under management in the fourth quarter of 2021.
Unit trusts will probably remain popular inclusions in portfolios in 2022 due to the many benefits they offer, despite global economic and geopolitical headwinds that have dampened year-to-date returns from passive investments.
“Unit trusts are governed and managed according to the CIS Control Act,” says AlphaWealth CEO Kerry Fynn.
“Investors and advisers can safely utilise unit trusts as trustworthy investments without requiring the extensive due diligence into the underlying structure, custodianship and administration commonly required when investing in more esoteric investments.”
Additionally, the baked-in diversification, easy access, tax efficiency and offshore exposure unit trusts offer remain important benefits that will sustain their popularity.
With more than 1,500 unit trusts available locally, diversification is readily available
— Andriette Theron
In terms of tax efficiency, Fynn says unit trust holders avoid the frequent capital gains tax (CGT) bills and income tax liabilities that may arise from making regular changes in a segregated share portfolio.
“Unit trust investors only pay CGT on redemption, which also helps to maximise the compounding benefit over the retention period,” says Fynn.
From a diversification perspective, unit trust funds allow investors to spread risk across a broad portfolio of instruments.
“With more than 1,500 unit trusts available locally, diversification is readily available,” says Andriette Theron, head of research at PPS Investments.
“However, despite investing in a diversified fund, investors can still incur risk exposure due to the underlying manager’s investment style, their approach to portfolio construction, or their views on how best to leverage the prevailing investment environment.”
Fynn adds that investors can buy directly into diversified investments using unit trusts.
“This ability negates the need to construct a portfolio, which typically requires capital, skill and sometimes patience. And placing these decisions in the hands of a skilled investment manager also removes the responsibility and behavioural psychology pitfalls commonly associated with building and managing a portfolio yourself.”
Furthermore, investors looking to derisk portfolios through diversification can invest in solutions that blend managers to effectively combine different but complementary strategies, suggests Theron.
“Accessing carefully researched and constructed single- and multimanager solutions that have meaningful exposure to a combination of investment styles and asset classes, with distinct return drivers, provides the best option to take advantage of opportunities at different times in the cycle and ultimately deliver optimal diversification,” says Theron.
“Selecting agile fund managers offers another intelligent way to mitigate risk as they can quickly adapt to changing and volatile investment markets,” says Richard Bray, head of strategy at Amplify Investment Partners.
“These managers consistently deliver meaningful returns over the long term, regardless of the market cycle or unexpected macro events.”
Unit trusts are also liquid investments and are traded daily.
“This flexibility allows investors to manage investment risk based on changing factors or, as a last resort, withdraw their investment should their personal financial situation or the overriding investment climate change,” says Bray.
These investment platforms are helping to democratise investments by providing broader, lower-cost access to investment opportunities
— Samukelo Zwane
And continued advancements in digital platform technology mean it is simpler than ever for investors to access unit trusts from any internet-enabled device.
“While Covid accelerated the digitisation of CIS investing, especially unit trusts, it began long before the pandemic,” says Samukelo Zwane, head of product development at FNB Wealth & Investments.
“Today, retail investors can pick from thousands of unit trusts with a few clicks or taps on their device. It’s a far cry from the onerous manual purchase process required just a few years ago.”
Digital platforms also deliver various other benefits investors find appealing, including lower investment costs and minimums and a simple, seamless user experience.
“Platforms also removed the intimidation that new investors often felt navigating the investment world, and gives them more control over the purchase process without feeling pressured by a broker or salesperson,” says Zwane.
“Perhaps most importantly, these investment platforms are helping to democratise investments by providing broader, lower-cost access to investment opportunities for previously disadvantaged and marginalised South Africans.”
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