MoneyMarketing May 2017 | Page 15

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