Bryan Hirsch
30 June 2008
column
Johannesburg — THEY say that the road to riches is paved with collective investments.
Just today one of my colleagues told me about a client who put R200 away into a Sage unit trust on November 14 1968 and forgot about it. Imagine her surprise and delight when my colleague on updating her portfolio discovered the forgotten unit trust, which today is worth just more than R200 000. This illustrates and reinforces what I always preach that time and patience are of the essence.
Now it's not everyone who can save a lump sum for 40 years, and 40 years ago, R200 was considered a lot of money!
The biggest choice for those who want to invest in a range of assets is whether to go through a collective investment scheme (a unit trust) or to invest directly (a share) into the market.
Unit trusts were introduced in 1965. Who would have thought that 43 years later there would be fewer than 200 shares fund managers would consider investing in?
Even more amazing is that there are more than 800 units trusts holding some of these shares. The unit trust industry has in the past 10 years grown from R58bn to more than R550bn .
South Africans have a choice of more than 65000 funds internationally. One simply cannot determine which fund will perform in the years ahead.
I often say that past performance really has no bearing on future performance.
The average investor is advised by numerous financial advisers to invest in the top-performing trust using periods of 1,3 and five years.
What is even more important is if the investment team that gave you those returns will still be working for that same brand or have moved on to set up their own funds because of the success they had previously.
For this reason, the difficulty for the South African and advisers is how to advise on the best funds.
I am often asked about Satrix on my various radio and TV programmes, where individuals want to know which Satrix fund to invest in. In August 2004, Satrix registered with the Financial Services Board as a collective investment scheme, launched its first fund and then quite a few others. This means that all Satrix securities are treated like unit trusts in terms of tax, compliance, investment exposures and reporting.
The fact that Satrix is both a collective investment scheme and a publicly listed securities means that it adheres to the regulations and legislation of the Financial Services Board and the JSE.
Satrix securities are listed securities that replicate the dividend and price performance of a particular index. They provide the same returns as would have been received had the investor bought shares directly in companies in that JSE index as well as with the same weighting. Each Satrix fund has its own investment style, and it is important that investors understand what companies they are exposed to (resources, commodities, financials and so on).
With all the volatility of the past 12 months, returns have not been as spectacular for equities as in the previous 36 months. There is an enormous divergence of returns between sectors with commodities and resources touching new highs and financials and industrials hitting new lows.
For those invested in a segregated portfolio, it's likely that your portfolio manager had a good spread of stocks and your portfolio has been protected against the tribulations of the retailing and other interest sensitive sectors.
One needs to realis e that investing in unit trusts has its short-term risks, the same as with any single or group of individual equities. Equities are a long-term investment, and if you ask me what long terms means I would say seven years and longer. Quality stock selection will give you just rewards.
With all the choices available to the investor today there is a warning.
Before you make any investments, understand how they fit into your overall financial puzzle. It's those who stuck to their strategy during all the downturns in markets who have seen the benefits.
You can contact Pioneer by e-mail at help@pioneer.co.za or at our website www.pioneer.co.za
Bryan Hirsch hosts You and Your Money on Summit on DStv, Mondays at 8.30pm.
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