Page 145 - Profile's Unit Trusts and Collective Investments 2021 issue 2

Classification of CISs

Balanced Funds
What are known officially as Multi Asset funds (previously Asset Allocation funds) are often
called balanced funds, ie, funds which “balance” the risk/return profiles of the various asset
classes to achieve a relatively low risk, well diversified portfolio.

Equity Funds

General Funds
These are funds that invest in selected shares across all industry sectors of the equity markets,
as well as across the range of large, mid and smaller capitalisation shares. They do not subscribe to
a particular theme or investment style and can hold a mix of value and growth shares across any
range of JSE sectors. As mentioned above, as for all equity categories, 80% of assets must be
invested in shares at all times.
The funds have a medium risk profile, offering medium to long-term growth as their primary
investment objective. The mandates of some general equity funds allow fund managers to have a
small percentage of their assets in bonds and derivatives.
General equity fund managers are required to take a view on the changing macro-economic
climate, and decide which sectors will perform well in different economic environments. They are
also required to have the skills to choose particular shares within these sectors. For a South
African Equity General fund, a typical benchmark is the FTSE/JSE All Share index (J203T).

Growth and Value Funds
Up until the end of 2012 the ASISA classification standard included categories for Growth
Funds and Value Funds. As part of the 2013 revision these sectors were done away with and the
constituent funds moved to other categories (mostly General Equity). This was in line with the
policy of moving away from style categories.
From the point of view of investors and financial advisors, it is noteworthy that these two
different styles of investing are still practised by fund managers. A number of funds containing
either “growth” or “value” in the fund name can be found in the SA–Equity–General sector.
However, following the removal of the Growth and Value sectors the defining criteria for these
funds are not as specific as they used to be – neither the ASISA standard nor ASISA’s Principles for
Selection of Names contain rules about the use of “growth” or “value”. Investors and advisors
therefore need to look to individual fund mandates to gauge the extent to which these funds
adhere to value or growth investing principles.
In the main, Growth funds aim for maximum capital appreciation through investment in “high
growth” companies, although not all asset managers agree on the precise definition of growth
shares. They are normally characterised as the “blue chips” of the future, the companies that are
expected to produce dramatic profit growth from one year to the next. In terms of the now defunct
category definition, a manager, in determining whether a company qualifies as a “growth” share,
was required to take into consideration the two year historical earnings growth of the company
and the projected growth based on industry consensus earnings forecasts. In short, growth shares
should have earnings (profits) that are in, and are expected to continue, a strong and sustainable
upward trend. Mining and commodity shares are usually excluded due to the cyclical nature of
earnings.
Value funds seek out “value” by investing in shares with low relative P/E (price/earnings)
ratios, shares trading at a discount to their net asset values, or shares with dividend yields
significantly higher than the market average. Value fund managers often try to identify changing
industry or sector circumstances which signal a re-rating of shares in those sectors. These funds
aim for medium to long-term capital appreciation and they frequently offer a higher than average
level of income.

143
Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts