Page 65 - Profile's Unit Trusts and Collective Investments 2021 issue 2

Costs and Pricing

Portfolio Charges
Portfolio charges refer to certain costs incurred in securities trading and administration which
managers may levy directly against the fund.
Up until 2002, all equity-based unit trust funds levied so-called “compulsory charges”, which usually
amounted to about 0.7% of the amount invested. (Tracker funds charged the same level of compulsory
charges, as the brokerage costs for buying underlying shares were typically the same as for actively
managed funds.) This charge was designed to cover the costs to the fund of purchasing securities.
These costs consist of:
STT (Securities Transfer Tax): 0.25% of the value of share purchases (not sales).
Brokerage charges levied by the stockbroking firm: anywhere from a fraction of a percent
(discount brokers) to 1.0% (full service brokers).
STRATE settlement costs: 0.005787% but capped at R80.84 per trade (min R9.17).
Investor protection levy: 0.0002% of the transaction value.
CISCA did away with “compulsory charges”. Instead, various costs associated with portfolio
management (including the transaction costs shown above) may be charged directly to the portfolio
by the manager.
This differs significantly to what happened
with “compulsory charges”, where the
management company collected a set fee
whenever units were purchased, regardless of
the actual costs of buying securities. The
“compulsory charges” accumulated in the
Management Company’s own coffers, and the
costs of buying and selling securities were
paid by the Management Company from these
fees. Under CISCA, brokerage and other costs
are simply charges against the portfolio itself
and form part of the total fund expenses.
These are, of course, a direct charge against
fund performance.
Hopefully this gives fund managers an incentive to monitor costs, to keep costs as low as
possible, and to avoid any unnecessary turnover in holdings.
In terms of CISCA (section 93), the amounts which a manager is entitled to deduct from a
portfolio are as follows:
All charges payable by the manager in the process of buying and selling securities and other
assets for the portfolio. These include:
brokerage
marketable securities tax
value-added tax
stamp duties
Auditor’s fees, bank charges, trustee and custodian fees and other levies or taxes
Share creation fees payable to the Registrar of Companies for the creation of authorised
capital or, in the case of a collective investment scheme in property, the costs incurred in the
creation and issue of participatory interests
The agreed and disclosed service charges of the manager (ie, the “annual service fees”
discussed in the previous section)
Any costs incurred as a result of a collective investment scheme in property
Total Expense Ratios
As discussed under “Portfolio Charges”, CISCA allows fund managers to recover various costs
directly from the portfolio. The Total Expense Ratio (TER), a cost measure which must be
published by ASISA members, helps investors understand the extent of these costs.

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