22 | WEALTH 18
20 November 2019
Exploring equity funds By Jana Visagie Assistant Portfolio Manager, PSG Wealth Hermanus
I
n our previous article, we gave a detailed explanation of how the Association for Savings and Investment SA (ASISA) classifies unit trust funds based on geography and asset class, among other criteria. In this article, we will specifically focus on one classification type (mandate) of unit trust funds, namely ‘equity unit trust funds’. What type of assets do these fund managers include in their portfolios? What are the costs related to investing? What are the risks involved and what potential earnings can you expect? We will set out some of the basics so you'll be more informed whenever you look at a fund’s fund fact sheet (so-called ‘minimum disclosure document’), or are speaking to an investment adviser. What is an equity fund? This is a common question asked by new investors. An equity fund invests principally in equities (also called
shares). It is a type of investment fund that buys ownership in businesses – hence the term ‘equity’. It gives investors a simple and cost-effective opportunity to invest in some of the largest companies in South Africa and the world! Your money is pooled with the money of other investors and the fund managers use this pool of money to buy the underlying equities. The unit trust fund is split into equal portions (‘units’) that are allocated to you, based on the amount of money you invest and the price of the units on the day you buy them. Is an equity fund suitable for your risk profile and investment objectives/needs? Now that you understand what an equity fund is, you will have to determine whether it would be the most appropriate type of investment fund for your unique circumstances. Growth assets (equities and property) have historically been the asset classes that deliver inflation-beating returns for investors over the long term and that have proven to be one of the best ways for investors to create wealth. Having said that, growth assets are also inherently volatile and you will
have to determine if you are comfortable with those fluctuations or whether you prefer more stability. You might consider the following when weighing the returns you require against the stability you need: how long do you have to invest for and how quickly will you have to access your money? Equity funds may be suitable for you if: • You are seeking long-term capital growth (rather than income) • You have at least five years to invest (preferably longer) • You are comfortable with stock market fluctuations and the possibility of losing capital. Which fund manager should you choose? You’ve decided that an equity fund is indeed appropriate for your circumstances, and now you must decide which asset manager will do the best job for you. There are literally hundreds of options available and you will have to do thorough research or speak to an experienced, independent financial adviser in order to choose a good-quality asset manager.
Fine Homes & Luxury Properties remaxcollection.co.za
Fernkloof Estate 2
2
Ref: HMNS-2241
2
203 m² Rates: ZAR 1100.00
ZAR 7 500 000 Levy: ZAR 1450.00
2 Bedroom House For Sale in Fernkloof Estate JOINT MANDATE. The price of this property includes VAT, therefore NO transfer duties apply.
Being sold with furniture included, this property has been made available for sale in the newly Read more online.
Yvonne Teixeira 082 316 2696 021 010 0685 yvonne@remax-townandcountry.co.za RE/MAX Town & Country - Hermanus
Each Office Independently Owned and Operated
Different asset managers have different views and convictions on the market and how to structure a portfolio (investment style). It is important to understand the views of the asset manager and believe in their strategy to establish a successful relationship. ‘Style’ can also be described as a fund manager’s investment philosophy with regard to the companies it chooses to invest in, and the process by which those investment decisions are made. Some managers focus on ‘value’ (shares purchased at below-average prices and trading below their intrinsic value), others on ‘quality’ (high-quality companies with management credibility and balance sheet stability), and others on ‘growth’ (young companies with the potential to generate high future profits and strong earnings growth). Asset managers must be consistent in their investment processes, whichever style they decide to pursue. There can be a significant variation in returns across different styles during the shorter to medium term. By combining different management styles, it is possible to create a portfolio that delivers more stable returns in varying market conditions.
What fees will you pay? All fees must be clearly stated on the fund’s minimum disclosure document. Make sure you understand the fund’s total investment cost (TIC). Fees can typically be divided into four categories: administration charges, investment management charges, advice charges and other fees like termination charges, penalties and loyalty bonuses. The lower the risk of the fund, the lower the investment management fee will usually be, e.g. a money market fund will have lower fees than an equity fund. Finally, remember that it’s essential to exercise patience: once you’ve chosen an equity fund, stick to your decision as it takes time for a fund to achieve its objectives. Always speak to your financial adviser when you need additional information or assistance. The information in this article does not constitute financial, tax, legal or investment advice and the companies in the PSG Konsult Group do not guarantee its appropriateness or potential value. As individual needs and risk profiles differ, we recommend that you consult your qualified financial adviser if need be.
