Returns still on top

UNIT TRUST FUNDS are still serving investors well. Financial markets have been difficult, but as an example (and with this being a quarterly publication) the average return from South Africa's more than 900 unit trust funds for three months to end-February was 2,06%. Times that by four and - if returns can keep up the pace - it's not a bad annual return. We use the numbers and rankings supplied by Morningstar.

But returns for that three-month period are widely dispersed. Top is the Grindrod Global Property Income fund, with 14,4% (see manager interview on the last page), while the Stanlib Gold and Precious Metals fund lost 9,1%. But it's three months and doesn't mean much; gold shares are bucking like an untamed stallion and listed property has come back into vogue.

However, if unit trust returns can keep this up, the funds will beat inflation - which is what it's really all about for investors. Current three-month returns are higher than those expected from Sanlam Investment Management (SIM) over the longer term. "We expect a real return (after inflation) of 7% over the long term," says Candice Paine, head of retail investing at SIM. She adds that SIM's current view is that SA's equities market is at fair value. "The economy is supporting the rally we've seen and the market looks forward."

For five years the Old Mutual Mining and Resources fund is still at the top of the rankings. Fund manager Anwaar Wagner is clearly getting it right. He balances the portfolio of big mining shares with some smaller caps. His fund - with a return of 210,8% for the five-year period - is way ahead of second placed Nedgroup Investments Mining and Resources, with 180,0%.

The order in the top 10 is more or less the same, with a few funds moving up a few places, a few down.

After the two leading mining funds is the domestic equity large cap Coronation Top 20 fund, with the Absa Select Equity (in seventh place) still the leading general equity fund.

The three-year rankings are interesting in that they show how well cash performed during that roller coaster period on the equities markets. Money market funds make up about half of the top 25 places. With interest rates continuing to come down cash is trash again and money market funds have dropped off the more recent rankings.

And while money market funds in SA are different to their counterparts Britain, a recent edition of The Economist voiced concern about money market funds there needing regulation and being part of the "shadow" banking system that's rapidly replacing conventional banks - that is, those banks in Britain still on their feet.

The one-year rankings are still dominated by mining and resources funds, but financial funds make a welcome reappearance. The Nedgroup Investments Financials is in second place, with a return of 69,8% for the year, and RMB Financial Services fourth. It's largely due to South African banks recovering after the global meltdown in bank share prices.

Asset managers are in some cases trying to lower costs, but it still remains a contentious issue with investors. Direct equity investments, especially with the number of Internet sites available, are still cheaper than unit trust funds. Added to that are the low cost retail bonds now available to investors from National Treasury.

But Paine says unit trust costs, which differ a lot depending on the type of fund and asset class, should be looked at comparatively. "Private clients using a stockbroker will be paying 1% to 1,5%, plus brokerage costs. The price of unit trust funds includes administration, trustees and auditors fees, plus portfolio management. There shouldn't be a conflict with that: the manager is the skill you're paying for."

It's a valid point with many clients, nervous of a high equity exposure, now moving to asset allocation and targeted return funds. If the manager can beat the market or the mandated benchmark it's worth the cost.