Trying to choose the most appropriate or “best” unit trust fund is hard enough.
But even when investors have determined their risk profile, time horizon and investment aims the complexity of choice can still be confusing.
With more than 900 unit trust funds
in south Africa – well over twice as many as shares listed on the JSE and almost 1 300 if overseas funds are included – how does an investor make the best choice?
One useful guide is looking at the fund manager.
Assuming an investor has decided what type of fund he wants – perhaps a general equity fund, balanced fund or absolute return fund –there are still multiple options in each fund category.
So it helps to examine who’s running the fund.
A good fit
Once again, top performance shouldn’t be the main objective but rather a manager that fits in with the investor’s goals and needs.
However, it’s notoriously difficult to identify those fund managers who are going to do well in advance, warns Matthew de Wet, head of investments at Nedgroup Investments.
“Not only is fund selection difficult, but investors also usually find it hard to stick with their choice once the fund they choose inevitably goes through a poor patch.”
That rotation or switching between funds can mean a large cost for investors.
Part of the problem lies with the industry.
“The investment industry itself has a huge responsibility to investors to guide them appropriately rather than aggressively marketing the current hot fund,” De Wet said.
But some asset managers running unit trust funds are aware of the complexity and “hot fund” issues and try and keep choice simple for clients.Keep it simple
“One of the benefits of unit trusts is their comparative simplicity as an investment vehicle,” said Jeanette Marais, deputy director of distribution and client services at Allan Gray.
“Offering a complicated range of highly specialised funds defeats the aim of simplicity – and often defeats investors.”
De Wet believes investment firms ultimately need to act as stewards of their clients’ capital.
“The concept of stewardship is simple: those firms that take their responsibility to fund investors seriously and put investors’ interests above their own are good stewards.”
He quotes Morningstar’s
recent introduction of stewardship criteria in rating asset managers and says there’s a strong positive correlation between the degree of stewardship and long-term investment results.
“I believe investors may be best served by identifying those fund managers who will act as responsible stewards of their capital and stick with them through performance ups and downs."
"That simple factor may well be the single most important consideration in selecting your fund manager.”
That introduces a new and useful criterion in selecting fund managers.
How the manager works must be in line with what the investor wants – and understood by the investor. If the fund manager can prove to be seriously looking after the investor’s capital it’s an added incentive.