ETFs outshine unit trusts - report

Johannesburg - Investors who have been diligently tucking money into an actively managed unit trust over the last five years will probably find they are worse off than those who bought into the Satrix Top 40 index tracking product.

According to Mike Brown, CEO of online transacting platform etfSA, only five out of 47 actively managed unit trust funds were able to outperform the Satrix Top 40 during this time.

Brown calculated that over the five-year period, funds had an average return of 16.15% per year, while Satrix 40 returned about 19.8%.

The only actively managed general equity unit trusts to outperform the index tracker over the period were Absa Select Equity, Allan Gray Equity, Kagiso Equity Alpha, Prescient Equity Quant as well as the Prudential Equity funds.

Brown described the general performance of unit trusts as "dismal". "This appears to doom a large portion of the investment public to underperforming products," he said.

RE:CM portfolio manager Daniel Malan said he was not surprised by the data, but cautioned investors against reading too much into the figures.

Bigger picture looks brighter

"The starting point and end point are not a full investment cycle," he said, adding investment performance has to be judged from either "peak-to-peak" or "trough-to-trough" to give a fair reflection.

Malan said it is recognised as a fact worldwide that most asset managers will underperform an index. Investors need to focus on identifying asset managers who apply a "sensible" investment process through an investment cycle, he added.

Also, while the performance of the index tracker has been impressive, investors have to remain aware it remains heavily in favour of resource stocks. Any blow-out in the sector may have serious implications for investors buying into the index.

Investors may be better served looking at a stock-picking investment strategy which picks a handful of core stocks which looks beyond the resource sector.

For instance, over the same period Sanlam returned 95% (before dividends), brewing giant SAB Miller's shares appreciated 119%, MTN posted 170% growth while investment holding company Remgro saw its share price rise by 155%. If dividends are taken into account, all of these firms comfortably outperformed the index.

- Fin24.com