A BizNews premium member recently turned to the community for investment advice, seeking guidance on South African unit trusts and their performance. The WhatsApp discussion quickly sparked a flurry of insights, with members offering platform recommendations, fund comparisons, and thoughts on diversification strategies. This vibrant exchange highlights the value of BizNews peer support in navigating investment decisions in a dynamic market.
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In a world where investment opportunities abound, making the right choice can be daunting, especially for those new to the field. One BizNews tribe member, eager to invest wisely, sought advice from the community and asked the following question:
Question:
”I’m new to the world of investing and would appreciate some guidance on South African unit trusts, including the platforms they’re available on and their past performance.
I have an opportunity to invest some money and am considering unit trusts due to their perceived risk management (diversification across multiple equities) and potential for steady long-term growth. Initially, I planned to invest in a value fund like Ranmore, which has an 8.26% annualised return over 10 years, a 1.25% management fee, 0.75% advisor fee, and a 0.52% administration fee through Allan Gray, leading to a TER of 2.52% and a net return of 5.74%.
My financial advisor suggested funds with more U.S. market exposure, such as the Ninety One Global Franchise Fund (12.1% annualised return, 2.27% TER, 9.87% net return) and the Dodge & Cox Worldwide Global Fund (11.3% annualised return, 1.9% TER, 9.4% net return).
Alternatively, there are options with less U.S. exposure, like the 36ONE BCI Flexible Opportunity Fund (9.46% annualised return, 1.82% TER, 7.64% net return) or the DENKER SCI Global Financial Feeder Fund (11.35% annualised return, 2.37% TER, 8.98% net return).
Are there any unit trusts with better returns and lower TERs that you would recommend I look into? Also, how should I approach allocating capital between two or more unit trusts, if necessary? Has anyone in the community recently faced a similar situation? I’d love to hear your thoughts and experiences.”
Comments:
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Exploring Alternative Investment Vehicles: Unit Trusts vs. ETFs
When considering investment options in South Africa, it’s essential to compare unit trusts with Exchange-Traded Funds (ETFs). Both have their advantages, but they differ significantly in terms of cost structure, performance, and management style.
Cost Comparison: Unit Trusts vs. ETFs
- Unit Trusts: These actively managed funds typically have higher Total Expense Ratios (TERs), ranging from 1.5% to 2.5%. While their goal is to outperform market benchmarks, the higher fees can reduce long-term returns.
- ETFs: With a more passive approach, ETFs track indices and usually have lower TERs, between 0.1% and 1%. They offer cost-efficient exposure to markets by aligning their performance with an index, but don’t aim to exceed it.
Top ETFs in South Africa: Performance and Costs
- Satrix MSCI World ETF
- Exposure: Global, tracking the MSCI World Index.
- Annualised Return: 15-18%.
- TER: 0.35%.
- Net Return: 14-17%.
- Consideration: Provides affordable global diversification but won’t outperform the index.
- Sygnia Itrix MSCI World ETF
- Exposure: Global, tracking the MSCI World Index.
- Annualised Return: 15-18%.
- TER: 0.35%.
- Net Return: 14-17%.
- Consideration: Similar to the Satrix ETF, offering low-cost global exposure.
- Satrix Top 40 ETF
- Exposure: South Africa, tracking the JSE’s Top 40.
- Annualised Return: 9-11%.
- TER: 0.10%.
- Net Return: 9-10%.
- Consideration: Focused on large South African companies, with returns dependent on the local market.
- CoreShares S&P 500 ETF
- Exposure: U.S. market, tracking the S&P 500.
- Annualised Return: 14-18%.
- TER: 0.25%.
- Net Return: 13.75-17.75%.
- Consideration: Offers cost-effective U.S. market exposure.
- Ashburton Global 1200 ETF
- Exposure: Global, covering developed and emerging markets.
- Annualised Return: 12-15%.
- TER: 0.48%.
- Net Return: 11.5-14.5%.
- Consideration: Broader global exposure than other ETFs, with low fees.
- NewFunds TRACI 3-Month ETF
- Exposure: South African Treasury Bills.
- Annualised Return: 5-6%.
- TER: 0.18%.
- Net Return: 4.8-5.8%.
- Consideration: A safe option for stability and capital preservation.
Summary: Costs and Returns Comparison
| Fund/ETF Name | Exposure | Annualised Return (5-10 years) | TER | Net Return (approx.) |
|---|---|---|---|---|
| Ninety One Global Franchise Fund | U.S./Global Equity | 12.1% | 2.27% | 9.87% |
| Dodge & Cox Worldwide Global Fund | U.S./Global Equity | 11.3% | 1.90% | 9.40% |
| Satrix MSCI World ETF | Global Equity | 15-18% | 0.35% | 14-17% |
| Sygnia Itrix MSCI World ETF | Global Equity | 15-18% | 0.35% | 14-17% |
| CoreShares S&P 500 ETF | U.S. Equity | 14-18% | 0.25% | 13.75-17.75% |
| Satrix Top 40 ETF | SA Equity | 9-11% | 0.10% | 9-10% |
| Ashburton Global 1200 ETF | Global Equity | 12-15% | 0.48% | 11.5-14.5% |
Key Considerations for ETFs
- Lower Fees: ETFs generally offer lower TERs compared to unit trusts, making them cost-efficient for long-term investors.
- Passive Management: ETFs aim to mirror market indices rather than outperform them, leading to more predictable returns.
- Global Exposure: ETFs like the Satrix MSCI World or CoreShares S&P 500 provide low-cost global market exposure, outperforming many actively managed funds in recent years.
- Tax Benefits: ETFs tend to incur lower capital gains tax than unit trusts, but eventual sales are still subject to Capital Gains Tax (CGT).
Conclusion: ETFs vs. Unit Trusts
ETFs emerge as a clear winner in terms of cost-effectiveness, with lower fees and comparable performance to actively managed unit trusts. For investors seeking long-term growth with low fees, ETFs like Satrix MSCI World or CoreShares S&P 500 are excellent choices. However, if you’re aiming for market-beating returns and are willing to pay higher fees, actively managed unit trusts like Ninety One or 36ONE remain competitive options.
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