Shopping for unit trusts?

Bruce Whitfield:
News today that the Association of Collective Investments — the guys, the umbrella body for the unit trust industries — are moving to create greater transparency and costs in that unit trust industry, which is good news. And that is for anyone who is shopping around for an investment at the moment. You should actually be able to look at this particular site and go that is the investment that is going to cost me the least and that is how well it is performing.

Let’s talk to Di Turpin, who is the chief executive of the Association of Collective Investments who joins us on the line now. And Di, it sounds like a great idea. How far down the path are you in actually launching this?

Di Turpin:
Well Bruce, we are about six months off any investor actually seeing a number. But I’ll tell you what has to happen. Firstly we have got the entire industry to go this extra step, we are not required to do it by law, but we have decided to take the extra step, add even more detail, but in a very simple way for the clients information.

And we are giving administrators about three months to build the systems to be able to do it, and then we start collecting the data from one dam. So by the end of the first quarter, by the end of March next year, there will be figures for every single fund in South Africa.

Bruce Whitfield:
How exactly will it be presented? Will it be presented like Whitfield can understand it?

Di Turpin:
I think you do yourself a disservice there.

Bruce Whitfield:
That is the right answer, but will ordinary people be able to understand it?

Di Turpin:
What we are trying to do is put it into one simple number. It is a number that works for the technical people and hopefully also for the laymen. So what we have done is, most people understand the concept of an annual management fee being say, 1.5 percent per annum.

What we have done is, we have said; let’s quantify absolutely every other cost that gets put against the fund. So for example, because you are in a trust, there are trustee fees, there are also custody fees, and there are brokerage fees for buying the shares for instance. All those get quantified, rolled up and added to the annual management fee and you get one number at the end of the day.

So it will be higher than the annual management fee for that fund, but include every single cost that can be put against the fund, in the fund. I think most people understand that.

Bruce Whitfield:
Will I also be able to compare not only costs, but also performance in a single space, so I will know that “A” fund cost me X amount of money and its performance was not actually as good as “B” fund which might have cost me a little bit more.

Di Turpin:
Yes, we have spoken to all the statistic providers in South Africa and they are very interested and very pleased about being able to add the TER or the Total Expense Ratio to the existing performance tables. So in future, you will be able to go to their sites and be able to see both numbers together.

I think one of the major advantages of the TER is it allows you to do a comparison across funds and different kinds of structures as well. So for example, fund of funds have two layers of costs, will now be quantified into one number and I think that makes a big difference.

Performance fees are another example. People often know that performance fees but don’t know what the difference is to the bottom line, it will now be quantified.

Bruce Whitfield:
Why are you taking this step? You say you are not forced; you are not legislated to at all. Why this interest in greater transparency? There will be an additional cost to actually doing this no doubt and also, it is a bit of a pain in the neck and not necessarily everyone is going to benefit, or the providers of unit trust are going to benefit from actually having to disclose this sort of information.

Di Turpin:
You know what we did Bruce, we looked at it from the consumer point of view. We said that we have got to give them information that makes sense. Disclosure, you can disclose everything, but you can disclose it is such a way that you don’t understand anything.

We are not saying that this is currently the case in South Africa, but we just felt that we had to raise the bar that one level higher that we already are and we think, that with increased focus on cost in this country, we would like to set the standards for the other providers and we would in fact, like the other industries to follow us. We think that from a consumer point of view, if you had one measure that could be used regardless of your product structure, times would then be really able to judge what was the right product in terms of cost for them.

Bruce Whitfield:
And also, just looking at the unit trust picture as a whole, more big inflows, probably you best quarter ever, in the September quarter?

Di Turpin:
We had a fantastic quarter, and I think that is partly the result of all investors believing that unit trust do give them a good deal. We had close on 20-billion coming in, assets are sitting on 496-billion now, so just under the 500-billion mark.

Bruce Whitfield:
That is very big inflows into the unit trust sector. And I got a call from a trader the other day, he is noticing that markets seem to rally in the first week of every month and then pullback quite sharply after that. We had a discussion around it and he was talking about the fact that if you look at the graphs, and you see the strong rally at the beginning of the month, pullback mid month, implying that perhaps unit trust money is actually flooding into the market at the beginning of each month. Is there any way of actually saying whether or not that is actually the case?

Di Turpin:
I think just intuitively, many people probably do run their debit orders at the beginning of the month, so that is the case. A number of other people would run them after pay day, which is generally around about the 26th or 27th. But bare in mind, we are often accused of only attracting lump sum business. We also are only four percent of the JSE. So we might have some impact, but I don’t think it could all be attributed to collective investment.

Bruce Whitfield:
That is a very important point to make there as well. I was also wondering just how much money, the average general equity fund has at the moment? Is there anyway of telling the average cash amount in general equity funds, how much cash they are sitting on, looking for opportunities in what is actually quite a hot market at the moment?

Di Turpin:
The way we structure our funds, we make them maintain their fund mandate quite clearly. So, if they are a general equity fund, they would have to have at least 85 percent in equities in some form or another. Most of them, in fact, further over and would only take flight based on the market because that is their mandate to be invested in equity.

What is probably more interesting is seeing where some of the flexible funds are, because that is where the mandate is where the fund manager can invest right across all asset classes. I am afraid I don’t have those stats in front of me, but I would imagine that they are pretty fairly spread right across the sectors at the moment.

Bruce Whitfield:
And one wonders just how much cash is waiting in the wings, should foreigners for example, decide to start selling South African shares, whether or not there is any capacity within South African funds to actually take up those shares if they do become available.

Di Turpin:
I think there most certainly is capacity. We certainly have got the demand from the investors and the fund managers would be interested as well.

Bruce Whitfield:
Di Turpin, chief executive of the Association of Collective Investments. Big innovations being brought into unit trust industry there as well and good news indeed, especially if you are shopping around for investments, you can measure not only the performance of the particular fund you might be interested in, but also look at what it is going to cost you, which is a big step forward.

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