What are you actually invested in?

Delphine Govender

Delphine Govender is chief investment officer at Perpetua Investment Managers. (Picture: Supplied)

The traditional equity and balanced funds remain the most popular investment choice.

Over the past 15 years the explosion in the collective investment schemes market has displayed the extent to which South African individual investors have developed a real comfort level in investing in the traditional suite of domestic equity and balanced unit trust funds. 

For the most part, these funds have met investors’ needs in providing “plain vanilla” exposure to domestic stocks (for equity returns) as well as moderate asset allocation in the case of the multi-asset class funds.  

As the past decade evolved, the most popular funds remained the chosen investment destination and accordingly the assets under management (AUM) of these funds have grown significantly. By the end of 2018, just the top 15 directly managed funds (out of over 200 funds) in the South African General Equity sector accounted for over 60% of the AUM of the sector. 

These 15 funds represented approximately R170bn (of R290bn) in AUM.One of the more notable developments over the past few years is the extent to which the larger South African equity unit trusts have started to add direct global stocks to their portfolios.  

The table shows that 8 of the top 15 South African General Equity Funds are invested in global stocks.

The largest equity unit trust in South Africa is the Allan Gray Equity Fund, which by the end of 2018 had over 30% invested directly in global stocks. Until five years ago, this fund was purely invested in South African stocks. 

But in 2014, Allan Gray balloted its equity fund investors, requesting permission to invest in offshore investments. 

This is permitted in terms of the limits of the South African General Equity fund sector. 

The rationale presented by the firm was that the fund’s managers required greater investment flexibility and a bigger universe of investment opportunities to enable them to do a better job for their clients.

Rand-hedge stocks are pervasive across all the funds

The structure of the South African equity market and the high weighting to stocks geared to a weaker rand further increases the non-domestic exposure in the various larger South African equity funds. 

As revealed in the graph, this is prevalent across all funds and especially those which have no direct global exposure. 

As such, South African investors are likely to have more global exposure than they think they have. 

Most South African retail investors adopt a building block-type approach in putting overall investment portfolios together to ensure they can both meet their investment goals and diversify risk. 

Accordingly as part of this, investors typically combine domestic funds with global funds as well as other asset classes. 

Given the extent to which foreign exposure is actually contained within domestic funds (both directly and in terms of pure rand-hedge investments), investors should perform “look through” exercises to more precisely ascertain their percentage exposure to global investments/currencies. 

My guess is that, when looking below the lid, the average investor will be surprised at the outcome! Delphine 1


Delphine Govender is chief investment officer at Perpetua Investment Managers.

This article originally appeared in the Collective Insight supplement in the 21 February edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.


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