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Unit trusts facilitating real term wealth creation

25 June 2013 John Duncan, Momentum Collective Investments

Unit trusts cater for varying economic scenarios and risk tolerance levels across both local and international asset classes, making them an ideal repository for investor monies through good and bad economic times.

Unit trusts continue to provide compelling investment options for savers and offer a diverse investment opportunity set with exposure to shares listed on the JSE and various offshore exchanges, listed property, bonds and money market instruments. This includes exciting frontier markets like African equity as secular changes underpin burgeoning growth and profits. “Although the past few years have caused many investors to suffer sleepless nights as a result of an intermittent and uncertain global recovery, the unit trust industry has continued to provide them with an avenue to grow their wealth in real terms,” says John Duncan, head of product management and technical marketing at Momentum Collective Investments.

The on-going Eurozone crisis, fears of a Chinese hard landing and concerns about the withdrawal of quantitative easing and tapering of bond purchases have all contributed to intermittent market corrections and heightened investor anxiety in the period post the financial crisis. The unit trust industry has generated substantial wealth for investors despite this, proving again that it pays to buy when others are selling and that a well-diversified portfolio of asset classes and securities can be effectively leveraged over time Domestic unit trusts have enjoyed strong inflows and growth as domestic equity, property and bonds have generated exceptional returns over the last 10 years (surpassing earnings achieved in developed regions), despite the interruption of the global financial crisis (GFC). This trend, however, may see a reversal, making diversification across asset classes and regions within local investor portfolios advisable.

The PlexCrown Unit Trust Survey (March 2013) highlighted the industry’s strength, with the best-performing sector being global real estate, which generated a 39% 12-month return. The worst-performing sector was resources, which were flat over the year. Five-year returns saw a similar trend, with property generating an 18% per annum return and industrial and financial funds returning 16% and 15% per annum respectively. Resources again performed badly, with an annual return of -5.2%. “Past returns are, however, not a definitive predictor of future performance, and it will be interesting to see how the sectors fare over the next few years,” adds Duncan.

With the market offering a diverse range of almost 1 000 unit trusts, the short, medium and long-term investment goals, as well as risk profiles, of different savers can be accommodated. “This is essential given the current opaque international macro outlook as, while we are witnessing a gradual global recovery, there are still significant uncertainties present in terms of the unprecedented monetary interventions of global central banks and policymakers,” concludes Duncan.

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