New unit trust fund classification under the magnifying glass

This is the view of Candice Paine, Head of Retail at Sanlam Investment Management (SIM), who believes that the new classification changes are less likely to have an impact on the investment industry than on the investor for whom the changes were made. In terms of the new ASISA Fund Classification Standards, fund names must be a true reflection of what type of fund you are buying.

"The amended classification of funds is aimed at providing investors with a tool to make it easier for them to understand what they are investing in,” she adds.

 

ASISA has introduced a three-tier classification system whereby tier one will segment the funds according to their geographical investment universe, tier two will address the type of assets the fund may invest in and tier three will address the main focus of the fund.

 

An example would be a typical 'Low Equity' fund; previously it would be classified as 'Domestic – Asset Allocation – Low Equity'. Now it will be classified as 'South African – Multi-Asset – Low Equity.' The new classifications have also given ASISA the opportunity to rename the different tiers in an attempt to demystify the sub-sector. For example, in the first tier, 'Domestic” has been changed to "South African,' in the second tier 'Asset Allocation' has been changed to 'Multi-Asset,' and in the third tier 'Variable Equity' has changed to 'High Equity'.

 

Although it goes a long way towards making things simpler, the new classification system is by no means 100% effective because investment mandates are so broad. Multi-Asset Flexible and Multi-Asset Income, for example, still house funds which are very different so care needs to be taken when making comparisons.

The fund classification system was never going to be perfect and, ironically, the categories that were closed and funds shifted for clarity have probably been the least effective, i.e. targeted and absolute return and fixed interest varied specialist. But the new ‘pure’ interest-bearing categories work well and there was great logic in collapsing the value and growth equity categories into the general equity category as there is very little style differentiation in the South African market anyway.

And the attempt to make some categories more ‘honest’ - for example real estate, where the minimum listed property exposure moves from 50% to 80%, goes a long way in making funds more comparable.

 

What is more important is that funds weren’t forced to move into the most appropriate or accurate category (this especially pertains to Multi-Asset class funds) so some confusion may still occur and investors will still need to look carefully at fund fact sheets to establish fund characteristics.