Collective investment schemes are grouped into sectors to enable investors and
financial advisors to compare similar funds. The classification standard is
designed and maintained by ASISA.
The three-tier classification system in South Africa follows the "where and
what" principle. At the first level (the "where") funds are
grouped by the geographic exposure of their underlying investments (South
African, Worldwide, Global or Regional). South African funds, for example, must
have at least 70% of assets invested in South Africa at all times. At the second
tier, funds are grouped according to the nature of the underlying investments
(the "what"): Equity, Multi Asset, Interest Bearing or Real Estate.
For example, equity funds must invest at least 80% of their assets in listed
shares at al times. The third tier provides a narrower focus for the
"what". Equity funds, for example, are grouped into categories such as
General, Large Cap, Resources and Financials.
Below we provide some more information on the sector listings available at
FundsData Online. Note that some of these listings cut across the ASISA sectors
described above.
Reg 28 Funds are collective investment schemes that comply with the prudential
investment guidelines of Regulation 28 of the Pensions Funds Act. Sometimes
referred to as Prudential Funds, these once had their own sectors but the
classification was misleading as certain funds in other sectors (like bond
funds) were also Reg 28 compliant.
The 2013 ASISA revision of the classification structure did away with the
prudential sectors and replaced them with a system under which Reg 28 compliant
funds are flagged as such regardless of the sector in which they fall.
The Reg 28 Funds list in FundsData Online provides a simple way to identify and
navigate to prudential funds. This is useful for investors and financial advisors
exploring collective investment schemes suitable for regulated retirement savings.
Note that a Reg 28 compliant fund is not necessarily in a position to accept
retirement savings directly -- the fund also has to be part of a registered retirement
vehicle. However, many of these funds are available through retirement product
wrappers offered by LISPS. On fund fact sheets, Reg 28 funds are indicated with
a yellow pennant: 
The "Reg 28" Managed Funds list shows those funds which are not officially registered
as Reg 28 funds (ie, this is not stated in their supplemental deeds) but which are
nonetheless managed according to Reg 28 rules. It is generally possible to use these
fund for regulated retirement investments where available under an appropriate wrapper
although this might depend on the LISP. On fund fact sheets, "Reg 28" managed funds are
indicated with an orange pennant: 
Investors are not restricted to Reg 28 funds in building retirement funding portfolios.
Any funds can be chosen provided the consolidated exposure of the portfolio complies with
Reg 28. An investor who places 75% in an equity fund and 25% in a bond fund, for example,
may well comply with Reg 28 (depending on the specific underlying assets of the two funds).
Note that Profile Research relies on management companies to advise which funds
are Reg 28 compliant.
In FundsData Online, "offshore funds" refers to non-rand denominated
funds which are available to investors in South Africa. This listing shows
overseas funds registered with South Africa's Financial Services Board that
elect to market their products via FundsData Online.
The funds listed under "offshore funds" at FundsData Online should not
be confused with Worldwide, Global and Regional funds listed under their
respective sectors in the main indices (All Funds Alphabetical and All Funds by
Sector). These are domestically domiciled rand denominated funds which invest
outside of South Africa, whereas those under Offshore Funds are foreign-currency
denominated and domiciled overseas. Investors need foreign exchange clearance in
order to invest in offshore funds, which is not the case with Worldwide, Global
or Regional funds.
An Exchange Traded Fund (ETF) is a special kind of tracker fund which is listed
on a stock exchange and can be traded like a share. The majority (but not all)
ETFs listed on the JSE are also registered as collective investment schemes, in
effect creating two markets for these funds.
In terms of the ASISA classification system, ETFs and other exchange traded
products do not have a separate category but are listed in the appropriate
sector based on geographic spread of underlying investments and the type of
assets held. ETFs are therefore spread across the unit trust sectors. The index
of Exchange Traded Products under the Lists menu give users an easy way to
navigate to ETFs and ETNs.
From a fund management point of view, ETFs are very similar to other index
funds: they replicate the weighted constituents of an index in a physical
portfolio, benefiting from market movements, and collecting and paying
dividends.
From the investor's point of view, ETFs have several features which
differentiate them from unit trusts.
- ETFs can be bought and sold through a stockbroker as they trade all day like
any other share so investors can take advantage of intra-day market movements
and the ETF prices are always visible and transparent. Unit trusts effectively
only trade once a day after the market closes.
- Unit trust investors buy and sell at the previous day's "closing
price" (ie, the NAV unit price as calculated by the fund). ETF investors
trade at a market price determined by supply and demand (although this is
usually very close to NAV - see below).
- ETFs allow large investors to "cash out" or redeem an investment by
taking a basket of shares in proportion to the ETFs holdings. Unit trusts can
only repurchase units for cash (This ability to "cash in" ETF units
for underlying shares creates arbitrage opportunities which ensure that ETFs
usually trade at NAV.)
- Settlement of ETFs in South Africa is via the JSE/STRATE settlement and
clearing systems, which takes five business days. Unit trusts can usually be
liquidated in 24 to 48 hours, although the actual time varies from one manager
to another.
Both ETFs and unit trust index funds, as collective investment schemes, must
publish NAV prices on a daily basis. The JSE does allow ETFs to trade directly
with clients for large orders. In this case, the transaction must be done at the
NAV price, as per the CISCA rules.
Arbitrage ensures that ETFs trade very close to NAV. In the event of a
mispricing (ie, a discrepancy between the NAV of the ETF and the market price):
- Investors may swap Satrix for a physical basket of shares, which can then be
traded in the market to take advantage of the mispricing.
- Investors may arbitrage between the market (spot) price of the ETF and the
futures contract on the index. (SAFEX, the futures market and SETS, the spot
equities market, operate on the same JSE trading platform, which facilitates
this type of trade.)
(Part of the above taken from Profile's Unit Trusts & Collective
Investments, with permission)
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