Page 140 - Profiles's Unit Trusts & Collective Investments - September 2024

CHAPTER 8

The large variety of CISs available means that investors and financial advisors must be
well-informed in order to choose appropriate investments. Investors and FAs must be aware
of the mandates, investment risks and tax implications associated with each category. The full
classification standard is available on the ASISA website. It is a comprehensive document.
Although aimed principally at fund managers it is a useful reference for FSPs. It is important that
investors buy collective investments that are compatible with their risk profiles.

capped global fund, on the understanding that as soon as there is capacity in the global fund the
investment will be switched.
Global Funds (previously known as Foreign funds) are funds that invest at least 80% of their
assets (previously 85%) outside South Africa at all times. No more than 80% of the assets may be
invested in any one geographic region.
Exchange control regulations are still in place in South Africa, but have been steadily relaxed
since 2001.
Individuals are now allowed to expatriate R1 million a year for investments and other purposes
and can apply to the South African Reserve Bank to a further expatriate R10 million. Even higher
amounts may be allowed for investments that meet certain requirements.
Investors can also invest offshore using financial services companies’ asset swap mechanisms.
Local unit trust managers are permitted to swap a portion of the total SA assets they hold for assets
offshore. They can then offer this to investors as rand-denominated funds with exposure to
investments in offshore financial markets.
Until February 2022, unit trust companies could swap 40% of the investments they received
from individual investors into foreign markets and a further 10% into Africa. This changed to 45%
in February 2022 in line with the prudential limits for retirement funds.
The asset swap allowance is calculated for a CIS manager, not a fund. The allowance can be
used to create a single “offshore” fund in the CIS manager’s suite of funds, or the CIS manager can
choose to allocate bits of the offshore allowance to different funds. The CIS manager is obliged to
close the fund to new investments if the maximum offshore “allowance” has been reached.
However, as the assets under management grow, it can “uncap” its foreign funds and open them to
new investment – until the limit is reached again.
Regional Funds are funds that invest at least 80% of their assets in a single country or region,
excluding South Africa, at all times. These unit trusts are created out of the same offshore fund
“pool” created via the allowance described above.
As with funds in the Unclassified sectors, investors must exercise caution when comparing
Regional funds. This is because a single Regional sector (eg, Regional–Equity–General) may contain
funds investing in very different geographical areas.AJapan fund,aUSfundand aEurostoxx fund,
for example, are not comparable in the same way as South African–Equity–General funds. Where the
latter will reveal differences in fund management approach and ability, the former will be largely
dependent on the performance of stock markets in those respective countries. For this reason, ASISA
discourages ranking of funds in Regional sectors.

Second and Third Tiers
At the second level, funds are divided into four main groupings: Equity Funds, Multi Asset
Funds (previously Asset Allocation), Interest Bearing Funds (previously Fixed Interest) and Real
Estate Funds.
Equity Funds are funds that are obliged to invest a minimum of 80% of their assets
(previously 75%) in equities at all times. The remaining 20% can be invested, subject to the
mandate of the fund, at the discretion of the fund manager. From October 2024 there will be nine
sub-sectors in this category, making up the third level of classification. Some examples of these
sub-sectors (dealt with more fully below) are Large Cap Funds and Resource Funds.
For themed funds, 100% of the equity portfolio (previously a minimum of 80%) must be
invested in securities that fall within the theme (eg, financial shares or industrial shares) at the

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