Page 141 - Profiles's Unit Trusts & Collective Investments - September 2024

Classification of CISs

Total Return Index (TRI)
A TRI, or Total Return Index, is one which reflects both capital gains and income yield in
one value stream. Most indices quoted in the media are price-based – ie, they are
calculated from price data only. The FTSE/JSE Top 40 index (code J200), for example, is
essentially the average price of the top 40 JSE shares weighted according to market cap. The TRI
version, however (code J200T), adds to these aggregated price movements the effect of dividends
paid by the underlying companies. Typically this is done by reinvesting the income yield into the
price stream. The impact of the reinvestment of dividends can be significant. In the five-year bull
run from April 2003 to May 2008, for example, the JSE’s All Share index rose 351%. The Alsi TRI,
however, rose 419%, adding 19% to investment returns. The impact of dividends increases over
time. In the decade from January 2003 to December 2012, for example, the Top 40 index rose
301% while the Top 40 TRI rose 429%, adding 43% to investment returns.
The codes for FTSE/JSE indices append the letter “T” to denote TRI indices (eg, J203T for
the FTSE/JSE All Share TRI index).

time of purchase. For example, a Resource fund
must be at least 80% in equities at all times (as per P/E Ratio
the first-tier rule) and all of the equities must be The price/earnings ratio (also called
resource shares. (More detail below.)
the P/E ratio or P/E multiple) is simply
Multi Asset Funds (previously Asset the price of a share divided by its
Allocation) invest in a spread of investments in the earnings (after-tax profits) per share. The P/E ratio
equity, bond, money and property equity markets. gives investors an idea of how much they are
These funds seek to maximise their total returns (ie, paying for a company’s earning power. For
both capital appreciation and income growth) over example, a share selling for R20 with earnings per
the long-term. At the third level, this sector will shareofR1lastyear, hasahistoricalP/E ratioof
from October 2024 have seven sub-sectors: Flexible 20. If the same share has a projected earnings per
Funds, High Equity Funds, High Equity SA Funds, shareofR2for thefollowing year,itwillhavea
Medium Equity Funds, Low Equity Funds, Income forward P/E of 10. The higher the P/E, the more
“expensive” a share relative to its profits. A high
Funds and Unclassified Funds. As discussed P/E usually suggests the market is expecting good
elsewhere, Prudential funds, which previously had profit growth from the company.
their own sub-sectors within Asset Allocation, are
now referred to as Regulation 28 Compliant funds
and are “flagged” as compliant regardless of which
sector they are in. Certain income funds, previously Market Capitalisation
classified as Fixed Interest Varied Specialist Funds Market capitalisation, or “market cap”
under the Interest Bearing (then Fixed Interest) for short, is a measure of a listed
category; were moved to Multi Asset sub-category company’s value, calculated by
because these income funds contain small holdings multiplying the number of outstanding ordinary
in high dividend shares or other assets that cannot shares by the current market price per share.
strictly be defined as interest-bearing securities. Listed shares are usually grouped into four main
market cap categories: large-cap, mid-cap,
Interest Bearing Funds (previously Fixed Interest) small-cap, and micro-cap.
invest in bonds, money market instruments and other
interest-bearing securities. At the third level there will
from October 2024 be five sub-sectors in this category: Variable Term Funds, Variable Term
Inflation-Linked Bond Funds, Short Term Funds, Money Market Funds and Unclassified Funds.
Real Estate Funds invest predominantly in listed property shares, either directly or via other
collective investment schemes in property or real estate investment trusts.
In the remainder of this chapter, we look at each second-tier category in detail, starting with
the equity funds. Remember that each of the second-tier categories can be associated with each of
the first-tier categories. So, for example, you can have South African Equity funds, Worldwide
Equity funds and Global Equity funds.

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