Page 33 - Profiles's Unit Trusts & Collective Investments - September 2024

History of Collective Investment Schemes

enjoyed a final burst which took it to record levels in May 2008 – 20 times what it had been in
February 1988.
As with the crash of 1987, the market declines in 1998 and 2002/3 had a relatively muted impact
on the unit trust industry. In 2002, total industry assets still rose 3% in spite of an 11% fall in equity
prices over the calendar year – although in the decade from 1992 to 2001 industry assets grew by
32% per year, on average. From 2003 to 2007 industry assets again grew at almost 30% per annum.
In spite of 2008’s 26% decline in the JSE’s All Share index and global fears of an economic
meltdown comparable to the crash of 1929 (which led to the Great Depression of the ’30s),
industry assets still managed to show 1% growth in 2008, testimony to the newfound resilience of
the unit trust industry and the hard-earned wisdom of investors.
As in 1987, many seasoned investors who had been in the market for decades had confidence
that markets, given time, would recover, and some investors saw the decline in equities as an
opportunity to get into the market at favourable levels.
The number of rand-denominated collective investment schemes has steadily increased over the
years – at the end of March 2024, according to ASISA, there were 1 852 domestic funds in South Africa,
of which approximately 15% were institutional-only funds (ie, funds with no retail classes, although
many of these are available indirectly in the retail market via LISPs). In addition, 693 foreign currency
denominated funds registered with the FSCA were on sale in SA at the end of March 2024.
The Impact of Technology

As in most areas of the modern world, technology has had a significant impact on the evolution
of collective investment schemes.
The explosion of products seen in the 1990s was partly due to the development of sophisticated
computer systems which made the administration of CISs relatively easy. Most aspects of the
administration of a unit trust depend on computer systems, from calculating daily NAV prices to
managing asset allocation, from administering repurchases to allocation of interest and dividends.
As computer systems became more user-friendly and more widely available, the systems
requirements for setting up and managing unit trusts became less of a barrier to entry, allowing
new, smaller companies to launch unit trusts, and allowing the larger institutions to manage
multiple unit trust offerings with comparative ease.
The impact of technology was not only felt in the “back office”, however. While administration of
unit trusts was getting easier, technology was also creating new opportunities for fund managers.
Modern, sophisticated computer systems give fund managers far more control over portfolios
than their counterparts of four decades ago. Tracker funds and ETFs are good examples of products
that would not exist were it not for the advances in data processing and automation of computer
systems. These popular products rely on the fund manager’s ability to construct a portfolio which
mimics, as far as possible, the composition of a major index (such as the JSE’s Top 40 index, for
example). Calculating the correct proportions of each stock holding on a daily basis in the face of
day-to-day changes in share prices – and generating orders early enough to ensure they are filled –
is dependent on computer systems.
Products such as hedge funds are also highly dependent on technology from an asset
management point of view. A fund manager making extensive use of derivatives may seek to adjust
his or her portfolio on an hourly rather than a daily basis, and this constant and rapid adjustment of
asset allocation via derivatives frequently depends on automated trading. For most South Africans
hedge funds remain esoteric, but these products have had a huge impact overseas. Although the
proliferation of hedge funds worldwide was sharply curtailed by the crash of October 2008, growth
in the number of hedge funds and assets under management has continued since 2010.
Technology has also had a major impact on the way in which financial advisors do their jobs.
Four decades ago financial advisors were completely dependent on printed literature issued by
management companies. Today, it is almost unheard of to encounter a financial advisor not
equipped with a laptop computer, on which detailed information about clients and products is
available. Armed with his or her laptop and an internet connection, the modern financial advisor can
download details of a client’s holdings, access up-to-date information on products, print the latest
application forms, and, for some products, submit a proposal electronically without lifting a pen.

Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts 31