Page 112 - Profile's Unit Trusts & Collective Investments - March 2025

CHAPTER 6

Chart 6.2 Chart 6.3
Period The Risky Co. Ltd. TheStableCo. The Risky Co. Ltd
%returnfor Ltd. % return for
period period
return
1 16.36 14.48
2 15.05 15.40 % return lower
3 16.55 13.92 upper
4 15.34 14.92 average
5 18.78 14.95
6 13.46 13.89 period
7 12.12 14.31
Chart 6.4
8 12.82 16.17
The Stable Co. Ltd
9 15.96 15.05
10 16.86 14.70
11 12.15 14.37 return
12 11.70 14.27 % return lower
13 17.31 16.14 upper
14 15.65 15.90 average
15 13.03 13.51
16 14.87 13.79
period
17 12.96 15.17
18 15.74 14.86 these two return patterns is very evident when
19 13.27 14.74 looking at a graphical representation of the
20 16.21 16.12 information (Charts 6.3 and 6.4).
Average return 14.81 14.83 As a practical example, let’s compare two
unit trusts with similar returns but different
Std deviation 1.94 0.79
standard deviations. The performance of the
PrivateClient BCI Worldwide Flexible Fund and the RCI BCI Worldwide Flexible Fund over the
five years ended 31 Jan 2025 is an interesting example.
Both are Multi Asset Flexible funds. The PrivateClient BCI Worldwide Flexible Fund returned
8.33% p.a for the five years ended 31 January 2025, while the RCI BCI Worldwide Flexible Fund
returned 8.82% p.a. – certainly comparable performance.
A R100 000 lump sum would have grown to something over R148000 in either fund (excluding
entry costs). However, where the funds differ is that the RCI BCI Worldwide Flexible Fund had a
standard deviation of 16.7 over the period, almost double that of the PrivateClient BCI Worldwide
Flexible Fund’s 8.9
The implications of the higher volatility of the RCI BCI Worldwide Flexible Fund is illustrated
in chart 6.5. Although the ‘’total return’’ lines for the two funds start and end in more-or-less the
same place, the RCI fund is markedly more volatile. This graph illustrates the risk/return principle:
the risk of a dramatic reversal of fortune at any arbitrary point in time is much lower with the less
volatile fund (provided a ‘’high’’ exit point is achieved).
For example, on 25 August 2020 the total return of the RCI fund was 22.09% while the
PrivateClient fund was returning 4.27%. Conversely, if investors had to sell out

Annualised Volatility
Volatility in the financial markets is usually calculated as the standard deviation of the monthly returns
of a price series over three years. This gives an indication of the magnitude of price fluctuation on a
monthly basis. To convert to annualised volatility the monthly rate-of-return is multiplied by the
square root of 12 (approximately 3.464).

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