Page 144 - Profile's Unit Trusts & Collective Investments - March 2025

CHAPTER 8

Resources Funds
Resources funds seek capital appreciation by investing in shares of companies engaged in the
exploration, mining, distribution and processing of metals, minerals, energy, chemicals, forestry or
other commodities. At least 80% of assets must be in shares listed in the FTSE/JSE Oil & Gas and
Basic Materials industry groups (or, for non-SA funds, in a similar sector of an international stock
exchange). Up to 10% of assets may be invested in shares in other sectors provided the companies
conduct similar business activities as those in the defined sectors. Examples of these might be
food-type commodity shares, or companies like PPC, a cement company listed in the JSE Building
& Construction Materials sector.
The performance of mining and resources funds is generally linked to commodity prices and world
GDP growth. In South Africa, foreign exchange fluctuations (ie, the relative strength of weakness of
the rand in relation to other currencies) adds a second layer onto the performance of the sector. Some
fund managers add performance to their funds by “derivative hedging” (ie, selling short) if the
resources index is going down. Individual resource categories tend to have different cyclical patterns,
which have to be managed by the fund managers to the best advantage of the fund. Funds in the
SA–Equity–Resources sector often use the FTSE/JSE Resources index (J258T) as a benchmark.
Gold Funds
Gold funds previously had their own sector. Only one South African gold fund remains and is
now classified as a worldwide fund. The decline of South Africa as one of the world’s leading
suppliers of gold has been accompanied by diminishing interest in these funds.
The gold mining industry in SA has consolidated dramatically over the last decade. There are
currently only a handful of JSE listed stocks, reduced from over 60 some 20 years ago. This has
made it increasingly difficult for gold fund managers to stick to regulations which limit investment
in any one company. In 1999 gold fund managers successfully petitioned the FSCA to exempt them
from regulations that restrict investment in any one company to a maximum of 10% of the fund,
but this failed to halt the demise of these funds.
Gold funds perform well when the gold price is rising or expected to rise. South Africa has two
ETFs that invest directly in gold bullion, but these commodity ETFs are not unit trusts. Overseas
mutual funds and ETFs invest in gold mining companies offering exposure to major international
gold miners like Newmont and Barrick as well as South African counters.
Financial Sector Funds
These theme funds invest in financial sector companies, including banks, insurance companies,
brokerage firms and other companies whose principal business operations involve the provision of
financial services.
For funds in the SA–Equity–Financials sector, at least 80% of assets must be invested in shares
listed in the FTSE/JSE Financials industry group (or in a similar sector of an international stock
exchange for non-SA funds). Up to 10% of assets may be invested in shares that are not listed in
the Financials sector provided the companies have business activities in line with the theme. Due
to the narrower focus of these funds they may be more volatile than better-diversified portfolios.
For many funds in the SA–Equity–Financials category the benchmark is the FTSE/JSE
Financials index (J580T).
lndustrial Sector Funds
South African Industrial category funds invest in shares listed in JSE sectors such as
engineering, transportation, construction, electronics, food producers, retailers, heath care and
telecommunications. In terms of the ASISA standard, at least 80% of assets must be in industrial
shares listed on the JSE (or in a similar sector of an international stock exchange) – industrial
shares include all JSE sectors other than the FTSE/JSE Oil & Gas, Basic Materials, and Financials
industry groups. A common benchmark for SA–Equity–Industrial funds is the FTSE/JSE All Share
Industrials index (J257T).

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