Page 150 - Profile's Unit Trusts & Collective Investments - March 2025

CHAPTER 8

About Inflation
Inflation is measured by defining a basket of goods and services used by a “typical”
consumer and then keeping track of the cost of this basket, hence the term Consumer Price
Index (CPI). The annual inflation rate is derived by determining the change in the CPI index
value of the relevant month of the current year compared with the CPI index value of the same month
in the previous year, expressed as a percentage.
The “full” basket of goods and services in South Africa historically included interest rates, fuel
prices, and other volatile or seasonally fluctuating prices. CPI is also referred to as “headline”
inflation or “overall” inflation. “Core” inflation is CPI (or headline inflation) stripped of interest rates,
fuel prices, some fresh foods, VAT, and local government rates. CPI-X (also called “underlying
inflation”) is CPI stripped of mortgage costs. CPI-X, for many years the government’s benchmark for
inflation targeting, was replaced in 2009 by CPI. Mortgage costs were replaced in the basket by
“owner’s equivalent rental” (OER), the international standard indicator for housing costs.
The weightings of the various constituents of the CPI basket can be contentious. Statistics SA,
the official government agency, revises the weightings in the index every five years in line with
international best practice to ensure that the CPI reflects the current consumer spending patterns.
The lowest inflation rate in South Africa during the last 50 years was measured in 1963 (1.0%).

potential for capital growth and some risk of capital loss. A common benchmark for the sector is the
JSE/ASSA All Bond index (Albi).
Money Market Funds
These funds seek to maximise interest income while protecting income. They also provide
immediate liquidity. Funds in this sector invest in money market instruments with a maturity of
less than 13 months. The average duration of the underlying assets may not exceed 90 days and a
weighted average legal maturity of 120 days.
These funds are typically viewed as short-term, highly liquid investments. The funds are often
used by investors as a temporary investment or as an attractive alternative to a bank fixed-deposit
because of the higher interest rates. As described in chapter 7, Money Market funds use a system of
constant unit pricing which protects investors from any risk of capital loss.
A common benchmark for South African funds is the STeFI 3-month index.

Real Estate
The Real Estate category has only one General sector. Currently there are funds in two
categories at the geographic level, meaning that there are effectively two sectors: Global Real
Estate and South African Real Estate.
Real Estate – General Funds invest in listed property shares, including real estate investment
trusts (REITs) and other collective investment schemes in property. The objective of these funds is
to provide high levels of income and long-term capital appreciation. These portfolios invest at least
80% of the market value of the portfolio in shares listed in the FTSE/JSE Real Estate industry group
or similar sector of an international stock exchange and may include other high yielding securities
from time to time. Up to 10% of a portfolio may be invested in shares outside the defined sectors in
companies that conduct similar business activities as those in the defined sectors. A common
benchmark for South African funds is the FTSE/JSE SA Listed Property index (J253T).

Hedge Funds
Hedgefunds areapopularformofcollectiveinvestment scheme in most developed countries.
Hedge funds typically use leveraged strategies, including net short positions, to make profits. These
strategies, which often involve derivatives (such as futures and options) mean that a hedge fund can
suffer losses greater than its aggregate market value. Most hedge funds are structured in such a way,
however, that investors are protected from losses that exceed their capital investment.

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