Page 73 - Profile's Unit Trusts & Collective Investments - March 2025

Costs and Pricing

the ALSI in that it only includes the shares of dual-listed companies that are available in South
Africa.
However, the two indices have become increasingly aligned over the years as dual-listed
companies have lost their right to include all their shares in the ALSI after moving their listings to
another markets and other corporate actions.
The JSE decided that as of March 18 2024, the ALSI would adopt a free float weighting
methodology consistent with that of the Swix indices and ultimately the two indices will be
merged. For now, both indices data will be published as funds need the history for performance
comparisons.
Reinvestment of Income
Income from CISs is usually declared and paid out quarterly or twice yearly. The yield and the
frequency of income payment obviously has an impact on investment performance – particularly,
due to compounding, over longer periods.
Two methods are used in the industry for dealing with income declarations for the purpose of
calculating performance statistics.
The first method simply reinvests the income on the ex div date (ie, the day after the
declaration date) using the published price on the ex div date.
The second method reinvests the income on the payment date using the reinvestment price
supplied by the CIS manager. There can be as much as four weeks difference between the
declaration and payment, but on average it differs by a few days.
In Profile’s Unit Trusts & Collective Investments we calculate returns based on the payment date using
the reinvestment price obtained from the CIS manager. This is the more accurate method.
Note that all performance statistics reflect before-tax rates of return. For the calculation of
performance figures, reinvestment of income distributions ignores dividends withholding tax
(DWT) and any other tax that may be payable by an investor (eg, tax on interest). This is because
applying gross distributions is the cleanest way of creating comparable figures across different
funds and management companies – if net figures were used disputes might arise about applicable
deduction levels. Some foreign investors, for example, enjoy a lower rate of DWT, and companies
and special trusts are exempt from DWT – on a net reinvestment basis these exceptions might give
rise to arguments in favour of average DWT actually applied or other complex calculations.
DWT creates a disparity between reported performance figures and the actual returns enjoyed
by individual investors, most of whom are subject to DWT at 20%. Although distributions are
treated as free from deductions for purposes of reinvestment of income when calculating
performance figures, the actual reinvestment of a distribution for an investor occurs net of DWT
(ie, after the fund manager has deducted the withholding tax).

Tricks and Tips
When looking at published performance figures – and
especially when comparing performance stats from different
sources (eg, fund fact sheets from the fund managers and
independent figures in a newspaper) and/or offshore funds –
always double check to see how each of the following factors
has been treated.
Have costs been taken into account? If so, exactly
which costs are excluded and which are included in
the calculation? Most performance figures are net of
annual management fees but don’t take into account
initial charges, broker commissions, trailer fees and
exit fees.
Are the different figures calculated over the same
period? A fact sheet might quote a three-year return

Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts 71