Page 138 - Profile's Unit Trusts & Collective Investments - September 2025

Chapter 8 Classification of CISs

Chapter 8

Classification of CISs
NQF
Relevant to
Collective investment schemes (CISs) are grouped into sectors 242594: 3, 4
to enable investors to compare funds with similar objectives and 242612: 1 - 3
comparable benchmarks in terms of performance, risk and other 243130: 1
243147: 2
measures. The classification standard is devised and maintained by 243148: 3
ASISA and reviewed and adjusted from time to time to accommodate 243155: 1
developments in the collective investments industry.
Classification systems for collective investments are very important when it comes to identifying
which fund managers outperform their peers both locally and globally. Performance rankings are
only meaningful when funds can be compared fairly.
Similarly, if investors choose a suitable asset allocation, they need to be able to identify the funds
in a category and be sure that those funds have similar mandates and are comparable.
Early classification systems were simple as there were much fewer funds. At the end of 1995,
for example, there were just 88 South African funds in four main categories: General Equity (24),
Specialist Equity (41), High Income (16) and Gilt (7). Only the Specialist Equity category had
sub-sectors: Mining and Resources (7), Gold (2), Industrial (4), Balanced/Managed (10), Index (4),
Industrial (6), and Other Specialist Equity (8).
The classification system was revamped in July 1999. A three-tier structure was introduced which
applied the “where and what” standards used in the UK and US. The first tier (domicile of assets,
the “where”) consisted of Domestic, Worldwide, Foreign and Regional categories. (The Regional
category was dropped in 2005 reintroduced in 2013 and dropped again in 2024.) The second and
third tiers (asset allocation and specific focus respectively) provided the “what”: equities, asset
allocation or “fixed-interest” at the second level, and more specific sub-sectors – such as Large Cap
under Equity or Money Market under Fixed Interest – at the third level. Not all sector permutations
actually existed – a category was only created when there were a sufficient number of funds to
populate the sector. Although a Regional–Asset Allocation–Flexible category was theoretically
possible, for example, no such funds operated in SA at the time.
Although the 1999 revision of sectors largely achieved its objective, from the outset categories
were introduced which deviated from the “what” principle. At the third tier for Equity funds, for
example, the standard provided for both gold funds and empowerment funds, but where the former
clearly defined what the fund invested in, the latter was based on who owned the underlying assets.
Similarly, in the Asset Allocation category, the Prudential sector was based not principally on what
funds invested in but on whether they were Regulation 28 compliant – hence the first iteration of this
category lumped together funds with widely divergent equity exposures.
Revisions of the fund classification
In 2013 the fund classification standard was revised to restore the “where and what” principle
to the sector structure. Funds are now strictly classified according to geographic exposure and
underlying assets. Categories which, under the previous standard, had been created mainly for
marketing reasons, have been eliminated – this includes the style sectors (Value and Growth) and
the Prudential sectors.
In 2024 the ASISA classification standard was again revised following the 2022 increase in
offshore investment limits to 45% by the South African Reserve Bank (SARB). When the increase
was announced offshore exposure for funds classified as South African was 30% outside of SA and
an additional 10% in Africa, excluding SA.
Effective, 1 October 2025, ASISA will introduce new fund categories to improve comparibility and
clarity for investors. These include 100% South African categories, as well as a new Global category.

136 Profile’s Unit Trusts & Collective Investments September 2025