Page 152 - Profile's Unit Trusts & Collective Investments - September 2025

Chapter 8 Classification of CISs

Variable Term funds
Funds in the Interest Bearing–Variable Term sector (the bond funds) are permitted to invest in the
broadest range of interest bearing instruments, including bonds, fixed deposits and other interest-
based securities. These funds may also invest in short, intermediate and long-dated instruments
– no limit is placed on the average duration of portfolios. Funds in this sector actively manage a mix
of underlying investments in order to achieve the best combination of interest yield (income) and
capital performance. The mix of assets and the average duration of a fund may fluctuate considerably
over time depending on the manager’s assessment of interest rate trends. The majority of funds in
the sector distribute income either quarterly or half-yearly. These funds offer the 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 funds
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
Hedge funds are a popular form of collective investment 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.
A well-run hedge fund should, in theory,
be less risky than an equity fund. A key
feature of hedge funds is that they are the
only mainstream investment vehicles able to
generate positive returns when markets are
falling.

150 Profile’s Unit Trusts & Collective Investments September 2025