Page 27 - Profile's Unit Trusts & Collective Investments - September 2025

History of collective investment schemes Chapter 1

The advert which appeared in the Financial Mail in June 1965 proclaimed the launch of SA’s
first mutual fund. It was constituted under the Unit Trusts Control Act, 1947 as amended.
The term mutual fund, which is what unit trusts are called in the US, carried positive
connotations from the American market, where these products had offered investors good
returns for many years.
The differences between mutual funds and unit trusts lie in their structure; the end result for the
investor is much the same.
On a simple level, a unit trust is established as a trust, while a mutual fund has the structure of a
limited liability company. A unit trust is overseen by a trustee company, while in a mutual fund it is the
responsibility of the directors of the mutual fund company to ensure that the fund manager and the
custodian perform their duties in accordance with the constituting documents.
Donald Gordon, Liberty, Nedbank, and several personal friends of Shill and Gordon. Initial assets of
the fund were R600 000.
The fledgling industry grew relatively quickly. It offered investors professional management of
assets, spread of risk across a broad portfolio of shares, the ability to liquidate the investment on
demand, low initial investment amounts, tax effectiveness, and low costs compared to other products
available at the time.
The crash of 1969
The 1960s bull run lifted the local market by some 450% between 1961 and 1969, much of the
action occurring in the last two years. By May 1969, the peak of the share market boom, assets under
management in the new unit trust industry had climbed to not far short of R1bn. Inflows showed a
strong rising trend: R45m in 1967, R141m in 1968. The strength of the bull market in the late 1960s is
illustrated by the fact that industry sales in May of 1969 – just one month – leaped to R562m.
Like nearly all stock market declines in SA, the crash of 1969 was triggered by a fall in US markets
(in turn triggered by rising inflation, increased deficits from the Vietnam War, monetary tightening
and economic recession). SA’s bull run had been more sustained than that in the US and as a result
the crash in SA was more severe. The SA market also took longer to recover.
The intensity of the final phase of the bull run in SA was, however, to have an unfortunate impact
on the industry. The bubble that finally burst in May 1969 left deep scars in the industry, which, quite
literally, took over 10 years to recover. Between May 1969 and October 1971 the JSE fell over 60%.
It was not until 1983 that industry assets surpassed their May 1969 level.
The virtual hibernation of the unit trust industry after the 1969 crash was due to a number of factors:
R The regulatory authorities adopted a more cautious approach, and discouraged the
management companies from resuming active marketing of unit trusts.
R Many members of the public who had lost money in the crash of 1969 lost faith in the power
of share markets to create wealth. Stories abounded of losses suffered and the risks of share
investments. As all unit trusts at the
time were equity-based, demand for
units virtually dried up.
R With the industry size drastically
reduced because of falling share prices,
continual repurchases and almost no
new sales, the profitability of running
unit trusts from the point of view of the
management companies was much
diminished. This further discouraged
any early resumption of marketing and
sales efforts.

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