Page 30 - Profile's Unit Trusts & Collective Investments - September 2025

Chapter 1 History of collective investment schemes

then called). In the late 1980s and early 1990s,
Diversification fund managers of general equity funds found fund
The process of spreading investments performance constrained by the lacklustre performance
of mining stocks, which made up a significant portion
among several different instruments of the JSE – to achieve proper diversification, fund
or markets in order to reduce the managers could not leave these out of portfolios. This led
overall risk of loss should a single instrument perform to the establishment of funds that focussed exclusively
poorly. on financial and industrial shares.
Apart from the obvious commercial advantages of
a broader product range which would attract a broader
What is a wrapper? customer base, general equity funds were to a large
Wrapper is a generic term for a diverse extent tied to the fortunes of the overall market. The
range of financial products that performance of a fund, however, was largely perceived,
combine various underlying investment options into at least by the man in the street, as a function of fund
one unit or channel. Some wrappers allow clients management, with the management companies held
to select the underlying investments, others have responsible for performance. Product differentiation
a fixed structure. Common forms are a retirement helped management companies to shift the burden of
annuity (RA) wrapper, which may use unit trusts as performance expectations, at least to some extent, to
the building blocks for a Regulation 28-compliant the investor. With a range of general and specialist funds
product, and the tax wrapper, which “wraps” available across different asset classes and different
investments inside a tax-efficient vehicle, such as a geographic areas, investment performance is now
life assurance, or endowment policy. perceived largely as a function of the sector (or range of
sectors) that an investor chooses.

The crash of 1987
Just short of two decades after the crash of 1969, world markets experienced another meteoric
rise followed by a dramatic fall in share prices. Unlike 1969, and to the surprise of those investors who
sold out as fast as they could, the markets recovered quickly. Instead of the decade-long recovery
period of 1969, prices rebounded in less than a year following the crash of 1987.
Compared to the crash of 1969, the 1987 fall in JSE prices had a minimal effect on the unit
trust industry.
A major reason for this is that many investors had been in the market for some time. In 1969, the
industry doubled in size in the month of the crash. This meant that half the investors involved in
equity unit trusts had bought close to the peak, making them very exposed to the decline in prices
which followed.
The situation in 1987 was far more balanced. Industry assets had reached R2.7bn by the end of
1986. Although net inflows for 1987 were very strong because of the bull market (over R1bn), the
fact remained that some 70% of unit trust investors had entered the market before prices began to
skyrocket. These investors were less vulnerable to a fall in prices, and were not panicked into selling.
Indeed, investors who had been in the market for some years were typically still showing positive
portfolio appreciation in spite of the 1987 crash. These investors were much more inclined to give
the market a chance to recover – which it did, and with great alacrity.

Advent of managed Prudential funds
An important development in the unit trust arena centred on the managed Prudential funds (now
known as Regulation 28 compliant funds), which allowed unit trusts to attract investments that,
historically, had been the preserve of the retirement funding industry.
Prudential funds first appeared as a unit trust sector in 1996. What were known as “managed”
or “balanced” funds were at that time divided into Prudential funds and Other Managed funds.
The Prudential funds were those managed according to the prescribed asset requirements applicable
to pension funds (specifically, the Prudential Investment Guidelines stipulated in Regulation 28 of
the Pension Funds Act).

28 Profile’s Unit Trusts & Collective Investments September 2025