Page 53 - Profile's Unit Trusts & Collective Investments - September 2025

Basic concepts Chapter 2

the preservation of an initial investment with no growth can represent a significant capital loss in real
terms over five years.

Investment trusts
An investment trust is not a trust at all; it is a listed holding company that invests in other companies
listed on the stock exchange. Investment trusts fall under the provisions of the Companies Act rather
than the Collective Investment Schemes Control Act. The introduction of CGT in 2001 effectively
shut down SA’s only surviving investment trust (Genbel).
Until the introduction of CGT, investment trusts were almost as easy to buy as unit trusts. The
main reason for their relative lack of popularity in SA was that they were never actively marketed
and were never sold by sales teams earning commission. SA’s biggest investment trust, Genbel,
even initiated a scheme enabling investors to buy shares via monthly debit order, which proved very
successful.
In spite of lobbying by Genbel, the tax authorities refused to extend the CGT exemption granted to
unit trusts to investment trusts. This meant that investors in investment trusts would effectively pay
CGT twice: the investment trust itself would pay CGT on the profits of share investment, and the unit
holder would pay CGT again on any profits made by holding the units. Unit trusts are exempt from
CGT, which is levied on the unit holder and not at fund level.
While investment trusts in a formal sense no longer exist in SA, there are still diversified companies
listed on the JSE. A company like Bidvest, for example, owns businesses in a wide range of industry
sectors, from automotive and shipping to banking, insurance and office furniture. This spread of
investments provides a level of diversification not dissimilar to some specialist unit trusts. It might
also be argued that, in SA, Exchange Traded Funds (ETFs) – which can be traded on the JSE like
other shares – have filled the gap left behind by investment trusts.
Shares in diversified listed holding companies and ETFs are bought through a stockbroker. Typical
entry costs amount to less than 1%, and may be as low as half a percent. This compares favourably
to the average entry costs of those unit trusts that still levy initial fees, especially if financial adviser
commissions are included. The majority of unit trusts, however, no longer charge upfront fees.
The costs of maintaining an online stockbroking account are low. Typically a small fixed monthly
custodial fee is levied, not a percentage of portfolio value. This makes stockbroking accounts cost-
effective for larger amounts of capital.
Overseas, investment trusts are considered more risky than unit trusts because they can invest
in unlisted shares and physical property, and because they can borrow money and use derivatives
without any material regulatory restrictions. They remain popular in the UK.

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