Page 71 - Profile's Unit Trusts & Collective Investments - September 2025

Costs and pricing Chapter 3

Media reports
In addition to the (at least) annual report from the What is an index?
portfolio manager, investors and advisers will also find In the financial markets, an index is
considerable information available in the media. Various a calculated value designed to show
internet services and LISPs make available fact sheets the trend (or the average) of a group
(similar to the ones in this handbook), and prices and of securities or commodities. A simple stock market
performance statistics are available in many daily and index, for example, could be constructed by averaging
weekly newspapers and financial magazines. all the share prices every day. Plotting these averages
Tables of performance figures in the press usually would reveal the ‘average’ trend of prices. This would
follow the classification system used by the industry (see be skewed towards high-priced shares, however, so
Chapter 8). more sophisticated indexes use values weighted by
The grouping of funds for comparative purposes is market capitalisation. Indices vary enormously in
breadth. The JSE Top 40 index, for example, is made
important because of the difficulties of comparing the up of the 40 largest shares on the JSE; the MSCI World
performance of different asset classes. Fixed-interest index, by contrast, includes around 1 400 shares
funds, for example, are subject to very different factors across 23 developed markets.
than equity funds. Fixed-interest funds are therefore
grouped together in their own sectors, as are the various The FSCA and the Treasury are working on regulations
equity fund categories. under the FSR Act to make the provision of an index
a financial service and to ensure the sustainability of
Another benefit of tables organised in categories is the certain critical indices.
ability to view a group of comparable funds in relation to
an industry benchmark, such as the JSE All Share index for general equity funds.
Performance statistics
Most investors consider good investment performance (a good rate of return) the sine qua
non of investing in a CIS. This seems too obvious to mention, but in fact the definition of “good
performance” is not entirely clear.
If “good performance” means, say, top quartile performance, then over what period? Or does
it mean consistent performance over any range of time periods? Or does it mean tax efficient
performance (which is affected by the mix of capital gain vs income in the total return)? Or does it
just mean a superior performance to an appropriate benchmark? And then there’s the question of
risk – surely good performance must be achieved at an acceptable level of risk? What about inflation
– surely performance figures are meaningless unless they take inflation into account?
Measuring and comparing “investment performance” is not as simple as it seems. In addition to
the question of which standard you measure against, there are also a number of more technical
issues which impact on investment performance and how it is presented. These include:
R Performance figures may be presented as absolute returns, average annual returns
(compounded or not), or even rolling annual returns
R The costs associated with unit trust investment may be either included or excluded (although
the industry standard is NAV-to-NAV figures)
R Lump sum and monthly investments require different treatment to enable fair “like with like”
comparisons
R Different methods for calculating the reinvestment of dividends and interest may be used
R Comparable calendar periods must be used when comparing the performances of different
funds
R Where a benchmark is used, the benchmark must be applied consistently and must be
appropriate to the particular fund
Trailing, rolling, discreet and CAGR
In the ideal world, all performance figures would be expressed in a standardised and universal
way, making it possible to compare rates of return across a range of products notwithstanding
different fee structures and investment strategies. Many regulations around performance reporting

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