Page 73 - Profile's Unit Trusts & Collective Investments - September 2025

Costs and pricing Chapter 3

Investors and financial advisers may, from time to time, use benchmarks other than those
defined by each fund. In a period of poor market returns, for example, it might be useful to compare
performance across a range of funds by using the inflation rate as a common benchmark (ie, to
see which have given a real return). The appropriateness of benchmarks must, however, always
be considered. As a rule, for example, it would be inappropriate to use a stock market index as a
benchmark for a money market fund.
Benchmarks are most commonly used to assess relative performance. They can also be used,
however, to compare other measures, such as volatility, holdings or fees. The average annual
management fee for a sector, for example, could be used as the benchmark against which the fees
of individual funds are judged.
Two major benchmarks used by South African unit trust funds are the FTSE JSE All Share index
(Alsi) and FTSE JSE Shareholder Weighted index (SWIX). The SWIX index differs from the Alsi in
that it only includes the shares of dual-listed companies that are available in SA.
However, the two indices have become increasingly aligned over the years as dual-listed
companies have lost their right to include all their shares in the Alsi after moving their listings to
another markets and other corporate actions.
The JSE decided that as of 18 March 2024, the ALSI would adopt a free float weighting methodology
consistent with that of the SWIX indices and ultimately the two indices will be merged. For now, both
indices data will be published as funds need the history for performance comparisons.
Reinvestment of income
Income from CISs is usually declared and paid out quarterly or twice yearly. The yield and the
frequency of income payment obviously has an impact on investment performance – particularly,
due to compounding, over longer periods.
Two methods are used in the industry for dealing with income declarations for the purpose of
calculating performance statistics.
The first method simply reinvests the income on the ex div date (ie, the day after the declaration
date) using the published price on the ex div date.
The second method reinvests the income on the payment date using the reinvestment price
supplied by the CIS manager. There can be as much as four weeks difference between the declaration
and payment, but on average it differs by a few days.
In Profile’s Unit Trusts & Collective Investments we calculate returns based on the payment date
using the reinvestment price obtained from the CIS manager. This is the more accurate method.
Note that all performance statistics reflect before-tax rates of return. For the calculation of
performance figures, reinvestment of income distributions ignores DWT and any other tax that may
be payable by an investor (eg, tax on interest). This is because applying gross distributions is the
cleanest way of creating comparable figures across different funds and management companies
– if net figures were used disputes might arise about applicable deduction levels. Some foreign
investors, for example, enjoy a lower rate of DWT, and companies and special trusts are exempt
from DWT – on a net reinvestment basis these exceptions might give rise to arguments in favour of
average DWT actually applied or other complex calculations.
DWT creates a disparity between reported performance figures and the actual returns enjoyed by
individual investors, most of whom are subject to DWT at 20%. Although distributions are treated as
free from deductions for purposes of reinvestment of income when calculating performance figures,
the actual reinvestment of a distribution for an investor occurs net of DWT (ie, after the fund manager
has deducted the withholding tax).

Tricks and tips
When looking at published performance figures – and especially when comparing performance
stats from different sources (eg, fund fact sheets from the fund managers and independent figures in
a newspaper) and/or offshore funds – always double check to see how each of the following factors
has been treated.

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