Page 111 - Profile's Unit Trusts & Collective Investments - March 2026

Investment risk Chapter 6

Quantitative vs qualitative
Most of the methods for evaluating risk mentioned in this section are quantitative – that is,
they are calculations based on quantifiable fund data. Quantitative analysis is essentially the
mathematical and statistical interrogation of data in order to measure performance, risk and
other factors. Qualitative analysis, by contrast, depends on the subjective judgment of industry experts
and concerns itself with factors that cannot easily be quantified, such as management expertise,
investment flair and economic cycles. Traders, researchers and fund managers who rely heavily on
quantitative analysis are often referred to as “quants”, although the term is also used to describe the
metrics of a fund or other investment vehicle.
multi-asset flexible funds. Over the five years to January 2026, both funds delivered an annualised
return of 8.68% – representing a similar performance.
A R100 000 lump sum invested in either fund would have grown to approximately R151 500 over
the five-year period (excluding entry costs). However, where the funds differ is in the level of risk
experienced by investors. The Instit BCI Worldwide Moderate Aggressive Flexible Fund recorded a
standard deviation of around 12.59, whereas the Rock Capital BCI Worldwide Flexible Fund had a
lower standard deviation of about 8.13, indicating less volatility in returns.
The implications of the higher volatility of the Instit BCI Worldwide Moderate Aggressive Flexible
Fund is illustrated in Figure 6.4. Although the ‘’total return’’ lines for the two funds start and end in
more-or-less the same place, the Instit fund is markedly more volatile. This figure illustrates the risk/
return principle: the risk of a dramatic reversal of fortune at any arbitrary point in time is much lower
with the less volatile fund (provided a ‘’high’’ exit point is achieved).
The Instit BCI Worldwide Moderate Aggressive Flexible Fund and the Rock Capital BCI Worldwide
Flexible Fund illustrate very well the real meaning of ‘’volatility’’. As you can see from Figure 6.4, they
have comparable performance over time, and almost identical performance at various points. But
the greater volatility of the Instit fund means the return at any point in time is less predictable.
Figure 6.4 also illustrates why volatility is used as a synonym for risk. The Instit fund is considered
riskier because, based on possible random (or unexpected) exit points, an investor might have been
considerably better off or considerably worse off than in the less risky Rock Capital fund. Obviously
this is due to the higher peaks and lower troughs of the Instit fund.
As you would expect, different unit trust sectors have different average volatilities and differing
volatility ranges. The latter means that drawing conclusions solely from sector volatility averages
can be misleading. The South African–General–Equity fund sector, for example, has a wide range
of volatilities and a relatively high average, but the least volatile general equity fund is often less
volatile than the most volatile South African Real Estate fund (although the latter sector is, on
average, less risky).

Figure 6.4: The effect of volatility

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