Page 129 - Profile's Unit Trusts & Collective Investments - March 2026

Understanding asset allocation Chapter 7

Rand-denominated funds in SA registered under
CISCA are not permitted to invest in alternative assets Arbitrage
like fine art, gold bullion, Persian carpets or livestock. Arbitrage is the activity of profiting
Overseas, however, there are dozens of funds that offer from differences in price when
alternative assets to investors. A number of ETFs allow the same security, currency, or
investors to add baskets of cannabis stocks to their commodity is traded on two or more markets.
portfolios. There’s an ETF that provides long exposure to
the dry bulk shipping market through a portfolio of near- Where discrepancies between different markets
dated freight futures contracts on dry bulk indices. appear, the arbitrageur will step in to exploit the
Many alternative investment funds are unregulated situation. The arbitrage dealer’s selling price is
higher than the buying price. By taking advantage
and unlisted (ie, investors deal directly with the fund of momentary disparities in prices between markets,
manager). Such private funds are often illiquid and have arbitrageurs perform the economic function of
high fee structures. Investors attracted to funds offering making those markets trade more efficiently.
alternatives need to be aware that price discovery is
often opaque and asset valuations educated guesses at
best – particularly in the case of collectibles, where prices achieved at auction can fluctuate wildly.
Even exotics that are accessed via registered ETFs or mutual funds overseas are typically more
volatile than traditional asset classes.
Infrastructure
Asset managers are increasingly reporting their portfolio investments in infrastructure, although
infrastructure assets span a number of different asset classes. In South Africa, investments in
infrastructure also get special mention in Regulation 28 of the Pension Funds Act.
In Regulation 28, infrastructure is referred to as any asset that has or operates with a primary
objective of developing, constructing and/or maintaining physical assets and technology structures
and systems for the provision of utilities, services or facilities for the economy, businesses or the
public.
Infrastructure assets may be equities, bonds or property either listed or unlisted. Sometimes
managers invest in listed infrastructure funds.
These underlying assets typically involve projects or companies that provide essential services
such as energy, transportation, water and telecommunications. Infrastructure investments are
considered to offer diversification benefits and long-term stable returns, making them attractive for
institutional investors.
Revisions to Regulation 28 of the Pension Funds Act in 2022 make it possible for retirement funds
to invest up to 45 percent of the fund in infrastructure assets.
However, sub-limits apply such as 15% exposure to unlisted infrastructure equity and 15% to
unlisted infrastructure debt. Funds can allocate an additional 15% to listed infrastructure debt and/
or equity.
The amendment was intended to encourage greater participation in national development projects
while maintaining prudent risk management standards.
In comparison, collective investment schemes in securities do not have a dedicated investment
limit for infrastructure or any limit for unlisted credit. Unlisted instruments in a fund are limited to 10
percent of the fund and certain conditions apply.

Balancing the asset mix
Increasingly, unit trusts are used not so much as discrete investment destinations but as the
building blocks of broader investment strategies. In the current investment environment, relatively
few investors own a single unit trust – more typically, a balanced portfolio is constructed using
several unit trusts that, together, match the investment profile and financial objectives of an investor.
In this environment it is not enough to know the different asset classes and their characteristics,
one must also understand how they work together. This is particularly relevant when it comes
to retirement funding products and annuities, where the regulatory framework and ethical
considerations both demand that investors receive appropriate advice and suitable products.

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