Page 149 - Profile's Unit Trusts & Collective Investments - March 2026

Classification of CISs Chapter 8

R The second tier classifies hedge fund portfolios according to geographic exposure:
„ South African portfolios invest at least 55% of their assets in local markets.
„ Worldwide portfolios invest in both South African and foreign markets. There are no limits
set for either domestic or foreign assets.
„ Global portfolios invest at least 80% of their assets outside SA, with no restriction on
geographical concentration.
„ Regional portfolios give investors at least 80% exposure to assets in a specific country or
region (such as the US or Europe).
R The third tier of classification is based on investment strategy:
„ Long Short Equity Hedge funds predominantly generate returns from positions in the
equity market regardless of the specific strategy employed.
„ Fixed Income Hedge Funds are portfolios that invest in instruments and derivatives that
are sensitive to movements in the interest rate market.
„ Multi-Strategy Hedge funds are portfolios that do not rely on a single asset class to generate
investment opportunities but rather blend a variety of different strategies and asset classes
with no single asset class dominating over time.
„ Other Hedge funds are portfolios that apply strategies that do not fit into any of the other
classification groupings.
R The fourth tier of classification applies only to Long Short Hedge fund portfolios.
These portfolios are further categorised as follows:
„ Long Bias Equity Hedge funds will, over time, aim for a net equity exposure in
excess of 25%.
„ Market Neutral Hedge funds are expected to have very little direct exposure to the equity
market. On average, over time, net equity exposure should be less than 25% but greater
than -25%.
„ Other Equity Hedge funds is for portfolios that follow a very specific strategy within the
equity market such as listed property or a sector specific strategy.
ASISA will consider adding new categories when there are five or more hedge fund portfolios in
either the Qualified Investor Hedge fund or Retail Investor Hedge fund categories with an identical or
substantially similar objective and investment policy.
Other categories that could arise in SA in the future include volatility arbitrage, commodities,
structured finance and event-driven strategies (all of which are found overseas). An event-driven
strategy looks to exploit corporate actions like mergers, acquisitions and unbundlings. Discretionary
macro funds take bets on the direction of currencies, major market indices, commodities and
interest rates.
Other types of funds
Two fund types no longer have separate categories in the unit trust classification system – Fund
of Funds and Index funds. These funds merely use different methods for achieving the same
investment mandates as their competitors.
These categories transcend the sectors of the classification system. Many management
companies have launched fund of funds in the Worldwide and Global sectors, and they also feature
in the South African–Equity and Multi Asset sectors. Index funds are also found in a number of
Equity and Multi Asset sectors.
Fund of funds (FoF)
A fund of funds (or “FoF” for short) is a unit trust that invests in a range of other unit trusts.
When FoFs were first introduced in 1998, legislation at the time required that funds of funds could
have no more than a 20% exposure to any one unit trust fund. This meant that a FoF had to invest in
a minimum of five component unit trust funds. This requirement has subsequently changed – since
August 1999 FoFs need only consist of two underlying unit trusts (max 75% in any one fund).

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