Page 67 - Profile's Unit Trusts & Collective Investments - March 2026

Costs and pricing Chapter 3

Performance statistics
Most investors consider good investment performance, What is an index?
or a good rate of return, to be essential. But how do you In the financial markets, an index is
define good performance? a calculated value designed to show
Does it mean: the trend (or the average) of a group
of securities or commodities. A simple stock market
R Top quartile performance and if so, over what index, for example, could be constructed by averaging
period? all the share prices every day. Plotting these averages
R Consistent peformance over a range of time would reveal the ‘average’ trend of prices. This would
periods? be skewed towards high-priced shares, however, so
R Tax efficient performance? more sophisticated indexes use values weighted by
market capitalisation. Indices vary enormously in
R Superior performance relative to a benchmark and breadth. The JSE Top 40 index, for example, is made
what is an appropriate benchmark? up of the 40 largest shares on the JSE; the MSCI World
R Does it mean good performance at an acceptable index, by contrast, includes around 1 400 shares
level of risk? across 23 developed markets.
R Does it mean performance above inflation? The FSCA and the Treasury are working on regulations
Measuring and comparing “investment performance” under the FSR Act to make the provision of an index
is not as simple as it seems. In addition to the question a financial service and to ensure the sustainability of
of which standard you measure against, there are also certain critical indices.
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
are designed to achieve this, but advisers and investors still need to be aware that there are several
valid ways of showing investment returns.
The methods used by fund managers and websites include trailing returns, discrete returns and
rolling returns, all of which could show either total (cumulative) or annualised performance figures
where periods are not 12 months (see total vs annual returns on page 62). All have their pros and
cons.
Many stats houses, including ProfileData, use compound annual growth rates (CAGRs) as their
main performance metric, mainly because these are comparable across a wide range of scenarios.
It also makes rates of return somewhat comparable to interest rates on risk-free products.
For lump sum investments, CAGR is compounded annually (and is therefore comparable to the
effective annual rate for fixed interest products). For monthly annuity performance figures, we report
an annual growth rate compounded monthly (this is logical where contributions are made monthly).
In other words, a performance figure of 10% achieved via a monthly debit into an equity fund means
that, to get the same return, an investor needed an interest rate of 10% per annum (paid monthly in
arrears).

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