Page 68 - Profile's Unit Trusts & Collective Investments - March 2026

Chapter 3 Costs and pricing

Absolute returns are harder to compare
Figure 3.2: Different types of across different scenarios (eg, where
performance tables calendar periods are not the same).
For example, imagine adverts from two
different funds, the one reporting 70%
growth over 5 years, the other 41% growth
over 3 years. It’s not immediately obvious
which did better. Using CAGR we see that
the 70% growth is the equivalent of 11.2%
a year, 41% the equivalent of 12.1%,
making it clear which fund performed
better on an annualised basis. (Of course,
this comparison is not fair because the
time periods are different, but it illustrates
why CAGR can be easier to interpret.)
To illustrate the relationship between
the different performance tables that are
encountered online, Figure 3.2 shows
trailing, discrete and rolling returns
calculated over three years for the same
fund.
Benchmarks
A benchmark is a standard or point of
reference against which something can
be judged. In the collective investments
industry, typical benchmarks are stock
indices, sector averages, inflation and
interest rates.
Unit trust funds, as part of their
mandates, define benchmarks that they
consider appropriate reference points for
fund managers and investors. Suitable
benchmarks are usually based on
securities or indicators which coincide
with the investable universe for the fund. A large cap fund, for example, might specify the JSE Alsi40
index as a benchmark, and a money market fund the AlexForbes Short Term Fixed Interest Index
(STeFI).
Where a fund manager creates a benchmark consisting of several elements combined using a
constant formula (eg, 75% JSE All Share index, 15% All Bond index, 10% MSCI World index) this is
known as a composite benchmark.
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 that were used by South African unit trust funds were the FTSE JSE All
Share index (Alsi) and FTSE JSE Shareholder Weighted index (SWIX). The SWIX index differed
from the Alsi in that it only included the shares of dual-listed companies that were available in SA.

66 Profile’s Unit Trusts & Collective Investments March 2026