GOOD UNIT TRUST CHOICES

GOOD UNIT TRUST CHOICES

By: FELICITY DUNCAN

According to the Association for Savings and Investment SA (ASISA), South Africans have over R1 trillion invested in collective investments. These funds make up a substantial portion of South African retail investors’ savings, and therefore picking the right unit trust is one of the most important investment decisions the average retail investor can make. However, with over 900 registered funds available, selecting a winner is not easy. Let’s take a look at how you can improve your chances of picking a good ‘un.

Step one: What kind of fund are you looking for?

There are many different types of unit trusts, ranging from less risky but less likely to deliver knockout returns money market funds to riskier but more likely to deliver inflation-beating returns equity funds, with asset allocation funds, which invest in a balanced portfolio of equity, fixed interest, and property, falling somewhere in the middle.

The first consideration when selecting a fund is thus your risk profile. Different funds are tailored to different risk profiles: when you’re close to retirement, you should err on the side of conservative and low return, when you’re a younger investor, take on more risk and focus on higher returns.

A second consideration is how many funds you’ll choose to invest in. If you don’t want to do a lot of research or put all your eggs in one basket, spreading your investment among several managers with different styles can be a good way to manage risk. Also remember that if you want diversity without complexity, you can pick a multi-manager fund that combines a number of funds into one platform rather than a fund run by a single manager.

Armed with an idea of what type of fund you want, you can now begin to browse your options. A great tool for doing so is found on the Moneyweb site, where you can select what type of fund you want and see a list of funds in that class ordered by one-year performance ranking.

Remember, of course, that short-term performance isn’t a great guide to investing. So be sure and look at the three-year (or longer) performance data before drawing up your list of maybes, and remember that even that is not a perfect guide to the future.

Step two: Narrow down your options

You’re now armed with a list of potential candidates and it’s time to take a more detailed look at them. Head over to Moneyweb’s unit trust tool and read over the information provided about the fund’s manager and objectives, then use the unit trust portfolio tool to get a sense of exactly what the fund is invested in the idea is to get as much information as you can.

If you’re going with a single manager fund, look for an experienced fund with an investment philosophy you agree with. Some managers take a long-term approach, which can build wealth over the years but can also mean short-term losses, while others prefer stable returns. Pick someone you feel comfortable with. Also look for a fund that has a target (e.g. All Share Index performance plus 2%) that works for you.

At this point, you should also be considering the question of fees. Fees are one of the things that can seriously erode your returns, so make sure you pick a fund that charges reasonable fees. In addition, while you shouldn’t blindly go with a big brand name, it is worth keeping in mind that bigger management companies are usually able to manage their costs better and thus charge lower fees (although if they get too big, they lose the ability to invest in smaller, riskier companies and make quick investment changes).

Once you think you’re ready to pick, you should go over your choices with a trusted financial adviser before you make the investment it’s always a good idea to get a professional opinion. Then, with your research done and your adviser behind your choices, pull the trigger, and enjoy many happy returns.