Active management and the cost of active management of South African general equity unit trusts

Coetzee, Ruan (2017-03)

Thesis (MCom)--Stellenbosch University, 2017.

Thesis

ENGLISH SUMMARY : Investors have various investment options available to provide future wealth. One of the options is to invest in unit trusts. On 31 December 2015 there was a total of R 1 656 448 million invested in South African unit trusts, making this a large investment vehicle. The objectives and constraints of investors should determine in which type of unit trust they invest. This study examines general equity unit trusts in South Africa. Many investors do not know how actively their active unit trusts are managed, what portion of the management cost is attributable to the active component of the unit trust and how much is attributable to the passive component of the unit trust. The focus of this study was to determine how active general equity unit trusts in South Africa are managed, whether the active management delivers enhanced risk-adjusted returns, and how much investors are paying for active management. The study was conducted over eight years, from 1 January 2008 to 31 December 2015. The primary objective consisted of two sections. Firstly, the study set out to classify general equity unit trusts in South Africa according to how actively they are managed. This is done through calculating the active share and tracking error for the unit trusts. The results indicated that most (71%) of the analysed general equity unit trusts had an active share lower than 50% and a tracking error lower than 8%. These active funds invested more than 50% of their assets similar to the index. Secondly it was determined how the classifications of unit trusts performed on a risk-adjusted basis. This is calculated through means of five risk-adjusted performance measures. The study found that the amount of active management does not influence risk-adjusted returns in a statistically significant manner. The secondary objective investigated the cost of investing in general equity unit trusts. The unit trusts were divided into an active and a passive component based on active share and tracking error. The total expense ratio (TER) of the unit trusts was compared to the active and passive components of the unit trusts to determine how much of the TER is attributed to active management. The average fund TER was 1.55%, with the average cost on the active component being 3.85%. The average alpha for the active component was -1.54%. This means that investors are paying a substantial amount more for the active component of the unit trust than for the passive component, without receiving the benefit of a higher return.

AFRIKAANSE OPSOMMING : Beleggers het verskeie beleggingsmoontlikhede beskikbaar om toekomstige welvaart te verskaf. Een van hierdie beleggingsmoontlikhede is effektetrusts. Op 31 Desember 2015 was daar R 1 656 448 miljoen belê in Suid-Afrikaanse effektetrusts, wat dit ʼn groot beleggingsinstrument maak. Die doelwitte en beperkings van beleggers bepaal in watter tipe effektetrust hulle sal belê. Hierdie studie ondersoek algemene ekwiteit effektetrusts in Suid-Afrika. Baie beleggers weet nie hoe aktief hulle aktiewe effektetrusts bestuur word nie, asook nie watter gedeelte van die bestuurskostes toeskryfbaar is tot die aktiewe komponent van die effektetrust en watter gedeelte van die bestuurskostes toeskryfbaar is tot die passiewe komponent van die effektetrust nie. Die studie se fokus is om te bepaal hoe aktief algemene ekwiteit effektetrusts in Suid-Afrika bestuur word, of die aktiewe bestuur ʼn verbeterde risiko-aangepaste opbrengs lewer, en hoeveel beleggers betaal vir aktiewe bestuur. Die studie het oor ʼn tydperk van agt jaar gestrek, vanaf 1 Januarie 2008 tot 31 Desember 2015. Die primêre doelwit bestaan uit twee gedeeltes. Eerstens het die studie algemene ekwiteit effektetrusts geklassifiseer volgens hoe aktief hulle bestuur word. Dit is gedoen deur die aktiewe aandeel (active share) en navolgingsfout (tracking error) vir die effektetrusts te bereken. Die resultate dui daarop dat meeste (71%) van die geanaliseerde algemene ekwiteit effektetrusts ʼn aktiewe aandeel het van laer as 50% en ʼn navolgingsfout het van laer as 8%. Hierdie aktiewe fondse belê meer as 50% van hul bates soortgelyk aan die indeks. Tweedens word bepaal hoe die klassifikasies van effektetrusts presteer op ʼn risiko-aangepaste basis. Dit is bereken deur middel van vyf risiko-aangepaste prestasiemaatstawwe. Die studie vind dat die hoeveelheid aktiewe bestuur nie die risiko-aangepaste opbrengs op ʼn statistiese beduidende manier beïnvloed nie. Die sekondêre doelwit het die kostes verbonde aan algemene ekwiteit effektetrusts ondersoek. Die effektetrusts was verdeel in ʼn aktiewe en passiewe komponent, gebaseer op die aktiewe aandeel en die navolgingsfout. Die totale onkosteverhouding (total expense ratio) van die effektetrusts was vergelyk met die aktiewe komponent en die passiewe komponent van die effektetrust, om te bepaal hoeveel aktiewe bestuur bydra tot die totale onkosteverhouding. Die gemiddelde fonds se totale onkosteverhouding was 1.55%, met ʼn gemiddelde koste toegeskryf aan die aktiewe komponent van 3.85%. Die gemiddelde alpha van die aktiewe komponent was -1.54%. Dit beteken dat beleggers ʼn geruime hoeveelheid meer betaal vir die aktiewe komponent van die effektetrust as vir die passiewe komponent, sonder om die voordeel van ʼn hoër opbrengs te ontvang.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/101444
This item appears in the following collections: