Secondary

New sectors for South African collective investments

The Association for Savings and Investments South Africa (ASISA) announced this week that a new fund classification standard has been finalised and approved for implementation on the 1st of January 2013. The new standard applies to all South African regulated collective investments portfolios (all funds regulated under Part IV of the Collective Investments Schemes Control Act 45 of 2002 (CISCA)).

The latest figures from the Financial Services Board (FSB) indicate that there are currently 1019 portfolios (Unit Trusts and ETFs), registered under 45 schemes. These figures reflect all portfolios currently registered with the FSB, irrespective of whether they have been launched or not, or are dead or dormant. ASISA, according to the latest available information from them, currently provide sector classifications (under their existing fund classification standard) for 949 of these portfolios.

The new fund classification standard, amongst other things, will serve to –

  • rename and/or redefine a number of the existing classifications (sectors)
  • remove some sectors
  • introduce some new sectors

As a result, a large number of funds will be re-classified (moved) into appropriate sectors within the new structure.

It is important to note that the funds themselves will not, in the most part, change at all. It is the classification framework that houses all of the funds that is changing. As a result, the published ranked tables and their sector headings, familiar to all having been in place and substantially unchanged since 2005, will have a very different “look and feel” come January next year.

Commenting on the changes, Leon Campher, CEO of ASISA, said: “The new structure applies the ‘where and what’ principle to all funds and has done away with classifying funds according to investment styles such as value and growth”. This is confirmed by the fact that the Domestic Equity Growth and Value sectors were named as two of the sectors getting the axe, with the funds currently listed under these two sectors expected to join the newly named South African Equity General universe of funds (formerly Domestic Equity General). “This means that as from next year, all funds will be classified according to the fund’s geographic exposure and its underlying assets – equities, bonds, cash property.”

The existing standard, in place for some 7 years now, also followed to a great extent the same “where and what principle”. In addition, it applied filters based on style and pension fund regulations, both of which fall away in the new standard. Peter Blohm, senior policy adviser at ASISA, commented that “whilst CISCA does not prescribe classification, the new structure uses CISCA limits as a basis for fund classification, the key here being the move away from incorporating Pension Fund restrictions in building the CIS classification system.”

What we will see in the new structure, is the disappearance of the word “Prudential” from sector names. It is hoped that this will be accompanied by the publication of a completely separate flag (already available from some stats providers) to identify those funds that are Regulation 28 compliant. This is certainly a more intuitive approach in that investors and advisers alike will be able to utilise a combination of the new classification and the Reg.28 flag to draw a more complete conclusion as to the nature of the underlying portfolio of a fund, and its suitability for retirement fund investing. The existing system, which includes Prudential in the naming of just some of the Asset Allocation sectors, could have been interpreted to indicate that these were the only Reg.28 compliant funds available, which is misleading as it is not the case. Tier 2 of the new standard (the “what”) also serves to rename Asset Allocation to Multi Asset.

Additional adjustments were applied to the naming of the “where” (Tier 1 of the new standard), with the removal of the use of the words “Domestic” and “Foreign”. The new standard follows a more obvious and internationally portable naming convention for the geographical exposure of a fund in that, if a fund invests more than a certain percentage of its assets in a specific country or region, then its classification is named accordingly (e.g. South Africa, USA, Asia). If it invests less than a certain percentage of its assets in a specific country or region, that is to say, its assets are spread across multiple countries and/or regions, then its classification is named either “Global” or “Worldwide”, dependant on any self-imposed geographical restrictions on the fund.

According to ASISA, “selecting collective investment schemes such as unit trusts and comparing their performances will be much easier from January next year when the new Fund Classification Standard for South African Collective Investment Portfolios comes into effect.”

All of the changes, and their impact, cannot be covered here today. Over the coming weeks, Moonstone will publish a series of articles in order to provide you with a central reference point and detailed insight into:

  • why funds are classified
  • the history of and motivation for the ASISA fund classification standard
  • all of the key elements of the new standard broken down into finite detail for you and
  • feedback from industry stakeholders and information on how to navigate the new framework and where to find your funds within it.

Your feedback is invaluable to us. In order for us to provide you with information that is of value to you, or if there is something specific that you would like us to cover on collective investments, then just let us know and we will do our very best to oblige.

Enquiries can be addressed to precis@cistemic.co.za.

Karen Coleman is a highly experienced, independent collective investment schemes expert.

préCIs: Essential information for people serious about Collective Investments

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