New ASISA fund classification to make it easier for investors

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.

The Association for Savings and Investment South Africa (ASISA) unveiled the new fund classification structure this week after it was approved by the ASISA Board early in September.

Leon Campher, CEO of ASISA, says it took ASISA three long years to revise the old fund classification standard inherited from the Association of Collective Investments (ACI) in 2008.

“Not only did we have to ensure complete buy-in from our members, but we also had to test the proposed new fund classification structure with the Financial Services Board, since they regulate collective investment schemes against our fund classes.”

Campher says 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 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).

What to expect come January 2013

As from January next year investors will be able to choose from South African (previously Domestic), Worldwide, Global (previously Foreign) and Regional (new category) portfolios.

Each of these categories will be sub-categorised into Equity, Multi Asset (previously Asset Allocation), Interest Bearing (previously Fixed Interest), and Real Estate portfolios.

The third tier of classification will categorise funds according to their main investment focus, for example Equity – Large Cap, Multi Asset – High Equity, Interest Bearing – Money Market, or Real Estate – General (see table for complete overview).

In terms of the new ASISA Fund Classification Standard, fund names must be a true reflection of what the fund is all about. Therefore:

  • Fund of funds must have the wording “fund of funds” included in their names.
  • Index portfolios must have the word “index” or “tracker” included in their names.
  • Money market portfolios must have the wording “money market” in their names.
  • Feeder portfolios must have the wording “feeder funds” in their names.
  • Portfolios may only use the word “institutional” in their names if they are exclusively available to retirement funds, long-term insurers, investment managers or collective investment schemes.

The benefits

Campher says where in the past the fund classification structure existed mainly for marketing purposes ASISA and its members believe that the classification of funds should provide investors with a tool to make it easier to understand what exactly they are investing in.

The ASISA Fund Classification Standing Committee was therefore appointed in 2009 by the ASISA Investments Board Committee and tasked with creating a new and much simplified fund classification structure.

“In 1965 our industry consisted of two unit trust funds and two unit trust management companies. When by 1996 there were 107 funds and 21 unit trust management companies, the industry decided to classify funds for the first time, paving the way for performance awards based on the various categories. Today our industry is just short of 1 000 funds, which means we owe it to investors to simplify things.”

The introduction of the new fund classification structure will make it easier for investors and advisers to:

  • Understand and analyse the various fund types.
  • Pick appropriate funds.
  • Compare the performance of funds within and across categories.

Implementing the new classification

Campher says one of ASISA’s functions is to classify collective investment portfolios and monitor adherence to the Fund Classification Standard. Members who do not comply with the rules of the Standard fall foul of the ASISA Code of Conduct.

ASISA members have until the end of October to revise their current fund classification and fund names and to apply for reclassification where necessary.

Campher explains that since this does not involve a change to the investment policy of a fund, unit trust management companies are not required to ballot unit holders before a fund can be reclassified.

The new ASISA Fund Classification Standard for South African Collective Investment Portfolios takes effect on 1 January 2013.

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