COMMENT by Allan Duff
THE DISCUSSION below is excellent. However, it need not stop here. I feel the awards given out to the fund managers and fund management companies are as guilty of time spacing as the advertising mentioned below. How often we see TV or news paper advertisments that would have us believing a particular fund or fund management company has beaten its’ rivals, head and shoulders over any competition. If we look a little further we find these same funds have underperformed year after year and have come to the fore just this once. A shot in the dark? One swallow does not a summer make. We cannot fault the advertising’s literal message for it states the truth but the overall tone is a lie.
Like Boxing weight divisions there are so many investement fund categories & classes today, it is almost difficlut to miss being the top or best at some division.
We should be careful not to be misled and take careful looks before we act. The perpetual message today is, use a qulaified and registered independent financial adviser.
Published in Moneyweb
Contemplating Wealth
Stuart Kantor|
25 October 2010
Unit trusts can outperform ETFs if you choose the right one.
Although boring and over done, I will attempt to shed some light on the choice between investing in exchange traded funds (ETFs) or an actively managed unit trust.
I am doing so, because in my experience, investors continue to be led astray by clever marketing and fancy presentations.
For the sake of simplicity I have used Satrix 40 (ETF) and Investec Value (unit trust).
ETFs are being marketed aggressively at present and some very thoughtless facts are being strung together to prove a point similar to the way an extremist will hand pick biblical lines which are horribly out of context to prove a point.
The table below offers three time periods for performance comparison. All returns are net of fees.
| Investment Period | Satrix 40 | Investec Value |
| June 2003 to June 2008 | Positive Return 245% | Positive Return 161% |
| June 2008 to October 2010 | Negative Return 5% | Positive Return 46.5% |
| October 2000 – October 2010 | Positive Return 227% | Positive Return 283% |
Source: Profile Data
Through both boom and busts Investec Value (after fees) comes out tops, but through one kind of market cycle (bull market) Satrix 40 wins the prize.
Bearing the above returns in mind and how much the media and others are praising ETFs many virtues, please consider the following table below.
| Attributes | ETFs | Actively Managed Unit Trust |
| Performance | Tracks an Index otherwise known as a basket or average | Attempts to outperform a benchmark which may or may not be similar to the ETFs |
| Risk | No regard to maximise return per unit of risk | Regard can be given to maximise return per unit of risk. |
| Asset Allocation | No active involvement. Hence, for example, when resources are out of favour, hold your breath. | Actively managed. Due consideration is given. |
| Fees – Absolute | Lower than active unit trust | Higher Than ETF |
| Fees – Relative | In line with average performance | Low fees when outperformance is achieved over a long-time period |
ETFs do have a place in a portfolio and that will only be in a raging bull market where sentiment is the order of the day and every stock rises with the tide
In conclusion, don’t be in a hurry to accept average returns. A little bit of homework can reap superior returns, and don’t avoid great advisers as a cost saving exercise as you are only forgoing returns for short-term satisfaction.
*Stuart Kantor (BBuSc Finance Hons and CFP) is an independent financial adviser.
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