Browsing by Author "Coetzee, Ruan"

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    Active management and the cost of active management of South African general equity unit trusts
    (Stellenbosch : Stellenbosch University, 2017-03) Coetzee, Ruan; De Villiers, Johann U.; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Business Management.
    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.