The Association for Savings and Investment South Africa (Asisa) has introduced new categories for unit trusts, enhancing the ability for investors to compare the performances and risk profiles of South Africa's 1,852 local collective investment scheme (CIS) portfolios. This update to the Fund Classification Standard took effect on October 1, 2024.
Sunette Mulder, a senior policy advisor at Asisa, explained that the review of the Standard was prompted by the South African Reserve Bank's (SARB) 2022 increase in offshore investment limits to 45%. Previously, the Standard restricted offshore exposure for South African CIS portfolios to 40%—30% outside South Africa and an additional 10% in Africa (excluding South Africa).
"The previous version of the Standard had been in force since January 2013. Since the Standard had to be amended, we used the opportunity to do a full review to ensure that it continues to meet its key objective, which is to provide investors with a classification system that enables meaningful comparison of performance and potential risks when investing in a particular type of CIS portfolio," Mulder says.
The updated Standard features a three-tier classification system for CIS portfolios based on their investable universe. The first tier classifies portfolios according to their primary geographical exposure, while the second tier categorizes funds by underlying asset classes (equities, multi-asset, interest-bearing, and real estate). The third tier reflects the primary focus within the investment universe, such as Equity—General or Multi-Asset—High Equity.
Key changes in classification
According to Mulder, the main alteration in the first-tier geographic classification redefined South African portfolios as those that invest at least 55% of their assets in South African investment markets, aligning with the new offshore limit. Additionally, the differentiation between offshore and rest-of-Africa exposure has been eliminated, allowing the remaining 45% to be invested anywhere outside South Africa.
"We also removed the Regional Portfolio category since very few portfolios used this classification. These portfolios have moved into the Global Portfolio category," she says.
While no changes were made to the second-tier category, which continues to include the four asset classes, the updates to the third-tier category will likely interest investors the most.
Equity Portfolios
In the Equity Portfolios category, a new classification called the SA Equity – SA General category has been introduced for CIS portfolios that invest exclusively in local shares.
Mulder says the differing return profiles of portfolios invested in local versus foreign markets, often impacted by currency fluctuations, created a situation where grouped funds could no longer be compared meaningfully. Consequently, about 60 portfolios transitioned from the SA Equity – General category to the newly established SA Equity – SA General category when the revised Standard took effect.
A new Equity – Africa category was also created under the first-tier Global Portfolio category.
Multi Asset Portfolios
Corresponding to changes in the Equity – General category, a new Multi Asset – SA High Equity category has been added to the Multi Asset Portfolios category. This category encompasses portfolios that invest entirely within South Africa's equity, bond, money, or property markets.
Interest bearing portfolios
In the Interest Bearing category, the money market classification has been renamed Interest Bearing – SA Money Market, and two new classifications have been introduced:
Interest Bearing – Variable Term Inflation Linked Bonds: Portfolios in this category invest at least 80% of their market value in Inflation Linked Bonds (ILB).
Interest Bearing – Unclassified (Global Portfolios only): This category comprises portfolios that invest in a variety of bonds, fixed deposits, and other interest-bearing securities, which cannot be directly compared due to their unique investment objectives.
Matching portfolios to categories
To assist investors in navigating these new classifications, the Asisa Fund Classification Tool on SmartAboutMoney—a consumer education initiative backed by Asisa—enables investors to match their portfolios to the relevant categories. Mulder emphasized that the tool also provides a comprehensive overview of each category, aiding in informed investment decisions.
This revision of the Fund Classification Standard represents a significant step forward in making it easier for investors to assess their options within South Africa’s collective investment landscape.
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