What fund works for you?

Cape Town - One way to avoid any fall-out in certain market sectors is to spread investments across different asset classes and market sectors to reduce risk and to control volatility.

Watch:

 

By using different types of assets - equities, local and foreign; bonds; listed property; or other asset classes - the diversification of a portfolio can help protect value.

The balanced portfolio approach is becoming increasingly popular in South Africa, with large flows of new money into balanced or multi-asset unit trusts.  But how good are these unit trusts compared with using exchange-traded funds (ETFs) to do your own multi-asset portfolios?

The table below shows a portfolio construction of well-known ETFs in each asset class with the average annual returns for this portfolio measured over periods of three years and five years. This balanced investment return is compared with the average returns of the multi-asset unit trusts, using different classes of funds over the same period.

As can be seen, there is a significant performance premium to be gained from using low-cost ETFs to construct multi-asset portfolios. The ETF portfolio is also not constrained by the layers of costs occurred in multi-asset unit trusts, plus the scalability and other market related issues that affect the unit trust industry.  

Table:



* Mike Brown is the MD of etfSA.

etfSA : Mike Brown

etfSA.co.za is owned and managed by M F Brown, a registered Financial Services Provider (FSP License No 39217) and its managing director is Mike Brown who was one of the top economists in South Africa. Mike Brown also worked as Chief Economist of the Chamber of Mines in the 1970s and early 1980s. Mike spent some 20 years in stock broking as Head of Research and Director of some of South Africa’s largest stockbrokers. In the late 1990s, he helped establish Satrix, the first ETF Manager in South Africa and managed Satrix full time from 2003 to 2009, before leaving to establish etfSA. He is also a registered (non-practising) stockbroker and has over 35 years experience in South African financial markets and is one of the acknowledged experts on ETFs in South Africa.

Consider yourself a savings hero? Or just have something on your mind? Add your voice to our Savings Issue:


* Write a guest post
* Share a personal story
* Ask the experts

ZAR/USD
16.98
(-0.23)
ZAR/GBP
21.23
(-0.06)
ZAR/EUR
19.15
(-0.17)
ZAR/AUD
11.80
(-0.12)
ZAR/JPY
0.16
(-0.25)
Gold
1774.31
(+0.03)
Silver
18.02
(-0.04)
Platinum
808.00
(+0.25)
Brent Crude
42.78
(-0.79)
Palladium
1914.01
(+0.62)
All Share
54521.90
(-0.17)
Top 40
50179.89
(-0.26)
Financial 15
10150.02
(-0.64)
Industrial 25
76554.73
(+0.52)
Resource 10
50138.02
(-1.24)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
I'm not really directly affected
18% - 1609 votes
I am taking a hit, but should be able to recover in the next year
23% - 2116 votes
My finances have been devastated
35% - 3173 votes
It's still too early to know what the full effect will be
25% - 2296 votes
Vote