Rather than being showcases for asset management teams, unit trust portfolios are often being managed like sale racks, it emerged from research undertaken by Ginsburg Malan & Carsons, the consulting actuaries.
The research compared the general equity unit trust funds of 18 management companies with their pension funds over the one, three and five-year periods to the end of December 1996. The comparison was based on a lump sum investment at the beginning of the period but excludes costs.
The Ginsburg survey showed that the unit trust median, as calculated by the University of Pretoria Quarterly Survey, was 9,1 percent over one year, against 10,3 percent for the Consulting Actuaries Survey (CAS) total median. Over three years, the unit trust median was 13 percent against 14,9 percent for the CAS total median, and over five years unit trusts were 15,8 percent versus 16,9 percent. Over five years only two asset management teams did better in their unit trust than in their pension funds.
General equity unit trusts theoretically hold up to 95 percent in equities and five percent in cash, whereas a retirement fund is allowed to invest a maximum of 75 percent in equities and the rest in interest-bearing instruments. Historically, equities tend to outperform cash and gilts, so general equity funds should have done better than the retirement funds, except during 1996, when the stock market was weak.
Ginsburgs discovered that though cash and property did far worse than equities over these periods, the equity component of retirement funds outperformed general equity unit trusts.
Over the five years to December, the greatest divergence in performance of unit trust and retirement portfolios was shown by Sanlam. Its pension funds returned 18 percent against 11,4 percent for its unit trust. Next on the list was UAL, whose pension funds returned 16,2 percent and its unit trust 13,3 percent, followed by Syfrets, with 18,7 percent for pension funds and 15,9 percent for the unit trust.
Only three management companies reflected the traditional thinking that unit trusts do better than pension funds Metlife, BoE and Norwich.
Philip Croeser, director of Ginsburg Malan & Carsons Investment Services, says the findings of the investigation are surprising because it was generally believed that unit trusts were the "showcase" on which the performance of the asset management team was judged.
From the point of view of pension fund investors, however, the findings are quite positive since returns can be critical. Over the average person's working life, a lag of one percent a year in the performance of the retirement fund compared with another investment can mount up to a total underperformance of 20 percent or more.
Dries du Toit, executive director at Sanlam Asset Management responsible for portfolio management, says sector allocation and share selection in Sanlam's unit trusts in the past were not as good as they should have been. Until the second half of last year Sanlam employed a single fund manager to manage all its unit trusts with different investment mandates.
Since taking over responsibility for the unit trusts last year, Du Toit has appointed different managers with particular skills for each unit trust. Since August Sanlam's high income and gilt funds have been managed by a team that specialises in fixed interest instruments. In March three more specialist equity portfolio managers were appointed.
Du Toit says all funds and unit trusts are treated equally and there is definitely no policy of favouring retirement funds at the expense of unit trusts.
Charles Foster, senior portfolio manager at Metropolitan Life, says Metlife General Equity Fund was run more like a balanced fund than a general equity fund until about two and a half years ago. At that stage it was debated whether the fund should increase its equity holdings or move out of this category altogether, and it had chosen the first option.
A retirement fund and a general equity unit trust are difficult to compare, Foster says. When the stock market performs well the general equity fund will leave the pension fund standing. Metlife's pension fund has, however, followed a more conservative policy than is deemed suitable for the general equity fund. It holds fewer equities, which means it should be more resilient if the market turns downwards.
