Unit Trusts are one of the few viable short term investment alternatives in Zimbabwe. We have covered Old Mutual unit trusts that are offered through Ctrade. The Grow Wealth 2020 Unit Trusts survey has given us some insight into more Unit Trusts available in Zimbabwe. We’ve taken advantage of the survey and it’s findings to also give some comparative data for unit trusts versus the ZSE.
The survey looked at the performance of various unit trust funds, 25 to be exact, since inception, first quarter 2020, 2nd quarter 2020 and 2020 YTD. The report was published end of October and so the figures are up to date at the time of writing. These 25 active funds are managed by 9 fund managers including names such as Old Mutual, Fidelity and Zimnat. The survey sought to investigate the lack of growth in the unit trust space that has lagged behind money supply growth. The report aims to improve the visibility and appeal of unit trusts to the public. Going forward we should expect to see this report every month.
The report also reminds us of some of the advantages of unit trusts as listed below;
Access to specialist skills – The provider of the unit trusts products are licensed investment management firms with qualified and experienced fund managers and investment analysts who analyse the capital markets daily and advise on the selection of the best investment assets for the fund.
Divisibility and affordability – Unit trusts are broken down into smaller units to enable small investors’ access and ability to invest. As such the minimum investment thresholds for unit trusts are set lower to enable ordinary investors’ access.
Diversification – By pooling funds from many different small investors and in turn purchasing various investment assets, unit trusts provide instant diversification to an ordinary investor which he or she would otherwise not achieve on his/her own. Diversification is important for risk management to avoid “putting all your eggs in one basket”.
Flexibility – Unit trusts provide a flexible way of accessing financial markets for ordinary investors. They make it easier to exit as one can redeem their investments faster, unlike direct investments where it can take longer to find a buyer for the asset and for settlement to take place. The advent of mobile money and Apps has also made it easier for unit trust products to be offered and payments are done expeditiously.
How good are they doing in 2020?
The survey gave us indicative performance data for unit trusts over various periods but I thought it best to keep our focus squarely on 2020 so we will look at the year to date (YTD) performance. One caveat to note is that whilst the report is as at end October 2020 the inflation data used is for September 2020 as our inflation is published 15 days in arrears. For the sake of consistency with the report, we will also use the same inflation figure. We captured data for 12 of the funds and excluded fixed-income funds that focused on bonds and other interest income because they have consistently underperformed inflation. So we have 21 funds and we organised them in the simple to understand bar graph below.
10/21 outperformed inflation
10 out of the 21 funds outperformed inflation at the time. That’s encouraging for the fund managers. Inflation (black bar) is a useful benchmark for investment return. So if you had picked a unit trust fund at random from these 21 your chances were just about 50/50 of winning or at least beating inflation.
4/21 outperformed ZSE
When we look at short term investment alternatives the hot topic in 2020 has to be the ZSE. The ZSE has brought stellar returns but has also been shut down and had fungibility of shares listed on other exchanges cancelled. To make this more interesting many of these unit trusts are invested on the ZSE so it’s only right to enquire if the fund managers are doing better than the ZSE exchange average (Index). Using end October data for the ZSE only 4 of our 21 funds outperformed the ZSE average. That’s perhaps not so good.
None outperformed ZSE best
However, we must be cognisant that comparing unit trusts to the exchange is more academic than practical as we do not have index funds or a simple method of investing in the entire exchange. So let’s compare these unit trust funds to some individual counters on the ZSE as of 30 October. None of these unit trusts came close to touching CBZ’s mammoth 5631.29% return YTD. In fact, if we included these unit trusts on the ZSE the best performer would only rank 19th on the list!
The report comes at a time when we have bemoaned the lack of short term investment alternatives in Zimbabwe. If it continues with the regularity they have promised we can expect to see the Unit Trusts space in a clearer light. While they currently lag behind options like the ZSE which access has also been made easier to by Ctrade, we can only hope that Ctrade will onboard more of these unit trust on their platform.