South Africa’s most expensive unit trusts

Excluding money market funds, the median expense ratio for South African unit trusts is 1.44%. The mean fund, according to data from Morningstar, charges 1.43%.

Of the 1,214 funds in this universe, 248 show an expense ratio of less than 100 basis points. At the other end of the scale, 158 funds carry expense ratios of greater than 200 basis points.

According to the latest Morningstar Global Investor Experience report, this makes unit trust fees in South Africa ‘average’ by global standards. They are certainly lower than Taiwan, for instance, where the average equity fund charges 2.05%. But they are noticeably higher than Australia, where investors can access the average equity fund for 1.23%.

There are 14 unit trusts in South Africa charging more than double the average fee. They are listed in the table below.

Half of them are smaller than R50m, and five do not have even R20m in assets under management. This lack of scale will have an impact, although it should be noted that there are some equally small funds with below average expense ratios.It is noticeable that these are all relatively small funds. The 36ONE BCI Equity fund is the largest, at R2.1bn.

Looking at the performance of these funds to the end of October, four of them show negative returns for every period up to five years. The highest annualised five-year return of any fund in this group is 6.2%.

Under the microscope

As the largest fund in this list, the 36ONE BCI Equity fund will draw particular interest. It also stands out for the fact that it is the top-performing local equity fund over the past year, and in the top three in its category for every period up to five years.

Its above average expense ratio is entirely due to the performance fee earned over the last year and a half. The annual management fee on the fund is 1.15%, but it charges 20.0% of any out-performance of its benchmark over a rolling one year period, capped at 2.0%.

Two years ago, when the fund was only marginally out-performing its benchmark, its total expense ratio was 1.46% – in-line with the local average. Substantial out-performance over the past 18 months has, however, driven its performance fee to its limit.

The second largest fund on the list – the Warwick BCI International fund of funds – does not charge a performance fee. And according to its latest available fact sheet (to the end of September), its total expense ratio is even higher than the figure recorded by Morningstar. It sits at 4.46%.

Its annual management fee, however, is only 1.15%.

It is also noticeable that all four of the portfolios managed by CS Asset Management make it onto this list. For all of them, the annual management fee is 1.90%.

These funds are ‘all-in’ classes, with advisor and platform fees included in the expense ratio. The C classes of these funds, which exclude advisor and platform fees, all have expense ratios of between 2.0% and 2.2%.

Patrick Cairns is South Africa Editor at Citywire, which provides insight and information for professional investors globally.

This article was first published on Citywire South Africa here, and republished with permission.