Although investors have reason to continue feeling positive about their unit trust investments, a healthy degree of caution is now a good idea, according to Dr Prieur du Plessis of Plexus Research & Surveys. “Ensuring that investment portfolios remain structured around sound principles is now more important than ever. And a reminder not to chase the winners may just help to avoid disappointment later on.”

Investors who feel uncertain about where to place their money in this environment can look to the Plexus Survey for assistance. The survey rates the performance of unit trust management companies over various periods and helps to separate the winners from the losers.

Du Plessis says the top performers in the survey are the companies that investors can look to as examples of how commitment to an investment mandate through all types of market conditions can deliver results. In other words, these are the managers who stayed the distance.

Every qualifying unit trust in the Plexus Survey (i.e. those with long enough track records) is ranked in one of five quintiles over one, three and five years. Those management companies that can boast the most consistently well-performing unit trusts over all periods emerge as the winners.

Coronation took the honours as overall winner for the measurement periods ended 31 December 2004, thereby earning the coveted annual Plexus Award for Unit Trust Management Companies for 2004. Arch-enemy Investec had to contend with the runner-up position, with Old Mutual in third place.

Metropolitan, on the other hand, was last in the overall rankings.

It is interesting to note that Nedbank’s improvement is a distinguishing feature of this quarter’s survey. The management company moved from eighth to fourth position in the overall rankings, which not only represents the greatest overall improvement, but the company also made great progress over the five- and three-year periods. Nedbank improved by four positions over five years and by three positions over three years.

Futuregrowth deteriorated the most overall and dropped by two positions from seventh to ninth place. Futuregrowth is also one of the management companies that showed the greatest deterioration in each of the separate measurement periods.

Five-year period
The winner over five years was Coronation, while Nedbank showed the greatest improvement - up from ninth place to fifth.

The greatest deterioration over this period was that of Sage, which dropped from sixth to eighth place, and Futuregrowth, which also dropped by two positions from seventh to ninth place.

Three-year period
Investec made its presence felt by replacing Coronation as the winner over the three-year period.

Sanlam improved the most and moved up from twelfth to seventh position. The Sanlam Bond Fund improved by three quintiles and the Sanlam Income Fund by two quintiles. Four other Sanlam funds each improved by one quintile.

Nedbank and Sage each improved by three positions over the period. Nedbank moved up from seventh to fourth position and Sage from eleventh to eighth position.

The greatest deterioration over three years was that of STANLIB, which dropped from ninth to twelfth position. STANLIB’s performance was negatively influenced mainly by the inclusion of five multi-manager funds in the three-year period - three of the funds were placed in the fifth quintile and two in the fourth quintile.

Futuregrowth funds also dropped by three positions from sixth to ninth place.

One-year period
Old Mutual was the winner over this period, ousting Coronation. Sixteen of Old Mutual’s twenty-one funds were placed in the first quintiles.

Prudential was the runner-up over one year, with four of its seven funds in the first two quintiles.

Substantial shake-ups in the one-year rankings still indicate tough competition between participating management companies. Significant changes included the following:

• PSG improved by four positions from thirteenth to ninth position, helped along by the PSG International Fund that improved by two quintiles.
• Old Mutual improved by three positions, with the Old Mutual SA Quoted Property Fund improving by four quintiles and the Old Mutual Four Plus Growth Fund of Funds by two quintiles.
• Oasis, Futuregrowth and Investec showed the greatest decline over one year, as each deteriorated by five positions. Losing funds included the Oasis Bond Fund that dropped by two quintiles, the Futuregrowth Income Fund that dropped by three positions, and the Investec Emerging Companies Fund and Investec Growth Fund that each dropped by three quintiles.
• As in the previous quarter, Metropolitan still occupies the last position over one year.

Du Plessis says the consistent performance of management companies in good as well as poor market conditions offers a valuable lesson to unit trust investors: sticking to investment mandates, having clear goals and not chasing short-term winners underpin success.

“As good returns and high inflows into unit trusts abound, investors who are now keen to enter the unit trust market should be reminded that they will chase short-term success at their peril. After all, unit trust investment is about sticking to a plan, diversifying well, maintaining a long-term focus and having realistic expectations.

“The long-term nature of unit trust investment cannot be over-emphasised. With it comes a demand for patience and realistic expectations.”

See also which unit trusts gave the most consistent performances.

Research method

• The Plexus Survey ranks each unit trust on a scale of 1 to 5 depending on its performance in its sector. Rank points are added and then divided by the number of trusts under management to provide an average performance rank for the management company. The lower the score, the better the management company’s overall performance. The performances of the management companies were considered over three measurement periods ended 31 December 2004, i.e. one, three and five years.
• Within a specific sector, all the unit trusts were placed in quintiles (i.e. fifths) on the basis of returns, as extracted from the Unit Trusts Survey of Prof Hugo Lambrechts of the University of Pretoria. A rank ranging from 1 to 5 was therefore allocated to each unit trust. (Where only four trusts occurred in a sector for a specific measurement period, they were placed in the first four quintiles.) The research method ensures that trusts under evaluation are exposed to similar risks. For example, the sectors for regional funds, varied specialist funds and targeted and absolute return funds comprise unit trusts of a diverse risk nature and were therefore excluded from the survey.
• Only unit trust sectors comprising four or more unit trusts were included.
• Index funds were omitted from the evaluation as the performance of these funds should be measured on the basis of tracking errors of returns and not in terms of absolute performance.
• Management companies were considered for a specific measurement period only if they had at least five unit trusts under management for that period.
• Unit trust managers who have third-party (or “white-labelled”) arrangements are treated as separate entities from the “host” management companies.
• The average rank per management company was calculated for each measurement period. The winner for each period was the company with the lowest average rank.
• An overall ranking was calculated, which combined the ranks for each of the three measurement periods into a single overall rank point. Weightings were applied to the different measurement periods as follows: 0,5 for five years; 0,3 for three years; and 0,2 for one year.