Unit trusts insights

By: Andriette Theron, Head of Research at PPS Investments

What factors should be considered when including unit trusts in an investment strategy in 2024?

The most important factor is the blend of unit trusts. The quality of a multi-managed solution depends on the quality of its components, which are the underlying managers. It is important that the mix of unit trusts offers sufficient diversification from an investment approach and style perspective. This will ensure the solution harnesses different drivers of returns and protects against different types of risk. Secondly, financial markets currently provide a much broader opportunity set, within asset classes and with viable asset class options outside of equities, which will give managers a competitive advantage.

What is driving the popularity of multi-asset funds amid global economic volatility?

The main benefit of a multi-asset portfolio is its broader investable universe, which allows for enhanced diversification benefits. A further benefit is the ability to adjust the risk exposure depending on market conditions, by altering the mix of growth assets compared to income-generating assets. Depending on what the objective of the solution is, we find that combining specialist managers (where we drive the asset allocation decision) and multi-asset managers (who follow their own asset allocation approach) leads to a robust multi-asset solution.

What factors are driving the rise in AUM in unit trusts?

Ease and comfort – knowing you have a team of investment professionals focused on identifying and blending securities, asset classes, and/or manager strategies. Unit trusts ultimately provide investors with easy access to financial markets in a well-diversified solution. In a multi-managed unit trust, there is no need for the investor to change the underlying manager exposures as market conditions change, as the solution is specifically designed to mitigate manager style risk.

If investors invest across a basket of unit trusts, how should they select products to mitigate concentration risk?

We typically define concentration risk as the risk of being overly exposed to a single view, whether that is driven from the bottom up on an instrument level, or from the top down on positioning the fund for binary macro-outcomes. Harnessing specialist manager skills and blending managers with different but complementary investment approaches reduce undue risk and deliver a strong relative performance.

For example, our inflation-targeting funds are made up of two equal components. One half of the fund uses specialist managers to express our asset allocation view in achieving the inflation objective where the underlying managers are mandated to outperform their respective asset class indices. The other half of the fund uses a combination of multi-asset managers who make independent asset allocation decisions.

How can local investors increase their offshore investment exposure via unit trusts?

They can gain direct offshore exposure by investing in global portfolios that either invest across global asset classes (The PPS Global Balanced Fund) or invest in a portfolio that provides access to a specific asset class (The PPS Global Equity Fund). Investors can also add to their offshore exposure by investing in local multi-asset funds, where the underlying manager has the discretion to adjust the fund’s overall offshore exposure and mix of exposure to global asset classes as they see fit, depending on the market environment.

Disclaimer: The information, opinions and any communication from PPS Investments Group, whether written, oral or implied are expressed in good faith and not intended as investment advice, neither does it constitute an offer or solicitation in any manner. Furthermore, all information provided is of a general nature with no regard to the specific investment objectives, financial situation or particular needs of any person. It is recommended that investors first obtain appropriate legal, tax, investment or other professional advice prior to acting upon such information.