Page 33 - Waterfall City Issue 8 August 2025

diversification across different fund management styles. A
fund of funds manager can change the relative holdings in the
underlying unit trust funds over time in the same way as the
single manager can. As a quick guide, the following main
questions should be considered:
Feeder funds 1. Your investment goals – would you like to preserve
Feeder funds are typically South African investment funds that funds and avoid fluctuations, or do you put more
invest primarily into a single ‘master fund’. In the South African value in higher growth or income potential?
context, the master fund will often be an offshore ‘parent fund’, 2. How much time do you have available to achieve
giving local investors cost-effective access to international your goal? This is often referred to as the investor’s
markets while investing in rands. A feeder fund instrument time horizon.
offers investors the opportunity to tap into broader market 3. How much risk can you withstand, and how much
opportunities, providing additional diversification benefits, tolerance do you have for market fluctuations?
which aids in managing risk. The answers to the three questions above will
determine your need for diversification, which is a
Personal Share Portfolios further guiding factor.
A Personal Share Portfolio (PSP) is a customised portfolio of 4. What are the fees? It is important to note that
directly-owned shares, which are managed specifically for an different fee structures apply to the various
individual investor, rather than pooled funds like unit trusts. investment instruments. Some fees depend
Clients can set up these instruments with the help of suitably on the value of assets, others on the volume of
qualified and registered advisers. transactions, and others on the number of parties
involved in the investment process. Various tools,
Model portfolios including Effective Annual Cost (EAC) statements
A model portfolio is a constructed blend of investments are available to help investors get a full and
determined by a professional fund manager. Such portfolios transparent view of the fees involved. Ultimately,
typically include collective investment schemes and pooled these fees impact the net returns achieved.
funds and are designed to match a specific investment 5. What are the tax implications? Taxes may differ
approach or benchmark. They are similar to funds of funds in depending on the investment instruments you
some ways, but they are designed around a specific view of a select. A tax practitioner can provide you with more
financial adviser in support of their client’s needs and risk profile information in this regard.
– a more tailored approach.
Investors need to be aware of
Factors to consider when selecting an restrictions applicable to investment
investment instrument instruments:
To select the right instrument, it is important to understand the • There are regulatory limits on asset classes within
different ways in which they are constructed. The first factor certain products. For example, if a fund of funds
to consider is your investment goal – what are you trying to instrument is designed for retirement investments,
achieve? Answering this question will guide you in terms of Regulation 28 limits will apply. Regulation 28 is the
your need for diversification, the level of risk you can take, the section of the Pension Funds Act that limits the
fees you can afford and the time horizon you have available to level of investment in specific asset classes within a
achieve your goal. retirement fund.
• Some instruments will require a minimum
Secondly, consider how much you want to be involved in the investment level. This will typically be higher for
various decision-making processes. Often referred to as active PSPs.
and passive management in the context of a specific fund, • Liquidity constraints could result in instruments
this concept could also be applied in the choice of the type of having lock-in periods.
instrument. Considering the definitions provided above, it is clear • Access limitations. For example, certain more
that the various investment instruments have varying levels of sophisticated instruments may carry higher costs
involvement in making decisions about market selection and the and only be viable investment options for high-net-
combinations of investments needed to gain diversification. worth individuals or qualified investors.

The financial industry is tasked with the process of ‘Know Your Take the first steps
Client’, but it is just as important for clients to know themselves. Choosing the correct investment vehicle can seem
Seeking guidance from a trusted adviser and someone with daunting at first. Start with the basics, and soon you
suitable expertise and experience is key to selecting the right will find yourself confidently progressing on your
investment instruments that form the basis for your selected investment journey, with the help of a financial
product. adviser.

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