Some contributions to the analysis and construction of funds in South Africa

Master Thesis


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University of Cape Town

Following international trends, the South African unit trust industry has become one of the fastest growing forms of investment in our financial market. Since the first fund was established in 1965, the industry has grown to over 100 funds with more than 20 companies managing these funds. Since 1990 there has been particularly rapid growth in 'Specialist Equity Funds' with more than 30 new 'specialist' unit trusts emerging. Specialist equity fund managers usually concentrate their investments on a particular sector of the economy or alternately aim to satisfy specific characteristic investment objectives. Two classes of specialist equity funds, namely Index funds and International funds, have emerged recently in our unit trust industry and are receiving increasing attention from the investment community. Much attention therefore is given to these funds in this thesis. The growing importance of the unit trust industry has heightened the need to effectively and accurately measure the performance of managed funds. A wealth of literature exists in this field and a number of models have been developed to measure the performance of managed funds and the fund managers themselves. This thesis reviews and demonstrates the implementation of these various measures with the emphasis on providing a practical interpretation of each measure. Although the recent development of Index funds and International funds has received considerable attention in the financial media, little attention has been paid to the technical aspects of the construction of these funds in the academic literature. To the authors knowledge there has been no published research on the construction of Index funds or International funds in South Africa. This thesis examines approaches to constructing Index funds and International funds and empirically assesses these approaches on the Johannesburg Stock Exchange (JSE).

Bibliography: pages 144-152.