Saving for retirement and long-term saving will be more transparent from January next year as investors will know more about what they are putting their money into and where.
According to the new fund classification structure launched by the Association for Savings and Investment SA (Asisa), all funds will be classified according to geographic exposure and underlying assets from January next year. This will make a comparison of funds’ performances much easier for investors.
The geographic exposure of the fund will be classified according to four categories.
A South African fund, currently called a domestic fund, will be allowed a 25 percent maximum global exposure compared with the current 20 percent. The minimum exposure in South Africa has been reduced from 75 percent to 70 percent, while exposure in Africa will be retained at 5 percent.
A worldwide fund will have no restrictions on where it can allocate assets. These used to have a guideline of 15 percent minimum exposure in South Africa and 15 percent minimum foreign exposure.
A global fund, which is presently known as a foreign fund, will be able to invest a maximum of 20 percent in South Africa compared with the current 15 percent and will have a minimum of 80 percent global exposure or less in specific regions.
A new category is a regional fund, which can invest a minimum of 80 percent in any specific country or region in the world and a maximum of 20 percent in South Africa.
In terms of the Asisa Fund Classification Standard, names will have to describe each particular fund.
For instance, money market portfolios will have to have the words “money market” in the name, and portfolios will only use the word “institutional” if these are exclusively available to retirement funds, long-term insurers, investment managers or collective schemes.
Meanwhile, three fund categories will be discontinued. These include “fixed interest – varied specialist funds”, “asset allocation – targeted absolute and real return funds” and “asset allocation – prudential funds”.
But Regulation 28 compliant portfolios in prudential funds will be flagged irrespective of the categories.
Peter Blohm, a senior policy adviser at Asisa, said existing portfolios that had the names of the discontinued categories would be allowed to change without having to go through a ballot process.
“We are trying to make it as easy as possible. The only time that the Financial Services Board (FSB) will say now you need to ballot is if there are changes in investment policy – the limits – because those limits are really the contract between the investor and the fund managers.”
Blohm said Asisa saw the need to reclassify funds as fund managers started using the classification as something to differentiate one product from another, “as a marketing tool instead of a tool to reflect what one was investing in or where the assets were”. He added that Asisa wanted investors to know what they were buying.
It took Asisa three years to revise the old fund classification.
Chief executive Leon Campher said the new structure had been tested with the FSB and Asisa had engaged extensively with its members to ensure complete buy-in.