Getting to grips with unit trusts and Satrix

MUCH confusion exists about the difference between Satrix and a unit trust.

MUCH confusion exists about the difference between Satrix and a unit trust.

Many people regard the stock market as risky. To buy individual shares not only gives market risk, but also industry and corporate risk. If one invests directly in selective shares, for example Sasol, Telkom, Nedbank and MTN, in order for the investment to show good returns, you need to invest a considerable amount of money.

Managing one's own shares requires an in-depth understanding of financial terminology and considerable insight into the company you want to invest in. In addition, you need to understand what makes a share rise and fall. Sounds like too much hard work? That is where unit trusts and Satrix come into play.

A unit trust is part of a collective investment scheme in which investors pool money and invest in shares, bonds, property and money market instruments to get a spread of managed equities.

An investor can own part of a diversified professionally managed blue chip share portfolio by investing only a modest amount of money, once-off or monthly. Each fund is actively managed and success or failure is determined by the skill of the manager and market performance.

Satrix is what is known as an exchange-traded fund or an ETF. ETF's are investment products that track stock market sectors or commodities. The primary difference is that an ETF does not require a fund manager to actively run it and unit trusts do, which makes them more affordable and removes the risk of non performance by a manager.

Satrix securities are listed securities that replicate the dividend and price performance of a particular index. They provide the same returns as would be received had the investor directly purchased shares in each company in the relevant JSE index as well as the same weighting. Each Satrix fund has its own investment style and it is important that investors understand what companies they are exposed to (resources, commodities, financils and so on).

ETF's spread risk across a wide spread of blue-chip shares and track the performance of an entire market sector. The index chosen will have the exact weighting of that share relative to the index. For example, in the Satrix 40, seven of the top shares will make up 66 percent of the portfolio whereas in a unit trust, the manager may only have 10percent of the shares in his portfolio

The market risk is the same for unit trusts and EFT's and when compared to investing directly into a few chosen shares, So, if you have difficultly in deciding and are spoilt for choice about investing in unit trusts, Satrix or directly in the market, work out how and where it all fits into your financial puzzle and speak to a qualified financial adviser.

l The writer is a director of Bryan Hirsch Colley