Tallying the damage done to SA unit trusts by ABIL

Detailing the funds with the biggest losses last week

David O'Leary 11 August, 2014 | 12:09AM

***This article will be updated on an ongoing basis to reflect any public statements made by fund companies to Morningstar about their Abil exposures. See bottom of the article for these ongoing updates. 

The highly publicized troubles of African Bank Investments (Abil) have sent the asset management industry buzzing with activity. As shares of Abil have plunged investors, advisors, and media have demanded to know how much exposure their unit trusts have to the beleaguered lender. Meanwhile fund companies have scrambled to calculate their exposures and carefully craft their public responses.

Sadly disclosure in the South African unit trust industry lags far behind that of larger markets like the US and Europe. Fund holdings are disclosed less often and with longer delays than in many other markets around the world. This makes it difficult for investors to get a timely and accurate sense of their risk exposures. And it makes it harder to evaluate the investment decisions of portfolio managers through time.

Unfortunately, this means we're forced to guess. One way to look at the problem is to focus on fund returns rather than fund holdings (which we don't have) to see whether a fund might have had exposure to Abil. A fund that performed particularly poorly over the three-trading days (Aug 6th through 8th) when Abil lost 95% of its value could have had significant exposure to the stock. Given that the share price has lost nearly 100% of its value, calculating the damage done to a unit trust portfolio by exposure to Abil is relatively easy. All else equal, a fund with 1% exposure to Abil would have experienced just shy of a 1% loss on the entire fund.

Below is a list of funds with losses more than 2% (column two) for the three day period from Wednesday August 6th through Friday August 8th where Abil lost 95% of its value. The third column shows a back of the envelope estimate of the fund’s potential exposure to Abil during the three day trading period. This estimate assumes the fund’s exposure is entirely to Abil common equity and that the rest of the fund’s positions were, in aggregate, flat over these three trading days.

It's also worth keeping in mind that these funds may not have any Abil exposure. But the worse the fund's return was for this three day period, the harder it is to explain the fund's performance without it having any exposure to Abil. 

Also included below is an illustration of the impact the Abil loss has had on the fund’s 3 year annualized return: Column four shows the fund’s 3 year annualized return the day before Abil began its descent while column five shows the fund’s 3 year annualized return three days later (as of market close August 8th).

Name Return (2014-08-06 to 2014-08-08) Potential  Exposure to ABIL 3 Year Ann Return (as of Aug 5, 2014) 3 Year Ann Return (as of Aug 8, 2014)
Momentum Value A -9.8% 10.3% 8.2% 5.3%
Momentum Small/Mid-Cap A -9.2% 9.7% 16.3% 13.0%
STANLIB Financials A -7.2% 7.5% 22.3% 19.7%
STANLIB Value A -6.9% 7.3% 18.5% 16.4%
Element Flexible A -5.9% 6.2% 13.9% 12.0%
STANLIB Small Cap A -5.7% 6.0% 16.7% 14.7%
Element Balanced A -5.7% 6.0% 13.7% 11.8%
Momentum Flexible A -4.8% 5.1% 10.8% 9.3%
Element Specialist lncome A -4.7% 5.0% 0.0% 0.0%
Element Real Income A -4.5% 4.7% 13.7% 12.1%
Third Circle MET Targeted Return -4.1% 4.3% 0.0% 0.0%
Nedgroup Inv Financials R -3.9% 4.1% 30.4% 29.0%
Element Earth Equity A -3.4% 3.6% 10.7% 9.8%
Personal Trust SA Equity -3.3% 3.5% 13.3% 12.3%
SIM Financial A -3.2% 3.4% 26.9% 25.7%
NGI Private Wealth Small & Mid Cap Eq -3.1% 3.3% 22.6% 21.9%
STANLIB Growth R -3.1% 3.2% 21.7% 21.2%
Coronation Financial A -3.0% 3.1% 30.5% 29.7%
Laurium Flexible Prescient A1 -2.9% 3.1% 0.0% 0.0%
Cadiz Mastermind A -2.9% 3.1% 18.5% 18.2%
SIM Small Cap R -2.8% 3.0% 17.2% 16.6%
NGI Private Wealth Preference Share -2.7% 2.8% 7.9% 7.0%
Grindrod Diversified Preference Share -2.7% 2.8% 6.0% 5.2%
Anchor BCI Aggressive Flexible A -2.5% 2.6% 0.0% 0.0%
STANLIB Inflation Plus 5% A -2.5% 2.6% 11.0% 10.1%
SMM Institutional General Equity 2 B10 -2.4% 2.5% 20.6% 20.2%
Old Mutual Financial Servs R -2.4% 2.5% 26.0% 25.3%
SIM Value R -2.3% 2.4% 21.9% 21.4%
Momentum Financials A -2.3% 2.4% 28.4% 27.6%
STANLIB Mod Aggressive FoF A -2.3% 2.4% 17.9% 17.6%
Analytics ACi Managed Equity A -2.2% 2.4% 21.6% 21.5%
SMMI Prudential Balanced Two A1 -2.2% 2.4% 0.0% 0.0%
Warwick MET Managed -2.2% 2.3% 18.1% 17.8%
BCI Select Equity C -2.2% 2.3% 0.0% 0.0%
Lion of Africa MET Equity -2.2% 2.3% 18.3% 18.3%
Cadiz Inflation Plus -2.1% 2.2% 13.3% 13.0%
Aylett Equity Prescient A1 -2.1% 2.2% 22.5% 21.9%
IP Equity -2.1% 2.2% 17.3% 16.9%
Coronation Top 20 A -2.0% 2.1% 26.4% 26.4%
Grindrod Equity Income Growth -2.0% 2.1% 0.0% 0.0%

Disclosures to Morningstar:

Some firms have been in touch with Morningstar to discuss the subject of Abil. We've asked fund companies about their funds' exposure to Abil common or preferred equity. First we asked whether they currently have any exposure and second we asked whether they had exposure on the three trading days (Aug 6 - Aug 8, 2014). 

2014-08-11: Investec Growth removed from the list. Investec has confirmed both statements. Though the firm does have some exposure to Abil debt across some of its fixed income and multi-asset funds.

2014-08-11: BlueAlpha MET All Seasons removed from the list. BlueAlpha has confirmed both statements. 

2014-08-12: Coronation has announced a full list of its exposure to Abil equity. Coronation does note that only its more aggressive offerings owned the stock. The firm had no exposure to Abil debt. Click here for the firm's annoucement and complete list of funds with Abil exposure. 


About Author David O'Leary

David O'Leary  is Director of Fund Research for Morningstar South Africa