The Major Asset Classes

Investments are generally divided into five asset classes: cash, equities, bonds, property and exotics. The last category includes art, jewellery, stamps etc. However, unit trusts and other collective instruments do not invest in exotics and restrict investment in property to indirect investments, through property unit trusts, for example. This section will therefore focus on the remaining three asset classes, cash, bonds and equities.

Cash (Low risk)
The most liquid, risk free cash investment offered by the unit trust fund vehicle is through money market funds.
Money markets are named after the wholesale markets where banks lend and borrow large sums of money. Money market fund managers specialise in placing client's funds on the best terms possible with institutions that wish to borrow money for short periods. Because of this access to the wholesale market, money market funds usually offer a yield (a percentage return on your investment) higher than that offered by the retail banks.

Money market funds are restricted in investing in interest bearing investments with an average maturity of 90days. Depending on the investment policies of a particular fund, the portfolio manager may invest in either short term debt instruments of government, or short-term loans to companies (commercial paper) and negotiable certificates of deposit (NCDs) at banks.

Bonds (Medium risk)
A bond is a type of loan - an IOU written or issued by a private company, government or semi government institution. Investors lend money to the issuer who promises to pay back the money with interest as specified.

The advantage of buying bonds through unit trusts is that investments can be monitored and managed by professional fund managers, who can combine and vary maturity dates to best effect. On the whole, South African investors are wary of bonds as an asset class. This could partly be due to the bad name the "prescribed assets" policy gave to bonds. This policy obliged retirement funds to invest a portion of their assets in government debt. This policy was scrapped in 1989. However, South African bonds are very popular with offshore investors. The Bond Exchange of South Africa has experienced dramatic turnover in the last six years. Turnover in one day sometimes exceeds the annual turnover in 1989.



Equity (Higher risk)
Equity investments give investors part ownership in companies listed on the JSE. Stock market history shows that in the long term, share investments offer the best performance.