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Unit trust investing 101: The magic tool for picking consistent winners

by , 05 March 2014

Not all unit trusts are created equally. In fact, studies show as many as 66% don't even beat the market every year. That means you need to be selective when picking the best unit trusts to invest in. Today, we teach you a great secret that can help…
 
The secret to picking the best unit trusts to invest in
 
The experts behind The South African Investor have a technique they find works very well for picking the best unit trust to invest in.
 
They call it the MC2 methodology.
 
It encompasses three most important considerations when investing in unit trusts:
Momentum, consistency and cost.
 
Here’s how it works.
 
Use MC2 to separate good unit trusts from bad ones
 
First, consider momentum over one, three, and even five years.
 
By momentum, we mean a steady and consistent performance when compared to the average of all the funds in a particular category.
 
For example, if you’re investing in a local unit trust, the fund must at least outperform the average of the FTSE/JSE All Share Index over three years and beyond.
 
Once you’ve narrowed these funds down, move to the next criteria.
 
Look at the unit trusts your list and look at which shows short-term consistency. Which unit trust beats the overall index for the 12 month period under review?
 
This should narrow your unit trust list all the way down.
 
Finally, consider cost of investing in the unit trust. To do that, look at the fund’s total expense ratios (TERs). These cover all the annual expenses in a fund except for trading costs. The ratios include the annual fees and performance fees. Fund companies add these costs up and represent them as a percentage of the assets under management of a particular fund. This is important because there’s no point in investing in a unit trust with slightly above average returns but very high expenses.
 
So there you have it. If you’re looking for the best unit trust to invest in, use the MC2 strategy to pick the best one for your needs.


Unit trust investing 101: The magic tool for picking consistent winners
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